Pound falls further after poor inflation numbers

Tuesday 19th August 2014 
The Pound has fallen further today, as this morning’s UK inflation figures were worse than expected. Inflation is a key indicator of when interest rates may rise. If the level of inflation gets higher than 2%, then this increases the case for the Bank of England to raise interest rates. 

We were expecting the figure to come in at 1.8%, however it was actually slightly lower than this at 1.6%. The lower number eases the pressure on the Bank of England to consider near-term interest rate rises and pushes the balance more in favour of a delay into next year. 

So that is what has caused the Pound to fall today, as the charts below shows. We are now sat at a 4 month low for Pound/Dollar rates, and a 3 month low for Pound/Euro exchange rates: 

What next for Pound/Euro & Pound/Dollar rates? 

Tomorrow morning we will see the recent minutes to the Bank of England’s decision to hold interest rates. These will show if any of the 9 members voted for a rate hike and what was discussed. 

I think there is a good chance at least one of the members voted to raise rates. If this is the case, I would expect the Pound to gain. If none of the members voted for a rise, then we could see the Pound fall even further. 

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A busy week for exchange rates - what could happen to the Pound?

Monday 11th August 2014 
Good afternoon. Exchange rates have recovered slightly today after the drops we saw at the end of last week, caused by global uncertainty over the conflicts in Ukraine and the middle-east, as explained in my most recent post. Today has been quite quiet as there is little economic data for the markets to digest. 

This week however will be anything but quiet, I think today could be the calm before the storm as we have some significant data releases this week that could affect which way exchange rates move in the coming weeks. 

For the UK, we have unemployment figures, a Bank of England (BoE) report, the latest Gross Domestic Product (GDP) figures, and a speech by the BoE Governor Mark Carney. In recent speeches he has given mixed signals on when interest rates may start rising, even being accused of behaving like an unreliable boyfriend, and that had caused the Pound/Euro rate to go up or down. So his comments could well cause further volatility in exchange rates. 

So, lot's that I think could affect the market this week and a full breakdown of this week’s data is listed below. 

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This week’s economic data releases 

Tuesday 12th August - There is no UK data of note, however GBP/EUR rates could still be affected as we have EU and German Economic Sentiment figures released at 10am. We also have House price data from Australia that could move GBP/AUD, and the monthly US budget statement could give indication on future US economic policy, so watch for GBP/USD today. 

Wednesday 13th August – In my view today is the most important one for Sterling exchange rates. We have the latest UK Unemployment numbers, along with a Bank of England inflation report, followed by a Speech by BoE Governor Mark Carney. As I stated above, his comments could cause changes to the value of the Pound. Elsewhere, US Retail Sales are released later this afternoon from the United States. 

Thursday 14th August – Today is busy for EU data – Inflation numbers, Gross Domestic Product, and a monthly report from the European Central Bank, all of which will give indications how the EU economy is performing and so GBP/EUR rates could be affected. From the USA today we have the latest Jobless Claims numbers 

Friday 15th August – Another important day for the Pound as we have the latest Gross Domestic Product figures. I expect the monthly figure to be 0.8% and the annual figure 3.1% - any lower than this expect exchange rates to drop and vice-versa. Elsewhere the USA has inflation figures released later in the afternoon. 

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Sterling/Euro drops below €1.20

Wednesday 12th March 2014 
The Pound/Euro exchange rate has continued to fall since my post last week, and has fallen below the €1.20 level for the first time this year. Several weeks ago I warned that there was a good chance the rate was about to drop, and that is what we have seen. 

In today’s post I will analyse the reasons for the drop, go over what options are available to protect against rates moving against you, and look at what other economic data is due this week that could affect rates. 

Pound/Euro drops below €1.20

For the first time this year, GBP/EUR rates have fallen back into the €1.19’s. Only a few weeks ago we were at highs of €1.22+. The rate started to decline last week when the ECB president Mario Draghi gave a very positive press conference about the Eurozone economy, as I outlined in a recent post. 

Since then, industrial production figures from the UK and EU have caused the exchange rate to drop further. The UK released its figures yesterday, and as the number was worse than expected Sterling fell in value. This morning the EU released its industrial production figures, and they were better than expected. This caused the Euro to rise in value and become more expensive to buy, and that’s the reason GBP/EUR rates have dipped into the €1.19’s. This is the lowest it has been all year:

Will rates drop further, or bounce back? 

It’s impossible to predict of course, but my view is in the medium term we will see rates climb back above €1.20 again within a month or two. For those that need to buy Euros, much depends on how much time you have to play with. If you need to secure your currency soon, it may be wise to fix a rate sooner rather than later to protect against it dropping any further. 

If you have some time to play with, then you could gamble on rates recovering, however it is always wise to place a ‘Stop Loss’ order to protect you against rates dropping further. If you need to convert Euros back to Pounds, then the current levels are the best they’ve been all year. I do believe we will see the rate in the mid €1.20’s again later this year, so those with a EUR/GBP requirement may wish to lock in a rate sooner rather than later while we have seen a move in your favour. 

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What could affect exchange rates this week? 

Pound/Euro - Other than the Industrial Production data I mentioned above, it’s been a very quiet week for data releases so far. Tomorrow (Thursday) should be a little more interesting with a BoE inflation report and House price data for the UK. Strong numbers could push rates above €1.20 again. We also have various inflation figures from the Eurozone tomorrow – if low, then the Euro could weaken off which would also cause rates to rise. Friday see’s UK Trade Balance data, and the latest Employment numbers from the EU. 

Pound/US Dollar – In addition to the UK data mentioned above, the US releases Jobless data, Trade Balance numbers and Retail Sales on Thursday, along with inflationary numbers on Friday. These figures could affect the GBP/USD rate. 

Pound/Australian Dollar – We will see the latest Australian Employment figures overnight. The GBP/AUD is very attractive at the moment, and if the figures are better than expected, we could see a slight dent in the Pound/Aussie rate. 

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Pound falls below €1.20, will it rise again?

Thursday 6th February 2014
Sterling has fallen below the €1.20 mark today for the first time this year. The reason for the fall was Euro strength following their decision not to raise interest rates. In today’s post I am going to look at the central bank decisions in both the UK and EU, and have a look at what this means for GBP/EUR exchange rates for 2014.

European Central Bank holds interest rates, GBP/EUR drops

The European Central Bank (ECB) has kept its benchmark interest rate at 0.25% today. The bank last cut rates to a record low in a surprise decision in November. Following low inflation numbers from the Eurozone in recent weeks, there was much speculation that the ECB would have to cut interest rates. 

As this was quite likely, the cut was already priced into the markets. A cut would weaken the Euro due to the lower return on offer for investors, and so because many thought a cut was on the cards, the Euro weakened accordingly and Pound/Euro rates rose to €1.22 last week. 

However after the announced no change to rates today, the Euro surged in strength, became more expensive to purchase, and this pushed rates just below the €1.20 mark as you can see from the chart below. Read more about today’s ECB decision here. 

Bank of England leaves rates on hold 

UK interest rates have also been kept unchanged at their record low of 0.5% by the Bank of England. This was widely expected and there was no effect on exchange rates. 

Analysts now hope that the Bank will use next week's inflation report to signal changes to its policy of forward guidance. There had been speculation that the Bank would issue a statement alongside the latest interest rate decision. However, in announcing the hold in rates and quantitative easing, the MPC said it, "reached its decisions in the context of the monetary policy guidance announced alongside the publication of the August 2013 Inflation Report". 

Where next for Pound/Euro exchange rates in 2014?

All year rates have remained above €1.20, but today’s Euro strength has pushed it lower for the moment. 

My view is that there is still a chance of the ECB cutting rates next month, so I think this dip in rates will be temporary. 

Also if UK data continues to improve then we could see the Pound recover and get back to €1.21 / €1.22 in the coming weeks. This will be even more likely should further EU data mean analysts think that a rate cut may still happen. 

If you need to sell Euros and convert Sterling, then you should give serious consideration to taking advantage of the 2 point move in your favour. Rates won’t drop much below €1.20, and I think that we will see it climb back up in the coming weeks. 

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If you need to buy Euros, then yes the rate may well increase. However much of the Pound’s strength recently is on speculation our interest rates may go up. Next week we have an inflation Report from the Bank of England, and I expect they may move the goal posts slightly with regards to a trigger for a rate hike. 

So while rates may indeed go back up, this is by no means a certainty. So Euro buyers may wish to consider placing a Stop Loss order. This means you can fix a rate should rates drop further below a pre-agreed level, €1.19 for example. In this way you can still take advantage of any gains in the rate, but should we see a shock drop, you’re not leaving yourself exposed and risk losing out on the great buying levels we are currently seeing. 

Have a free consultation and find out more about the rates and service I can offer you. 

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I can source you exchange rates that are up to 5% better than banks and other brokers may offer you, safe in the knowledge that we are fully Authorised by the Financial Conduct Authority. In addition, I offer a wide range of contract types, such as Forward Contracts, Stop Loss Orders and Limit Orders.

With over 8 years’ experience in the industry, I have a very good knowledge of what can move the exchange rate, so I can also talk over your requirements, and let you know the different options you can consider in order to help you time your trade and get the best possible exchange rate. 

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I can call you to have a brief chat about what you need to do. It doesn’t cost anything, there is no obligation to trade with me, and I can let you know the rates that we offer so you can compare it with your bank. 

Many of my existing clients have saved thousands of Pounds by using me to get a better rate of exchange. So find out today if I can be of use to you, by getting in touch. 

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Unemployment falls, Pound rises...

Wednesday 18th December 2013 
In my last post I outlined the data this week that I thought would have an impact on exchange rates. I pointed out that today (Wednesday) would likely cause changes in currency rates due to some key data including Unemployment and the latest Bank of England (BoE) minutes. Unemployment was lower than expected pushing the Pound higher, but comments from the Bank of England threaten to put the brakes on the Pounds rise. In today’s post I’m going to take a detailed look at what has happened, and what it means for the exchange rate forecast.  

UK unemployment falls, Sterling rises. 

The UK unemployment rate has fallen to its lowest level since 2009, official figures from the Office for National Statistics (ONS) showed this morning. The market expected a figure of 7.6%, however the actual number came in at 7.4%; the lowest rate since February 2009. As a result, the Pound has risen against the Euro by 1 cent to €1.1915, and also by a cent against the US Dollar to $1.64. 

As the chart above shows, the news gave Sterling a boost and caused exchange rates to rise, as I predicted would be the case on Monday. So why exactly did the Pound gain? 

This 7.4% rate compares with a figure of 7.6% for the three months to September, and is below the rate analysts had expected. The Bank of England has said it will not consider raising interest rates from their record low of 0.5% until the unemployment rate falls to 7%, so the fact that we are getting closer to the 7% target means interest rates in the UK could rise sooner than expected. 

Higher rates of interest attract investment due to the higher return, and this means demand for Sterling causing it to rise in value, and in turn push exchange rates up. However, the BoE governor Mark Carney has said an interest rate increase is not guaranteed even when unemployment falls to this level. Indeed as we will see in a moment, the BoE could even move to weaken the Pound in the coming months.

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BoE say that Sterling strength not good for the UK 

So the Pound is strong, exchange rates are rising, the economy is growing, so all is well right? Not necessarily. Sterling's recent strength risks derailing Britain's recovery and could jeopardise attempts to rebalance the economy, the Bank of England said this morning. 

The nine members of the Monetary Policy Committee (MPC) said while sterling's gains over the last 4 weeks reflected a stronger economic outlook, further rises could harm export growth. You can read the full minutes yourself by clicking here. 

Half our exports go to the Eurozone and so if the Pound gets much stronger, our goods become more expensive and so our recovery could start to falter. 

"Any further substantial appreciation of sterling would pose additional risks to the balance of demand growth and to the recovery," minutes from the Bank's December meeting showed.  

Sterling is at a five year high on a trade-weighted basis, where it is measured against a basket of other currencies, and the Bank said that for Britain's "burgeoning" economic recovery to be sustainable, it needs to rely more on business investment and exports and less on consumer demand. 

So you have been warned; this is the clearest signal I have seen yet that the BoE may move to devalue Sterling as they did in the summer of 2012 when rates fell from €1.30 to €1.14.

Will the Pound go up or down against the Euro?

Summary - when should you fix your rate?

On the one hand the UK economy is good, the Pound is gaining value, and this could continue should economic numbers continue to impress. This would be good news for those that need to buy Euros, but not so good for those looking to convert back into Sterling. 

On the other hand, if the Pound gets much stronger, might we see the Bank of England move to devalue the Pound due to the reasons I have outlined above? This would lower exchange rates, meaning it could be wise to fix a rate soon while it’s on a high. 

There is no way to predict what will happen, but if you need to make the most of your exchange, having a good currency broker on your side can make a huge difference. In addition to helping you achieve rates up to 5% better than banks can offer, I can explain various options and contract types that I have available, that can protect you against rates moving against you, while still allowing you to take advantage if the market moves in your favour. 

The first step is to send me a free enquiry by clicking below. I can then have a brief discussion regarding your requirements, explain the options you have, and enable you to make an informed decision on when to fix your rate of exchange. 

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I look forward to hearing from you. 

Alastair Archbold