Pound rises on employment data, but will it go higher?

Wednesday 16th September 2015
Today we saw the Pound/Euro rate rise on positive jobs data from the UK. Average earnings and the claimant count were both much better than expected, and you can see from the chart below that this strengthened the Pound, pushing the GBP/EUR rate from €1.36 to €1.3750 before dropping back away. We also had worse than expected inflation numbers from the EU, which helped push the rate higher as the Euro weakened and became a little cheaper to buy. 

Will the Pound continue to go up against the Euro? 

This is the question I’m asked daily by my clients looking for the best exchange rates to buy Euros. It is of course impossible to predict what will happen, but I don’t think the rate will get higher in the short to medium term. Indeed the current strength of the Pound is a problem for the Bank of England as it makes our exports more expensive, so if the rate does continue to climb, then I would expect the BoE to make noises about an interest rate being a long way off, in order to weaken the Pound to stop it hindering the economic recovery. 

Yes, the rate has fallen from the 8 year highs of €1.40+ we were enjoying last month. Those that need to buy Euros however should consider that the rate is still significantly better than when it was at €1.25 at the start of this year, so in the grand scheme of things it’s still a good time to buy Euros. 

It’s important to remember the only reason rates were so high before was 1) due to weakness in the Euro due to the Greek debt crisis that has now been resolved and 2) speculation interest rates were going to rise in the UK, which is no longer the expectation. For these 2 reasons I don’t think the rate will get back to €1.40 until into 2016, so if you need to buy Euros then consider fixing a rate sooner rather than later. (Click here to get a quote on your exchange and see how much you could save using my currency exchange services). 

All eyes on the FED 

Tomorrow’s decision by the Federal Reserve on US interest rates is the most anticipated for a very long time. The consensus is still that rates will be left on hold however there is a small chance they will increase rates. If they do, expect GBP/USD rates to drop sharply. 

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Will the FED raise interest rates this week?

Tuesday 15th September 2015
On Thursday, the US Federal Reserve will announce their decision on interest rates, and for the first time in many years, there is actually the chance of a change. It’s widely expected that the USA will be the first major western economy to start pushing interest rates up from the record lows they have been at for many years. 

It’s likely that they will keep them at their record low of 0.25% for another month, however there is a 20% chance that they will raise the benchmark rate to 0.5%. 

What would be the effect on exchange rates if they raise interest rates? 

A hike in interest rates would make the US Dollar an attractive option for investors, due to the higher return they would get on their funds. Therefore, if the FED do indeed raise interest rates I would expect the US Dollar to gain strength and become more expensive to buy, and this would push GBP/USD exchange rates lower. The small chance of a hike will already be priced into the market, so if they leave rates on hold, then GBP/USD may rise slightly. 

Looking further ahead, they are likely to raise rates at some point in the next few months, so I would not expect the GBP/USD rate to remain above the $1.50 mark for long. Most forecasts I’m reading at the moment suggest that the rate to buy Dollars will fall considerably in the medium term. Therefore if you have a requirement to buy US Dollars, click here to get in touch to discuss the ways I can help protect you against the rate moving against you. 

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GBP/USD falls as FED announce end to QE

Thursday 30th October 2014 
Sterling/Dollar has plummeted overnight, following the FED’s expected decision to end its Quantitative Easing (QE) programme. This also had the effect of weakening the Euro, pushing GBP/EUR rates higher. The charts below show the currency movements: 

FED announce end to QE 

The US Federal Reserve has announced it is ending its quantitative easing (QE) stimulus programme, saying that it was confident the US economic recovery would continue, despite a global economic slowdown. The central bank, which also said it would not raise interest rates for a "considerable time", has gradually cut back QE since last year. 

While the decision was expected, it did have the effect of strengthening the US Dollar, bringing rates down below the $1.60 mark, however this morning GBP/USD recovered to around $1.60. The main reason the rate fell is their hawkish tone on interest rates.

Pound/Euro rises 

As investors bought the Dollar, they sold the Euro which caused the single currency to weaken, pushing rates up above €1.27. This has happened several times over the last few months, so I expect rates to dip back off again in the coming days and weeks as has been the trend of late. 

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Pound/Euro, Pound/Dollar, up or down in July 2014?

Monday 14th July 2014 
The Pound has fallen further against both the Euro and the US Dollar today, pulling exchange rates down to €1.2530 and $1.7070 respectively. There has been no economic data of note today to explain the movements, and the reason for the fall is the market positioning itself ahead of Speeches by the heads of the 3 major central banks, the Bank of England (BoE), European Central Bank (ECB) and US Federal Reserve (FED). In today’s post I’ll take a look at why rates have fallen and what these speeches may mean for whether the Pound will go up or down against the Euro. 

Pound/Euro 

The rate had recently hit a 2 year high of €1.2680, however in the last week has slipped back away. This is partly due to a run a worse than expected UK economic data. Today rates fell further ahead of a speech by the ECB president Mario Draghi. The Euro has been weakening recently on speculation that the ECB may pursue some sort of stimulus, perhaps in the form of Quantitative Easing. 

This evening’s speech is therefore very important. The Euro is actually still quite strong against other currencies, and this strength is hurting the EU recovery. So he may well hint at some easing, in which case I would expect Pound/Euro to rebound. 

We will also see a speech by the BoE chief Mark Carney tomorrow. In recent speeches he has given mixed signals on the future of UK interest rates, which has caused the Pound to fluctuate up and down. In short, if he hints at rates going up, the Pound will rise. If he is not forthcoming with any indication of a rate rise, the Pound could fall. 

Pound/Dollar 

This currency pair recently enjoyed trading near 6 year highs, but has dropped off a little recently. The future movements of GBP/USD will partly depend on Mark Carney’s comments tomorrow, as I have explained in the Pound/Euro section. 

Of more importance in my opinion will be Federal Reserve Chair Janet Yellen's congressional testimony tomorrow, in which she may well give clues on the outlook for U.S. monetary policy, and interest rates. If she hints at an interest rate hike on the back of an improvement in U.S. data in the second quarter, Pound/Dollar could fall more. 

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How has FED tapering affected exchange rates?

Thursday 30th January 2014 
There has been some key volatility in exchange rates this week, being mainly driven by events in the USA. In today’s report I’m going to explain how the FED tapering has pushed some exchange rates higher such as the Pound against emerging economies such as Turkey, New Zealand & South Africa, and some exchange rates lower for example Pound/US Dollar. 

FED cut stimulus as expected 

Last night the US Federal Reserve announced a $10bn reduction in its monthly bond purchases from $75bn to $65bn. This is the second month in a row they have done so. 

The central bank had been buying bonds in an effort to keep interest rates low and stimulate growth, and now they are winding that in is a sign of positivity for the US economy. 

So how has this affected exchange rates? 

Pound/Dollar rates have fallen. This is because the news is good for the USA, and so the Dollar has strengthened and become more expensive to buy. It’s dropped from 1.66 to 1.65, not a huge drop because the move was expected. 

Of more interest was the effect on currencies in emerging markets. Investors have been selling riskier higher yielding currencies like the South African Rand (ZAR), New Zealand Dollar (NZD), Australian Dollar (AUD) and Turkish Lira (TRY). The reason is there are fears their economies may now suffer as the reduction in liquidity from the FED takes effect. Read more about this in detail here on the Telegraph site.

This means these currencies are very cheap to buy, and we’re seeing some of the highest exchange rates for these currencies for some time. Some of the countries have started to raise their interest rates to try and stop the capital flow out of the country as outlined in the link to the Telegraph above. 

Some analysts said that while the Fed may not have explicitly mentioned emerging markets in its statement, it would be an oversight to think the central bank is not keeping a close eye on the global economy. "The FOMC will want to observe the domestic and international market reaction to today's tapering decision," said Jefferies chief US economist Ward McCarthy. 

There are some great exchange rates available for AUD, NZD, ZAR, TRY among others. If you need to purchase these currencies in the short to medium term, you can get in touch with me to find out more about the exchange rates I can offer by clicking here. 

Pound/Euro remains stable between €1.21 & €1.22. 

Closer to home, we have seen the GBP/EUR rate fluctuate a little, but today has risen from €1.21 to €1.2160. There was some poor data from Germany that has weakened the Euro a little this morning. 

I don’t expect any significant gains in the GBP/EUR rate in the short term, mainly because the Bank of England has recently made it clear interest rates will not be rising any time soon. 

The rate is still very close to the best in 12 months, so if you need to buy Euros and want to take advantage of the current levels, click here to send me a free no obligation enquiry.

Pound remains at €1.19 vs Euro, near 8 month high

Tuesday 17th September 2013 
Good afternoon. Sterling remains strong, however has failed to rise significantly above the €1.19 level against the Euro. GBP/EUR rates remain around the best since January. The Pound has however hit an 8 month high against the US Dollar after Lawrence Summers, perceived by the market as more likely to favour a quick scaling back of monetary stimulus, pulled out from the race to be the next Fed chief. So in today’s report: 

• UK inflation drops weakening Pound 
• Pound/Euro remains close to best it’s been since January 
• US Fed member drops out of race to be FED chief, weakening US Dollar 
• German Economic figures better than expected, weakening Euro. 
• UK Retail Sales and BoE Minutes this week expected to affect Pound 
• How to get the best exchange rates 

UK inflation drops weakening Pound 
 

Figures this morning showed a slight fall in inflation, which has pulled the Pound lower. Inflation measured by the consumer prices index (CPI) fell to 2.7% in the year to August, from 2.8% in July. 

CPI is important because it is the measure targeted by the Bank of England's interest rate-setters, while the RPI is used for annual adjustments in some benefits and rail fares. The Bank targets CPI inflation of 2%, but is currently holding off raising interest rates to control inflation because the unemployment rate is too high. 

A high figure usually strengthens the Pound, and because the number was slightly lower than expected the Pound weakened slightly, pulling down exchange rates. 

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German Economic figures better than expected, weakening Euro. 

 Also pulling GBP/EUR rates down was better than expected numbers from Germany. Economic sentiment is better than analysts had been predicting, and so this gave the Euro strength, making it more expensive. As a result we have seen GBP/EUR rates fall slightly. 

Pound/Euro remains at a good level 

As you can see from the chart, the Pound/Euro rate remains close to the best it’s been since January. It’s been at this level for a week or two now, and for a few days it rose above the €1.19 level, however the figures mentioned above have pulled it back to €1.19 again. 

 
This is a very good buying level, but seems to have levelled off and we haven’t seen any significant gains. The main thing that I think will move the rates next will be tomorrow’s minutes from the Bank of England, and UK Retail Sales on Thursday. 

Tomorrow the BoE will release its minutes, showing how the members voted at their recent decision to keep interest rates and QE on hold. They will be interesting because it will show what was discussed, and could indicate future decisions on QE and interest rates. If there are any indications any of the members wanted more QE, we may see the Pound fall. 

Retail Sales on Thursday are important as they are a good barometer of overall economic activity. I expect the figures to show a month on month gain of 0.5%. If the actual figure is higher than this, then expect exchange rates to rise. If the number is lower, then we will probably see the Pound fall in value. 

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US Fed member drops out of race to be FED chief, weakening US Dollar 

The Pound rose to an 8 month high against the US Dollar earlier this week, after Lawrence Summers, perceived by the market as more likely to favour a quick scaling back of monetary stimulus, pulled out from the race to be the next Fed chief. The dollar fell broadly as it means it will probably be Janet Yellen that takes over the next chair of the Federal Reserve - she is expected to rapidly reduce U.S. bond-buying. This meant the US Dollar weakened, became cheaper to purchase, and GBP/USD rates rose. 

Due to the poor inflation numbers today however, we’ve seen the rate drop back away. 

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Sterling up vs US Dollar, still weak vs Euro

Thursday 14th July 2011
Good morning. Sterling has shot up against the weak US Dollar, after the Fed chairman said more monetary policy easing may be necessary. This has significantly weakened the USD, and rates have shot up from $1.58 a few days ago to $1.61. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1352
• GBP/USD 1.6135
• GBP/AUD 1.5017
• GBP/NZD 1.9064
• GBP/CAD 1.5474
• GBP/ZAR 11.017
• GBP/JPY 127.45
• GBP/DKK 8.4644
• GBP/NOK 8.8969
• EUR/USD 1.4207

Sterling gains against US Dollar

Sterling is a full 3 cents higher vs the US Dollar than the 5 month low we saw last week. Ben Bernanke's comments hinting at further Quantitative Easing has significantly weakened the US Dollar, helping GBP/USD rates recover well.

Pound still weak against Euro

However despite gains against the Dollar, Sterling was weaker against the euro after data showing a sharp rise in the number of Britons claiming unemployment benefit added to concerns a faltering UK economy will ensure a prolonged period of record low interest rates.

As I mentioned in yesterdays post, the Euro is at it's weakest in years due to all the debt problems in several EU countries, however gains in GBP/EUR are limited because of the state of the UK economy, and the fact the two economies are inexorably linked.

UK economic figures still poor

The UK claimant count saw its biggest jump in two years last month, taking the total to the highest since March 2010. This added to the growing view that the UK outlook is worsening, which has pushed back expectations for interest rates to rise until well into next year and raised the prospect of the Bank of England opting for more monetary easing.

The weaker growth outlook for the UK was highlighted last week by the UK's National Institute of Economic and Social Research, a leading think tank, which estimated economic growth slowed to just 0.1 percent in the second quarter of this year. For these reasons we expect Sterling to remain on the back foot, and further drops in exchange rates could well be likely.

Today's Data that may affect rates

No UK data of note. EU inflation figures combined with a report from the ECB though could still affect GBP/EUR rates. There is also a speech from the ECB president, so we will be watching this closely for any coded comments that signal future fiscal policy. From the USA we have retail sales, inflation data and jobless claims

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