Volatile weeks ahead for foreign exchange rates

Wednesday 6th May 2015
After a tumultuous end to last week for the Sterling/Euro pair, yesterday we saw rates remain within a 1 cent range between 1.3550 and 1.3650. This still represents a large cost difference when buying a large amount of currency, however relative to the huge drop we saw last week, it actually seems quite stable! Regular readers of my blog and those keeping an eye on the currency markets in general will know that the coming few days will be incredibly important for exchange rates. 

In addition to the usual economic data releases that may cause rates to change we have, of course, the UK parliamentary election on Thursday. It is a significant event to determine the appropriate stance of monetary policy and assesses the risks to long term goals of price stability and sustainable economic growth in the UK, and as such, it’s highly likely to affect the Pound. 

In the last week alone, a purchase of €250,000.00 has differed in cost by more than £6,500.00. Similar cost differences over the next week will not be a surprise. Therefore if you need to convert one currency to another this week, you should have a clear plan in place with regards to what you want to achieve, and how you’re going to achieve it. 

Simply sitting back and hoping the exchange rate will move in your direction is not a wise approach, and in today’s report we will have a look at how you can protect yourself against market volatility the election may cause, and look at ways you can protect yourself. 

Click here to get a quote and discuss your currency requirement

UK General Election likely to cause significant market volatility 

Let’s put things in context. Elections always cause uncertainty, and as I’ve mentioned several times in our analysis over the last few weeks, this election result is highly unpredictable. 

At the moment it looks likely a hung parliament will be the result, so not only will the market face volatility this week, the biggest price movements may actually be in the following few weeks while deals are made and the main parties attempt to form a coalition government. 

Financial markets look for stability in order to spur investment and confidence, and the currency markets are no different. Without intending to sound political, and looking at this from a purely analytical point of view, one example would be the prospect of a Labour/SNP deal. In my view the financial markets would not react favourably to that given the effect it may have on business investment and the economy as a whole and so could send the Pound lower. At the moment there is no way to know what government we will have a few weeks from now, so let’s take a sensible look at ways you can protect yourself against market volatility to ensure your currency does not cost more than necessary. 

How to protect yourself against exchange rates moving the wrong way 

The below is a brief outline of the main contract types I can offer. For a full outline of the options you can consider, the first step should be a free consultation, so that you can make an informed decision on what to do. 

Some options you can consider are outline below. They’re not too complicated and these smart ways to trade offer a host of clever advantages depending on your individual situation. For a more detailed look at the options you can consider and to get a quote for your exchange, contact me today. 

Spot contract - The quickest, easiest and most popular way to buy and sell currency – you simply exchange one currency for another, whenever you need it. You have two days to send us the funds and, as soon as your funds clear, we’ll forward the currency to the account of your choice. 

Forward contract - A forward contract can help protect against market volatility, useful for managing your budget. You can set the price now for a transaction that will take place up to two years in the future, allowing you to fix the exact value of the currency to be paid, regardless of market fluctuations. You secure the forward contract with a margin of 10% of the total value of your transaction (you’ll need to pay this within two working days of agreeing the contract) and then pay the balance before the contract expires. Once secured, the agreed exchange rate will apply for the duration of the contract. This is very popular at the moment. 

Limit order - With a limit order you specify the exchange rate you are hoping to achieve – which may not currently be available. Your currency will automatically be purchased if the market exceeds this rate, meaning you get the price you want. This type of contract is particularly useful when the markets are moving in a positive direction for you. 

Stop loss order - A stop loss order instructs your broker to buy if the exchange rate goes down to a pre-determined level. When combined with a limit order, you can hold out for a better rate while protecting yourself from a sudden fall in the market. 

To have your free consultation and have a detailed chat specific to your currency requirements and timescales, contact us today. 

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Please note I will be overseas for the next 10 days, so will be back in action on Friday the 15th May, with a full analysis on happened to exchange rates after the election 

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Pound/Euro back to €1.38, will Sterling go up or down?

Wednesday 8th April 2015
Since the Easter break, Pound/Euro rates have seen a very decent recovery, rising from 1.3550 to 1.3800 today, as you can see from the chart below: 

Before the Easter weekend, the Pound had come under pressure due to political uncertainty in the run up to the general election. This had pulled rates down from 1.38 to the 1.35’s. The reason it has gained and recovered these losses is due to better than expected UK economic data. 

Why has the Pound gone up against the Euro? 

This week we have seen figures that show activity in the UK's services sector grew at the fastest pace in more than 6 months. We have also seen the Confederation of British Industry (CBI) forecast UK economic of 0.7% in the three months to March which is better than it has been. We also recently saw the Office for National Statistics (ONS) revise economic growth upwards. We’ll have to wait a few more weeks however before the first official estimate of the UK's economic growth for this year. 

Will Sterling go up or down in the next few weeks? 

All in all the numbers are good, and this has given renewed optimism for the Pound. I still don’t think this will be sustained. We saw a very similar trend a week ago when rates rose to 1.38, but he gains were short lived. As you can also see form the chart above, the rate quickly dropped back 2 cents and the reasons for this remain – political uncertainty on the run up to the general election. 

In addition to election jitters, Sterling could come under pressure this week due to a statement from the Bank of England. They don’t want the Pound to be this strong against the Euro and we may see comments designed to weaken Sterling. Also watch out for Friday when the latest Industrial and Manufacturing production figures are released. The numbers are expected to show growth of 0.3% and 0.4% respectively. If the actual numbers are lower than this Sterling will fall against other currencies and vice versa. Also on Friday a GDP estimate could affect the Pound. 

Do you need to convert currency at the best exchange rates? 

If you have a currency transaction to perform, would like a quote, or to simply discuss the market or anything I’ve covered above, contact me for a free no obligation consultation by clicking below. 

Click here to send a free enquiry today.

Sterling/Euro exchange rates & the General Election

Monday 30th March 2015
Exchange rates have been a little more stable in the last week, with the Pound/Euro rate remaining in a 2 cent range between 1.3550 and 1.3750 as the chart below illustrates: 

Interest Rates and Exchange Rates

In my last post, I pointed out the Bank of England’s chief economist had warned interest rates may need to be cut to combat zero inflation. Well on Friday the day after my post, the governor Mark Carney said precisely the opposite, which is that the next move in interest rates will likely be up. 

Interest rate speculation has been a major driver of Sterling strength of late, and the comments on Friday caused the Pound to recover. It should be noted though that 2 of the main decision makers within the BoE seem to be at odds with regards to which way the rate will go, which is only going to create more uncertainty. The fact remains that if the numbers continue to show inflation so low, a cut is more likely and this could weaken the Pound. 

General Election and Exchange Rates

For the next month, the main news will be the UK election. The Pound is likely to weaken against other currencies over the next month due to the election uncertainty, and as I outlined in a recent post, this is because the result is so uncertain. This is likely to push the Pound lower in the coming weeks. I personally don't think we'll see things back at €1.40 any time soon.

If you need to buy or sell Euros and would like to discuss your currency requirement with me and obtain a quotation, click here to send a free no obligation enquiry. On average the rates I provide are 3% better than banks and other financial institutions so you could save a significant amount of money. 

Click here to make a free enquiry 

What could affect exchange rates this week? 

Below I’ve listed the scheduled releases for the coming week that I think may affect exchange rates. Remember that other things such as election uncertainty could also change rates at any time without warning. To discuss your currency requirement in more detail, or have a chat about which direction the exchange rate may go, click here to send a free enquiry today. 

Tuesday 31st March 2015 – Today we have the latest UK GDP forges, which are expected to show monthly and annual growth at 0.5% and 2.7% respectively. If the numbers are worse than this then expect the Pound to fall against other currencies. GBP/EUR could also be affected today by the EU inflation and Unemployment numbers. For those watching GBP/USD then US Consumer confidence figures at 3pm is something to watch out for. 

Wednesday 1st April – Today the main events for the currency markets will be inflation numbers from Europe and the UK. This is important as it indicates future interest rate movements, and so often affects exchange rates. Construction and Manufacturing numbers from the USA could affect GBP/USD 

Thursday 2nd April – Nothing major from the UK today, but there is an ECB meeting that looks at the economy and financial markets. It’s basically an assessment for the EU economy so this could affect Pound/Euro rates. Most other data is from the USA – Unemployment Jobless figures and Factory orders. 

Friday 3rd April – Very quiet today as most markets are closed for Good Friday. The USA remains open however and we have some important releases; Unemployment and Non-Farm Payrolls. These numbers often move GBP/USD rates as the figures are often quite different to what’s expected. 

Do you need to convert currency at the best exchange rates? 

If you have a currency transaction to perform, would like a quote, or to simply discuss the market or anything I’ve covered above, contact me for a free no obligation consultation by clicking below. 

Click here to send a free enquiry today.

How could General Election affect exchange rates?

Friday 9th January 2015 
Where do things stand with exchange rates? Pound/Euro is hovering around its comfortable level of €1.28 and Pound/Dollar has stopped falling, for now, and sits around $1.5150. Against other major currencies Sterling is actually quite weak have fallen against most currencies. It’s only weakness in the Euro that’s keeping GBP/EUR supported at the current near 6 year high. 

The Pound could struggle this year for several reasons which I’ll look at today. Remember that if you want to achieve the best exchange rates, click here to send me a free enquiry, get a quote, and find out more about the commercial exchange rates I can offer.

• How General Election could affect Sterling exchange rates 
• When will interest rate go up, and will the change Pound/Euro 
• QE in Europe and will this make GBP/EUR rates go up 
• Pound/Dollar will it drop below $1.50 

Election uncertainty could weaken the Pound 

Political uncertainty is one key thing that can weaken a currency, and this year’s election is one of the most uncertain in a generation. Whatever happens it’s going to be very rare indeed. There has only been 2 occasions in the ‘50s when a government in power for more than a few years has increased its share of the vote, and Cameron needs exactly this to win. For Miliband to come back after Labours defeat last time and win a majority has only happened 3 times in the last 100 years, so that’s also unlikely. The 3rd option is a coalition; the last time that happened on two consecutive occasions was over 100 years ago. So any of the possible outcomes will be almost unprecedented. 

This means Sterling could come under pressure this year and fail to move higher, and could keep exchange rates in check. 

Interest Rates may not rise this year 

The Bank of England again kept interest rates at 0.5% yesterday, and a rise in interest rates in 2015 is looking less and less likely, after inflation levels have fallen recently. Last year there was much speculation rates would be going up, but it now seems the UK’s recovery has proved less robust than hoped, so hopes of a rate rise seem to have evapourated. HSBC for example have now pushed back its forecast for the next rate hike to 2016 due to political uncertainty, weaker inflation and an economic slowdown. 

So this along with the election is also likely to keep the Pound from rising. 

ECB closer to doing Quantitative Easing 

One thing that could move GBP/EUR higher however is the EU that could be soon embarking on a QE programme. They have miserable growth and little improvement is on the horizon and doing nothing is not an option. The ECB president is dropping stronger and stronger hints that they will embark on a stimulus programme. Nobody knows if it will work, but three countries that have embarked on it in the past (UK, USA & Japan) all saw their currency weaken. This is partly priced into the value of the Euro and is the one thing that is stopping Pound/Euro dropping away. 

If you need to buy or sell Euros at the best rates, would like a quote, or want to find out more about which way the exchange rate may move, click here to send me a free enquiry today. 

Pound/Dollar rate stops falling, for now 

The sharp decline in GBP/USD has also been halted. The rate dropped into the $1.50’s but has now recovered back to $1.5150. however due to the reasons above, and the fact the United States are likely to push up their interest rates soon, it could drop below the $1.50 mark later this year. 

Do you want the best exchange rates for conversion between any major international currency?

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