Exchange Rates volatile due to interest rate speculation

Wednesday 5th August 2015
There was some movement on both GBP/EUR and GBP/USD exchange rates overnight, and it’s interest rate speculation again that’s driving exchange rates. After a quick look at the charts I’ll explain what’s going on. As you can see below Sterling/Euro rates have climbed to €1.4350 and Sterling/Dollar rates dropped a cent overnight: 

Sterling/Euro

Sterling/Dollar

GBP/USD - US Interest rates affect exchange rates 

Last night, one of the US Federal Reserve members, Dennis Lockhart, who is one of the people who decides on interest rates, said that it would take "significant deterioration" in the U.S. economy for him to not support a rate hike in September. This means that chances are increased that the USA will be the first major western economy to start pushing rates back up. The hint of higher interest rates tends to strengthen a currency due to the higher return on offer for investors. 

On the comments, the USD gained strength and pulled GBP/USD Rates down. As investors moved funds from the Euro into the Dollar, the single currency weakened accordingly, and as you can see from the graphs above, the GBP/EUR rate moved inversely to cable, rising by over 1% to €1.4350. 

On Friday, we see some very important jobs data from the USA at 13:30pm, and if these numbers beat forecasts, expect the decline in GBP/USD rates to continue. I am still of the view that GBP/USD rates won’t stay above $1.50 for very much longer. 

GBP/EUR – Thursday very important for exchange rates 

With many analysts now expecting the US to raise interest rates next month, many are also starting to look at whether the UK will do the same. Tomorrow (Thursday) is a very important one for the Pound. Here is the data we’re going to see from Britain: 

‘Super’ Thursday’s eco-stats include: Manufacturing Production, Industrial Production, a GDP growth estimate, the BoE decision on interest rates, the BoE Inflation report, a Statement from the BoE’s Monetary Policy Committee, and a Speech by the BoE governor Mark Carney. 

Phew. There’s a huge amount of data to chew on tomorrow, and taken as a whole will paint a very clear picture on what direction the UK economy is taking. I think that at least 2 of the 9 member MPC committee will vote for an interest rate hike, and if this happens and the other data is good, expect Sterling to gain in strength. We could well see a decent rise for Sterling exchange rates if the UK economic picture is a robust one. 

Do you need to exchange currency? 

I don't just provide regular updates on exchange rates;I help clients source some of the best currency deals available. I am the foreign exchange manager for one of the UK’s leading currency brokerages. In July alone we helped clients exchange over £35,000,000.00 and due to these large volumes we trade, our exchange rates are some of the best you can find anywhere. 

If you need to convert over £5000.00 and have your currency transferred to a bank account, then get in touch with me by clicking here. I can provide you a quote and you can see how much you can save compared to your bank or existing broker. We’re fully authorised by the FCA in the UK so you can trade with us knowing your funds are safe.

I look forward to hearing from you and providing you a quotation for your exchange. 

Pound up, Euro weakens, Dollar strengthens - forecast 2014

Tuesday 26th August 2014 
Good morning and welcome back after the long weekend we enjoyed in the UK, despite the dismal weather! The Pound/Euro rate however is anything but dismal, having recovered today when UK markets opened. This is more to do with weakness in the Euro that I shall explain in a moment, in addition to looking at why Pound/Dollar rates dropped. I will also outline what data released we’re looking at this week that could affect exchange rates. 

Sterling/Euro rates up, but not due to the Pound 

Over the weekend there was a meeting with the US and EU central bank chiefs in the United States. There were some interesting comments from the European Central Bank (ECB) president Mario Draghi that has caused the Euro to weaken. 

Unlike the UK, Europe is still struggling to grow and they are facing a problem of very low inflation. Usually you would lower interest rates to combat this, but rates in the EU are already at a low of 0.15% so they can’t cut it any further. So what I expect them to do is look at other stimulus measures, much like the Quantitative Easing we saw in the UK. 

His comments over the weekend hinted at this when he said that they would “use also unconventional instruments to safeguard the firm anchoring of inflation expectations over the medium- to long-term.” Adding that they would “use all the available instruments needed to ensure price stability over the medium term.” 

Markets have taken this as the clearest signal yet that they may indeed have to create money to pump money into the economy. If so this would weaken the Euro, and this has started to get priced into the market and the Euro has weakened off, causing the Pound/Euro rate to recover back towards to €1.26 level.

Do you need to buy Euros, or convert Euros to Sterling? Click here to compare our rates. 

Pound/Dollar rates drop 

Again this was not due to Sterling, it was due to the US Federal Reserve Chair Janet Yellen being very positive about the US economy, their growth and unemployment levels, and the fact they will continue winding up their stimulus program, all of which points to the USA raising interest rates next year. As a result, the Pound/Dollar rate dropped as the US Dollar became more expensive to buy. 

This week’s data releases 

Tuesday 26th August – today has been quiet in terms of economic data, with only US figures of note. We’ve seen good orders higher than expected compounding the strength of the US Dollar. 

Wednesday 27th August – Yet another quiet day, and while there are some minor releases, there is nothing that I think should affect exchange rates. 

Thursday 28th August - It is quiet again in the UK with nothing of interest other than some consumer confidence figures at midnight. In the EU however, Germany (Europe’s largest economy) has a raft of unemployment and inflation data. Over in the United States we have Gross Domestic Product figures, Jobless Claims and Home sales, all of which could affect GBP/USD rates. 

Friday 29th August – The only UK release is a measure of business investment, but with a lack of other UK data this week it may have a larger effect than normal. Elsewhere we have EU inflation and unemployment, Canadian GDP figures, and income and expenditure figures from the USA. 

Are looking to get the best possible exchange rates? 

In addition to writing this blog to keep clients up to date with exchange rate movements, I can source you exchange rates that are up to 5% better than banks can offer. So if you need to buy Euros, convert funds back to Pounds, or indeed convert any international currency to another, then get in touch to see how I can help you. 

It is free to make an enquiry and get a quote, and you could save thousands of Pounds. 

Click here to make an enquiry today and see how much you could save.

Pound/Euro exchange rate forecast outlook 2013

Wednesday 19th June 2013 
Good afternoon. Sterling exchange rates have fallen back away from recent highs, after high UK inflation numbers and a strengthening Euro. In today’s post I’ll have a look at recent market movements in more detail, and also look at how Quantitative Easing (QE) in the UK and abroad is still driving exchange rate movements. In this weeks report: 

• Bank of England still split on QE
• UK Inflation higher than expected 
• Euro gathers strength after Mario Draghi comments 
• FED to make QE announcement this evening. 
• Data for rest of the week that might affect rates 
• How to get the best exchange rates 

Bank of England still split on Quantitative Easing

Earlier today the Bank of England (BoE) released its latest minutes on its decision to keep the QE programme and interest rates on hold. It showed that for the fifth month in a row, the monetary policy committee (MPC) voted 6-3 in June against increasing the programme of quantitative easing (QE). Sir Mervyn, along with Paul Fisher and David Miles, voted to increase QE by £25bn, as they have done in recent months. 

Sir Mervyn steps down from his role as BoE governor next month, to be replaced by the former governor of the Canadian central bank, Mark Carney, as I outlined in a recent post. While recent surveys of the economy had indicated an improvement in conditions, they said the outlook was no stronger than projections in the Bank's latest inflation report. They also said that the risks from the Eurozone remained "substantial". 

As you can see from the graph of today's movements, initially Sterling fell as a result, however it recovered all of it’s losses and just after lunchtime, rates were back where they started, with the Euro at €1.1690 and the US Dollar at $1.5660. 

As outlined in detail in my last post, there are concerns the new Governor will push for more aggressive QE and this is what is holding the Pound back at the moment. 

Looking for the best exchange rates?

UK Inflation 

Yesterday we saw some surprising inflation numbers for the UK. The rate of consumer price index (CPI) inflation increased to 2.7% in May, up from 2.4% in April, the Office for National Statistics (ONS) said. The Bank of England has said it expects inflation to exceed 3% this year. May's rise in inflation was higher than analysts predicted. 

Usually high inflation would strengthen a currency, as it means that interest rates could rise to combat the rise in inflation. However with interest rates expected to remain at their record lows for some time to come, this isn’t an option. My view is it really means that investors are very nervous about the BoE's ability to keep inflation in check, and that’s why the Pound dropped immediately after the release.

Euro gains strength, pushing GBP/EUR rates lower.

Just a week or two ago GBP/EUR rates were in the €1.18’s. We have now seen rates drop by a few points, and part of this is due to a strengthening Euro. The reason it has risen in value and become more expensive to purchase was due to comments by the European Central Bank (ECB) President Mario Draghi. In a speech he said that the ECB have numerous standard interest rate policy and other non-standard measures that they can use if necessary.

What these measures are he didn’t expand on, but many think that he will do whatever it takes to protect the Euro, and this could mean negative interest rates. Markets responded positively to the news and the Euro gained strength, pushing GBP/EUR rates lower.

Looking to convert Pounds to Euros, or Euros to Pounds? Click here to send me a free no obligation enquiry and find out more about the rates I can provide. 

US FED decision on interest rates and QE

At 7pm this evening it’s the turn of the US Federal Reserve to announce its latest decision on interest rates and Quantitative Easing. I don’t expect any movement in interest rates. There has been speculation that the FED would be reducing its QE programme, so should this be the case I would expect the USD to gather strength and pull GBP/USD rates back down.

Only a few weeks ago rates were close to $1.50, but after the biggest 1 day gain in 4 years the rate shot up, and currently sits in the mid $1.56’s. Most forecasts are still suggesting that rates will fall back below $1.50, mainly due to an improving US economy and the threat of further QE in the UK.

If you need the best USD rates, click here. 

So, will Pound/Euro exchange rates rise or fall?

I’m asked this question many times each day, and the truth of the matter is I don’t know, nobody knows, and it’s impossible to predict. If anyone could then they would become very rich very quickly! What I can do is explain what is driving the market to help you make an informed decision on what to do.

On the one hand, better UK data and continued problems in the Eurozone suggest Pound/Euro rates will rise. Indeed a forecast I read this morning from Barclays suggested just that, and they are predicting that rates will soar above €1.20 this year.

On the other hand, you have robust policy from the ECB that is keeping the Euro strong, and the risk of a devaluing Pound through Quantitative Easing as outlined in my last post. So rates continue to be pulled in both directions, with no indication as to which way it will go in the medium term.

Want to discuss market movements? Send me a free enquiry. 

How to protect against rates moving against you

Despite the uncertain direction of rates, there are various ways you can protect against adverse rate movements and get the best possible rate.

You could place a Stop Loss order which give you a worst case scenario while still allowing you to aim for a higher rate.

A limit order is the opposite; you place an order to buy at a higher level than the market is currently at, and should rates rise even briefly, your currency is automatically bought.

You could fix today’s rates on a Forward contract for up to 2 years, and only lodge 10 % of the total, thus guaranteeing your rate, protecting against a decline and allowing you to budget.

To discuss your particular requirements, send me a free enquiry by clicking here. I can discuss your needs, run over your options and when you decide to convert your funds, the rates we can source on your behalf are exceptional – up to 5% better than the banks. You could be surprised on how much you can save.

Have a free consultation and find out about the rates I can provide. 

Economic Data

Tomorrow we have UK Retail Sales in addition to a speech by one of the Bank of England’s monetary policy committee. This could be interesting should include anything to do with Quantitative Easing and the markets will be listening closely to what he has to say.

On Friday we have some minor Public Sector Borrowing figures, but they could still affect the value of the Pound. 

Why are Sterling/Euro & Dollar exchange rates falling?

Friday 23rd September 2011

Good morning. It was a very volatile day in the currency markets yesterday. Notably the GBP/USD exchange rate dropped to a 1 year low, after the Federal Reserve warned about significant downside to the U.S. economy and triggered broad risk aversion in financial markets.

As the Dollar is a safe haven currency, it strengthened. The 1 year low is even more remarkable when you consider just a few weeks ago it was near a 2 year high! This is how rates fared throughout trading yesterday:

Markets fall as FED and others warn on growth

Yesterday the Federal Reserve warned that the US economy faced significant downside risks. The news sparked panic in the markets, and was one of only a series of grim warnings about the global economy.

Christine Lagarde, head of the International Monetary Fund, said the economic situation was entering a "dangerous place". Earlier, the president of the World Bank, Robert Zoellick, said the world's economy was "in a danger zone". The comments came after the Federal Reserve warned that the US economy faced "significant downside risks".

Also on Thursday, US Treasury Secretary Timothy Geithner said that the eurozone crisis and the political divisions in the United States were the biggest threats to the global economy.

So what does all this mean for the currency markets?

It signals significant worries about the global economy. In times of uncertainty, generally perceived safer currencies get stronger, and risky currencies weaken. This is exactly what we saw yesterday, with the safe haven US Dollar gaining significant strength throughout the day. It fell to a 1 year low, which is over 10 cents down from the 2 year high we saw a matter of weeks ago.

Riskier currencies including Sterling didn't fare as well. The Pound fell against other currencies, as investors fled from risk and rushed to move funds to Dollars. This is why we saw a general drop in most major GBP exchange rates throughout trading yesterday.

What do the analysts say?

"There's just a mad scramble to own dollars today, standing in front of the dollar is like standing in front of a moving bus. People are looking at what the Fed did last night and saying there is no new money being made available," said Michael Derks, chief strategist at FX Pro.

"The BoE doesn't help sterling, additional QE looks baked in the cake over the next couple of months. The global demand for dollars shows absolutely no sign of slowing".

Summary

It's incredibly hard to know which way things will go, but what is certain is that the volatility is likely to continue, while there is no real sign the global economy is going to recover any time soon. This will weaken riskier currencies such as the Pound, so it could be that GBP/USD rates continue to drop.

Against the Euro it's harder to call, as falls in the rate have been largely limited due to the ongoing EU debt crisis keeping the Euro weak and propping up GBP/EUR rates somewhat. Without these debt issues, it's likely Pound vs Euro rates would be significantly lower than they are at the moment.

If you have currency to buy or sell in the coming months, the best course of action is to contact us for a free consultation on your particular requirements. I can then explain the different options available to meet your needs, and ensure you don't get caught out by adverse exchange rate movements, and achieve the best exchange rate possible.

On Monday we'll have a detailed look at this weeks movements in the currency markets, particularly against the Euro and US Dollar.

Have a great weekend.

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.

Sterling rises on Central Bank move

Friday 16th September 2011
Good morning. Yesterday evening the worlds central banks have announced a co-ordinated move to try to help the financial system. The central banks are to provide commercial banks with three additional tranches of loans to help ease funding pressures. The news have calmed the markets, and riskier currencies such as the Pound have benefited. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1427
• GBP/USD 1.5761
• GBP/AUD 1.5266
• GBP/NZD 1.9110
• GBP/CHF 1.3780
• GBP/CAD 1.5530
• GBP/ZAR 11.683
• GBP/JPY 120.96
• GBP/DKK 8.5090
• GBP/NOK 8.8291
• EUR/USD 1.3791

Central Banks in co-ordinated move

The move by the Federal Reserve, Bank of England, European Central Bank, Bank of Japan and Swiss National Bank will provide additional lending, and follows fears about the exposure of banks in the EU to eurozone sovereign debt. The debt problems had made the banks reluctant to lend and this in turn has created funding problems.

US and EU banks have been moving funds out of Europe recently because of these exposure fears, and this has been putting further pressure on the banking system. The new loans are being issued in dollars, because European banks can already access additional euro funds from the European Central Bank.

The news has been welcomed by the markets, with riskier currencies such as Sterling benefiting, and exchange rates rising slightly from the lows we have seen earlier this week. But while analysts have welcomed the move, they have also warned that more will still have to be done to tackle the underlying problem of high levels of eurozone sovereign debt.

Today's Data

A quiet end to the week. Some Net flow data from the US and consumer sentiment survey also from the US are the only releases of note.

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.