Sterling/Euro exchange rate forecast July 2012

Friday 29th June 2012
Good morning. Sterling/Euro exchange rates have had a very strong week indeed, remaining supported around the €1.25 level. This is despite further poor data about the UK economy. The reason rates are good is because of the weakness in the Euro. Against other currencies Sterling has fallen this week. I think there is a very high chance that we will see more Quantitative Easing next week, and so I personally think these levels will not last for long. In today’s post I will look at what is weakening the Euro, and why Pound/Euro rates may fall back in July.

UK economic figures disappoint, but Sterling remains strong

We have had some further disappointing figures from the UK this week. Firstly the latest mortgage approval numbers were much worse than expected, pushing Sterling lower against currencies other than the Euro.

Yesterday the latest GDP figures were released, showing that the UK economy shrank by 0.4% in the final three months of 2011, compared with previous estimates of a fall of 0.3%. This confirms that the UK is still in recession, and a deeper one than previously thought.

The estimate for the first quarter of this year was unchanged, showing the economy shrank by 0.3% in that period. A recession is commonly defined as two consecutive quarters of economic contraction. The news pushed the Pound lower, however as stated above, it didn't affect the GBP/EUR rate as the Euro is so weak at the moment.

More Quantitative Easing possible next week

Regular readers will know all about Quantitative Easing, and to be honest are probably as bored reading about it as I am writing about it, however it's the next 'big thing' that will affect rates and so is very important.

For those that don’t know what QE is, this BBC article explains it nicely. In response to the latest figures, some economists said they expected the Bank of England to restart next week its programme of quantitative easing, designed to boost the economy by buying government debt which in turn injects money into the economy.

Quantitative easing is usually seen as negative for the currency as it increases the supply of pounds in the system. But some analysts said signs policymakers would take active steps to protect the UK economy from the euro zone crisis may be seen as sterling positive. The last time QE was announced the Pound/Euro rate dropped by 3 points. I feel we will see this announced on the 5th of July, and expect the Pound to drop as a result

Euro remains weak ahead of summit

Sterling rose again against the yesterday after a German official quashed any thoughts of rapid decisions at a European Union summit. These comments which weighed on overall risk appetite and weakened the Euro making it cheaper to buy.

European Union leaders are preparing to meet for a closely-watched Brussels summit on the fate of the euro. European authorities have unveiled proposals such as the creation of a European treasury, which would have powers over national budgets. The 10-year plan is designed to strengthen the Eurozone and prevent future crises, but critics say it will not address current debt problems.

The fear that nothing will be resolved is what has driven exchange rates this week, pushing the Pound/Euro rate close to the best in nearly 4 years.

So will rates stay at €1.25 or higher, or will they fall again?

It is these problems in the Eurozone that have kept the Euro weak and the reason why buying levels are so attractive at the moment. As discussed above the fact that more QE is on the way, coupled with the unknown factor of how the escalating debt crisis may affect the UK, then there is no reason to think levels will remain at this level. Indeed several times in the last few months we have got to €1.25 only for rates to dip back away fairly quickly.

For those that need to buy Euros, a Forward contract should be given serious consideration. This week we have conducted 3 times as many Forward Contracts than usual, as clients want to fix the rate while it’s close to the best in nearly 4 years.

Even if you don’t need your Euros for some time, we can lock in the current rate for you, and you only have to lodge 10% of the total you want to convert. In this way you can protect yourself against adverse exchange rate movements, while retaining the majority of your capital, safe in the knowledge you have fixed close to the best rates in many years. Please note Forward contracts are only available for conversions of £10k+. Click here to find out more about them.

Pound/US Dollar

Sterling has not actually fared very well against other currencies. Against the US Dollar for example, the Pound has dropped down to the $1.55’s. This is partly due to the poor economic data pulling the Pound down, and partly due to the US Safe haven status. When there is economic uncertainty, the USD generally strengthens and becomes more expensive to buy. This is what we have seen this week.

Blog Off

The blog will be a little quiet for the next week, while I take a short holiday. Blog posts will resume on Monday the 9th of July. My twitter feed will continue to run, posting several updates throughout the day of where GBP exchange rates are, and any interesting stories that affect the exchange rates.

You can still make a free enquiry about our services, and one of my colleagues will respond to you in my absence to explain how we work and how we can help you. when you speak to one of the traders, make sure you quote 'AJABLOG'

I look forward to continue to keep everybody updated with the markets, and continue helping clients achieve the best possible rates of exchange when I return!

Getting the best exchange rates

You want the best exchange rates, of course you do. That's why you're reading this blog to try and gauge your timing. Take the next step and send us a free enquiry and have a consultation on all the options available to you.

It's free, it doesn't obligate you, and you may be surprised how much you can save by using us to get exchange rates that are up to 5% better than offered by banks. Click below to send your free enquiry now, and get a response the same day.

Click here to send me a free enquiry

When you make an enquiry, quote 'AJABLOG'

Crucial day for exchange rates: Euro, USD, AUD

Friday 9th December 2011
Good morning. It was a very choppy day indeed in the currency markets yesterday, with an interest rate cut in the Eurozone and negative comments by the ECB president weakening the Euro and strengthening safe haven currencies. We saw Sterling/Euro rates gain however Sterling/US Dollar rates dropped significantly, as the charts below show:

~Currency movements yesterday~











Bank of England leave rates and QE on hold

Yesterday the Bank of England's (BoE) Monetary Policy Committee (MPC) voted to keep interest rates on hold at 0.5%, and announced no change to its Quantitative Easing (QE) programme. There was little reaction in the currency markets to the rate decision given many investors had already positioned for it to be unchanged. As the decisions were as predicted, there was no real change for the Pound, however there probably will be more QE in the coming months, putting Sterling at risk.

"There will be more asset purchases at some point next year, the UK economy is definitely fragile and needs easing," said Ankita Dudani, G10 currency strategist at RBS.

QE is seen as negative for sterling because it involves flooding the market with pounds and reducing demand, thus lowering exchange rates.

European Central Bank (ECB) cut interest rates

The ECB yesterday decided to cut interest rates down to 1%. This was widely expected, and there was little effect on the markets, and in fact the Euro gained a little strength after the decision. This was not to last however, as the ECB presient Mario Draghi ruled out any substantial aid for any ailing and indebted eurozone states, and this had quite an impact on exchange rates. Mr Draghi confirmed that the decision was not made unanimously.

ECB President's comments significantly weaken the Euro, strengthen the US Dollar

There had been speculation amongst analysts that the ECB may be preparing to bail out Italy, however Mr Draghi ruled this out during the post interest rate decision press conference: "We have a treaty that says no monetary financing to governments."

The euro weakened significantly as soon as he made the comments, and fell more than a cent against the dollar, while Sterling/Euro rates rose on the news. Looking at the charts above, you can clearly see the effect of his comments around 1pm. Sterling/Euro rose as the single currency weakened, and this also drove investors to the safe haven US Dollar. When there is uncertainty, investors buy the US Dollar, and this in turn strengthens it becoming more expensive to purchase. The charts reflect this and this also explains why GBP/EUR rose while GBP/USD fell.

EU summit ends today

The moves from the ECB yesterday come ahead of a "do-or-die" Brussels summit of European Union heads to hammer out a deal on how to tackle the eurozone debt crisis, including a potential new treaty. The 2 day EU summit ending is expected to agree tough new rules and automatic fines to ensure that eurozone governments cut their borrowing to below 3% of their GDP.

There is a very good and detailed article here on the BBC website that explains the ins and outs of the summit.

So what effect will the EU summit have on exchange rates?

The short answer is nobody knows. If the summit agrees on measures that the markets think will put an end to speculation on the future of the Euro, then we could see the Euro strengthen and GBP/EUR rates falling. If however there is no consensus reached, this could leave the markets wondering what will happen with countries like Greece and Italy.

If Greece were to default and exit the eurozone the consequences could be dire; a run on Greek banks, contagion spreading to other eurozone banks and Greeks facing even worse hardship than now, with the cost of imports rocketing. The priority is to reassure investors enough to halt the rise in eurozone bond yields. The leaders believe they can do that, so long as heavily indebted countries like Greece stick with deep cuts in spending and other austerity measures.

With regards to exchange rates, tomorrows developments will likely have an effect one way or the other. Put simply, if problems are solved, GBP/EUR could fall and GBP/USD could rise. If there is continued uncertainty, GBP/EUR could remain supported and GBP/USD could fall further.

What you should do to ensure you get the best exchange rates

You've already taken the first step by finding my blog and doing a little research on what may happen with exchange rates. I have worked in the Foreign Exchange markets for 10 years, and have a detailed knowledge of the currency markets. I also work for one of the UK's leading FSA registered foreign exchange brokerages, and the rates we can achieve for our clients are up to 5% better than banks and other financial institutions.

So, take the second step to making the most of your currency:

Click here to send us a free enquiry.

There is no cost or obligation involved, and you can take advantage of a free consultation on your particular requirements, helping you to make an informed decision on when to buy. As long as you are looking to convert £5000 or more, and can have an account for us to wire your currency to, we can help. Get in touch today.

EU summit today to cause volatility for GBP/EUR

Thursday 21st July 2011
Good morning. Sterling has stabilised slightly after the BoE minutes yesterday. 2 members voted for an interest rate hike, but 7 voted to keep rates on hold. 1 member voted for further Quantitative Easing, less than had been thought and this gave the Pound some support. Today we have a crunch meeting of eurozone leaders to resolve the Greek debt crisis and prevent further contagion to other eurozone economies. We'll look at this after the usual 08:30am rate snapshot:

• GBP/EUR 1.1335
• GBP/USD 1.6169
• GBP/AUD 1.5070
• GBP/NZD 1.8863
• GBP/CAD 1.5286
• GBP/ZAR 11.070
• GBP/JPY 127.26
• GBP/DKK 8.4487
• GBP/NOK 8.8331
• EUR/USD 1.4259

Bank of England Minutes

There is a reduced chance of a rise in interest rates in the near term, given recent economic weakness, Bank of England policymakers have said. Minutes from its July meeting showed the Monetary Policy Committee voted seven to two in favour of holding rates at 0.5% for the second month in a row.

The fact only one member voted for further Quantitative Easing did give the Pound a slight boost, but the fact rates will be low for some time to come is likely to keep Sterling weak. Analysts said focus would now switch to what is expected to be sluggish preliminary UK growth data for the second quarter, due to be released next week. UK retail sales for June released on Thursday are forecast to rises at a modest 0.5 percent.

EU debt crisis, Summit to discuss solution

German Chancellor Angela Merkel and French President Nicolas Sarkozy have hammered out a common position on the euro debt crisis. A statement by the French president's office said agreement had been reached after seven hours of talks in Berlin.

It comes ahead of a crunch meeting of eurozone leaders to resolve the Greek debt crisis and prevent further contagion to other eurozone economies. Policymakers are set to discuss a range of measures at the meeting later on Thursday, including a new loan package to Greece and the role of private investors in any debt restructuring.

What effect will it have on exchange rates?

The meeting is at 1pm today, and it could cause significant volatiliy for GBP/EUR rates. If they agree a plan that calms the markets, we could see rates plummet. If they don't agree a plan and it leaves the EU in turmoil, the Euro could weaken and rates could go up.

We think they have to agree a plan, after the International Monetary Fund has also called on European leaders to take swift and decisive action. Delaying such action further would be "very costly" for the world economy, it said.

Today's Data

Today is busy for Fundamental data. Starting in the EU, we have various measures of inflation, which could support the cause for further interest rate hikes in the EU, which may strengthen the Euro. In the UK we have Retail sales and a measure of Public Sector borrowing. From the US we see various measures of unemployment. Of course the EU summit is the main event today, and we will be posting regular updates on this and exchange rates on twitter.

If you need to buy or sell foreign currency, click below now to send us an enquiry for free. Our exhange rates are up to 5% better than offered by banks. Take the first step to making the most of your currency now.