Pound rallies after no vote, but spike is short lived

Friday 19th September 2014 
Well that was certainly an interesting week in the currency markets. Not since the crash of 2008 have I seen such large volatility and huge amounts of my clients securing currency to protect against adverse exchange rate movements. Having been on the trading floor for over 24 hours in the last 2 days I'm about ready for the weekend!

So now we know, Scotland will remain part of the United Kingdom. I thought it was likely the No vote would win the day, and that is what we have seen. 

What effect did the No vote have on exchange rates? 

Over the last few weeks Sterling has dropped a little on fears that Scotland would vote Yes for independence. Last night when it became clear Scotland would vote against leaving the union, Sterling spiked to multi-year highs against the Euro, as the chart below shows: 

 

However the spike was short lived. I warned earlier in the week that in the event of a No vote, we would probably see a slightly spike in Sterling but it would then drop back off again, and as you can see from the chart above, that is exactly what has happened. 

Which way could exchange rates move now? 

It’s impossible to know, but I personally can’t see rates getting any higher. The levels we’re at right now are around a 2 year high vs the Euro, and not far from a 6 year high. I think focus will now return to fundamental economic data. 

On the one hand, Unemployment is down and interest rates are likely to rise next year. But I don’t think this will cause the Pound to go higher as any increases are going to be gradual. There is also the issue of the economic uncertainty that further devolved powers to Scotland will create, and of course in going down this road Wales and England may also wish to negotiate new terms. Currency markets hate uncertainty and this could cause the Pound to drop further. 

Its worth noting a few years ago when rates were at these levels, we quickly saw things drop so those holding out for further gains should be cautious 

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I can also discuss your particular requirement, talk over which way rates could move, and let you know the options you can consider to ensure you don’t get a worse rate than necessary. I have save my clients tens of thousands of Pounds in the last few days alone with some of the best commercial exchange rates available. Click below to send me a free enquiry to see how much I could save you. 

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GBP/EUR breaks €1.27 - 2 year high. Exchange Rates Forecast 2014

Thursday 18th September 2014 
Today is the day of reckoning for Scotland, and the currency markets are going to be very susceptible to the result, whichever way it goes. Let's have a look at how Pound/Euro and Pound/Dollar rates are faring ahead of tomorrow's result:

Sterling/Euro 

We’ve seen a spike in Pound/Euro rates today, and at the time of writing GBP/EUR sits at 1.2720 - this is the highest in over 2 years. in fact if you look further back at average rates, we're within around 1 cent of the highest Pound/Euro rate in 6 years. That was back in October '08 when the credit crunch hit destroying the value of Sterling.

Part of the spike is weakness in the single currency, but mostly it is the Pound that has been gathering strength as a ‘No’ vote for Scotland is being priced into the market. 

This is the highest it’s been in well over 2 years. Today alone we have secured a record amount of Euros for clients and this is for 2 reasons. Firstly it’s the best it has been in years. Secondly, the chance of a big drop in rates if Scotland vote yes mean most clients want to fix a rate now to protect against a drop. 

Even if the vote is No, it’s hard to see the Pound gaining significantly given the high it’s already at. I think the NO vote is already priced into the market for the most part, and the uncertainty which would remain even if independence is rejected will likely hold the Pound back. 

If I needed Euros, I would be keen to fix a rate while it’s the best it’s been in years. For me, the downside risks for hanging on to see what happens tomorrow would be too great. Those selling Euros should have a Stop Loss in place to protect against the Pound gaining further. 


If you would like to discuss which way exchange rates are moving, and get a quote to see how much we can save you on your currency, click here to send a free enquiry. 

Sterling/Dollar 

Rates have climbed for this currency pair, after falling overnight. The reason it dropped was due to comments by FED chair Janet Yellen last night. She indicated interest rates will be going up at some point in the USA, and that they will have wound up their QE stimulus programme within a month. 

This strengthened the Dollar and pulled rates down as the chart above shows. However the Pound has reversed these losses due to the strengthening of the Pound today. Sterling has gained as a ‘No’ vote gets priced into the market. 

As with any currency against Sterling, the risk of a big drop should they vote Yes is huge. Get in touch today to discuss your currency requirement. I can source rates up to 5% better than banks and other financial institutions can offer, and I also have various tools and contract types than can protect you against the market moving the wrong way. 

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What could affect exchange rates this week?

Monday 3rd March 2014 
It’s been relatively quiet since my last post, and today hasn’t seen much economic data that has affected exchange rates. We have not seen the Pound make any further gains, and we currently have GBP/EUR rates around the 1.2140 mark, and GBP/USD rates a little above $1.67. 

In today’s post, I will have a look at upcoming events this week that I think will have an impact on rates, including economic data releases and the current instability in Ukraine. 

Instability in Ukraine to affect exchange rates 

There are various things that affect exchange rates. Economic data is the main one, and in a moment I’ll analyse what we have due to be released this week that I think will move FX rates. 

Other things that can affect currency rates are natural disasters like floods and droughts. Political events like elections and new policies. Finally terrorism/instability and acts of war can also have an impact. 

Dominating the headlines at the moment are events in Ukraine. How could this affect exchange rates? Let’s start with the obvious factor – how has it affected the Russian Rouble? I can’t actually trade the rouble, but it’s a good place to start to explain the effects of the current situation. 

Russia's rouble has fallen to a fresh all-time low against both the dollar and the euro after the political turmoil in Ukraine intensified. So the instability there has weakened their currency. 

Further afield, the unstable situation is likely to affect all major currencies. Due to the uncertainty it’s creating, it will likely mean the global investors seek safety. This may mean that perceived riskier currencies can weaken, and safe haven currencies can strengthen. 

Safe haven currencies like the US Dollar and Swiss France therefore could gain strength and become more expensive to buy. Risky currencies like AUD, NZD, ZAR for example could weaken and become cheaper to buy. 

Closer to home, we could see the Pound weaken on the back of the instability, as investors sell it to move to the safety of the US Dollar while geo political negotiations take place. 

If you need to buy or sell currency, then you can contact me to discuss your options for free, without obligating you in any way. 

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This weeks scheduled economic data releases that could affect rates 

Monday 3rd March 2014 

It’s been relatively quiet today we did have some slightly worse than expected UK data this morning. This afternoon we say some better than expected US data that temporarily caused GBP/USD rates to drop away. 

Tuesday 4th March 2014 

Again a quiet day in terms of data releases. The only UK data of note is construction data released at 09:30am. Most information today is from Australia – an interest rate decision followed by a statement from the RBA. 

Wednesday 5th March 2014 

There is a release of interest from the UK today, an inflation report at 10am that could dictate future interest rate movements and therefore could affect Sterling exchange rates. Elsewhere, the Eurozone has a raft of releases today – Inflation data, Retail Sales and Gross Domestic Product. All of these will give a good idea how the EU economy is preforming and if the numbers are worse than expected we may see the Euro weaken in value. 

Elsewhere, we have an interest rate decision from Canada followed by a statement from the Bank of Canada. In the United States we see the latest mortgage approval numbers and employment figures. 

Thursday 6th March 2014 

It’s the first Thursday in the month, so we will see the Bank of England and European Central Bank announce their decision on interest rates at 12:00pm and 12:45pm respectively. I expect no chance from either; however comments that follow the decision could have an impact on exchange rates. If there are hints of a rate cut in the EU, Pound/Euro rates may rise. If the BoE however hint that a rate change in the UK is a long way off, expect the Pound to fall in value. 

Elsewhere today we have Trade Balance and Retail Sales data from Australia, and Jobless Claims from the United States. All in all a busy day so I do expect some volatility in FX rates today. 

Friday 7th March 2014 

We end the week across the pond – Canada releases unemployment data, and the USA has its latest Trade Balance figures, along with Non-Farm Payrolls at 13:30pm. This is usually quite different to the forecast number, so expect a choppy day for GBP/USD rates today. There is nothing of note from the UK or EU. 

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Alastair Archbold