Pound falls on low inflation numbers

Tuesday 18th February 2014
We have seen Sterling lose ground today after lower than expected inflation numbers were released this morning. As you can see from the chart below, GBP/EUR rates slipped around 0.5% but levels remain in the mid €1.21's.

So why exactly does lower inflation cause the exchange rate to drop?

The UK's inflation rate, as measured by the consumer prices index, fell to 1.9% in January. The rate fell below the Bank of England's 2% target for the first time in more than four years. While this is good for business's and individual consumers, it's not good news for Sterling, and this is to do with interest rates. 

The fall is likely to underline the Bank of England's message that there is no rush to raise interest rates, as they would usually only do this to combat high inflation. So as the number was lower than expected, analysts believe this has pushed a rate hike further into the future. It has been the speculation of higher interest rates that has been the main reason for the recent rise in rates, so as the data changes, as does the value of the Pound. The net result is Sterling having lower value and rates falling. 

Is this a temporary drop? Will rates go back up again?

Tomorrow is a very important day for the Pound, and will likely have a big impact on where exchange rates go in the coming weeks. 

At 09:30am tomorrow we will see the latest UK Unemployment figures. The number will probably be just above 7%, but if it's lower than this the Pound may regain some of today's losses. 

Also at 09:30am we see the Bank of England minutes, which show the vote and what was discussed a few weeks ago when they left rates and QE on hold. These will be of importance because if the votes and comments show they discussed raising rates, the Pound may rise. 

Of course if unemployment is 7.1% of higher, or of the BoE minutes show a consensus rates don't need to go up, then expect the Pound to lose more value and rates to drop further. 

Exchange rates at multi-year highs

In my recent post I outlined some major currency pairs and how good exchange rates are at the moment. It seems the recent trend of a spike in rates followed by a drop is continuing, so if you need the best exchange rates, why not get in touch to discuss your requirements.

I can explain what is moving the rate, provide you a quote to compare with your existing bank or broker, and you can make sure you are getting the best possible rate. 

It costs nothing to make an enquiry, carries no obligation, and the savings can be considerable. 

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I look forward to hearing from you.

Alastair Archbold

Pound falls further. What might affect exchange rates this week?

Monday 13th January 2013 
The Pound has fallen further today against other currencies and currently sits at €1.20 vs the Euro. This is in addition to the falls in the rate we saw on Friday, due to poor manufacturing figures, as I outlined in my last post.

So what has caused the drop today? To be honest it’s been quite hard to pin a reason on the decline today, as there have been no significant data releases that would have caused the volatility. 

After some further research, it appears that the fall in the value of the Pound today was due to a measure of whether U.K. economic data has been beating analysts’ expectations, and this has damped investor demand for the currency, and as a result it has weakened and exchange rates have fallen. You can read more about this on the Bloomberg site here.  I can find no other explanation for the drop in rates. 

This has meant the Pound has dropped to the lowest level in a month against the Euro down to €1.20, and down to $1.6380 vs the US Dollar. We could see rates rise again, and much will depend on how economic data releases this week fit in with expectations. 

So as usual for a Monday, below I will list the remaining data releases that are due this week, and give my thought on how they could affect exchange rates. Remember that if you have a currency requirement, you can contact me for a free quote by clicking here. Even if you currently use a broker, even a small difference in the rate can represent a big saving. It doesn’t cost anything to send me an enquiry, so do so now by clicking here. 

What could affect exchange rates in the coming week? 

Monday 13th January 2014 

As explained above, today was very light with no significant data releases, however this hasn’t stopped Sterling falling by around 0.6%. 

Tuesday 14th January 2014 

A little bit more to digest today – at 09:30am we will see the latest inflation numbers. These are important as they are linked to interest rates, and it’s speculation of higher rates that has been the main cause of Sterling’s strength recently. The 2 annual figures are expected at 2.1% and 1.8% respectively. Higher and the Pound will gain, lower and the Pound will fall. 

Elsewhere, we have EU Industrial Production numbers, but I don’t think they will have much impact. WE will also see UK Retail Sales today. They are a good barometer of overall economic activity, and so if the numbers disappoint, we could see GBP/USD rates rise. 

Wednesday 15th January 2014 

Very quiet again today with nothing on the calender that should affect GBP/EUR rates. GBP/USD could be affected however by US Mortgage numbers and a FED report on the current economic situation in the United States. 

Thursday 16th January 2014 

A very busy day for EU and US Data today. Starting in Europe, we have various measures of inflation, and these will be key to whether the ECB cuts rates any further. Lower than expected numbers would increase the chance of rates being cut, and would cause GBP/EUR to rise further. 

Over in the states, we also have a raft of inflation numbers, along with Jobless Claims and a speech by the outgoing FED chairman. 

There is nothing of note being released from the UK today. 

Friday 17th January 2014  

We end the week with UK Retail Sales, and Housing data from the US. 

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Pound falls after poor UK Retail Sales.

Thursday 19th September 2013
Good afternoon. Since my last post, we’ve seen quite a bit of volatility in the currency markets. I mentioned a few days ago that the markets had been flat, and that I predicted the Bank of England (BOE) minutes and UK Retail Sales would probably cause some movements in the value of the Pound/Euro rate, and indeed they did. We have also seen some news from the US Federal Reserve that has caused a big change in GBP/USD rates.

So let’s take a look at what’s been happening…

Bank of England minutes push the Pound higher

Yesterday we saw that the Bank of England has upgraded its growth forecast for the UK economy when they released the latest minutes from their Monetary Policy Committee. You can read the minutes here if you so wish!

The minutes show that third-quarter growth is expected to be 0.7%, up from 0.5%. The minutes also show that the MPC voted unanimously to keep interest rates and quantitative easing (QE) on hold this month.

It had a big impact on the value of the Pound, which rose against other currencies. Climbing to €1.1960 against the Euro – around the best it’s been all year. The gains were not to last however, as today’s UK Retail Sales news pulled the Pound down again. More on that in a moment.

US FED weakens the US Dollar significantly

Overnight, the US central bank unexpectedly said it would not begin scaling back its massive economic stimulus programme until the US economy had improved further. The bank also cut its growth forecast. So pretty much the exact opposite of what the Bank of England did.

The result was the opposite also – the Dollar weakened significantly, pushing the GBP/USD rates to as high as $1.6150 – the highest it’s been all year.

As with the Pound/Euro rate, the all year highs were short lived due to some poor UK economic news…

UK Retail Sales disappoint

This morning at 09:30am the latest UK retail sales numbers were released. Most analysts thought they would show a rise of 0.4%. Not to be – the actual figure showed a drop of 0.9% and this was a big surprise.
The currency markets don’t like surprises, and as Retail Sales are seen as an indicator of consumer confidence, and therefore the economy as a whole, the Pound lost quite a bit of value.


As you can see from today’s graph, the Pound fell as soon as the number was released, pulling GBP/EUR rates to €1.1860 and GBP/USD rates to $1.6090.

Getting the best exchange rates

I mentioned in my last post that rates seemed to have levelled off, and indeed it looks like recent highs may well have been a peak. The current buying levels are still very good however.

So if you need to convert Pounds to another currency, or convert a foreign currency back to Sterling, you should get in touch with me to find out the rates that I can offer.

I provide commercial rates of exchange to both private and corporate clients that are much better than banks can offer. Get in touch with me today to find out more.

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Pound falls from highs after GDP figures

Thursday 25th July 2012
Good morning everybody. The Pound has dipped against the Euro. At the beginning of the week Sterling was riding high, and at the time I warned that it may not be the case rates will remain at those levels and we could be in for a drop. Indeed the pound fell quite sharply against the Euro and other currencies, after data showed the British economy contracted by more than three times the rate it was expected to in the second quarter, increasing the prospect of more monetary easing by the Bank of England.

UK recession worsens after 0.7% GDP fall

After the figures were released, most news websites and organisations took a very political slant to the news, either hailing the figures as ‘Conservatives Ruin Economy’ or ‘Labour ruined the economy and Conservatives try to fix it' depending on which newspaper you read and their political affiliation. I’m not going to bother with any of that here; all I aim to do is analyse what it means for exchange rates, and what direction they may take in the future. In this way you can hopefully make an informed decision on when to exchange your currency, and of course use us to get the very best exchange rates.

So why did GDP make the Pound drop?

The GDP figures yesterday were much worse than expected, and the Pound took a bit of a hammering as a result, as the graph shows. The reason it fell is that the poor growth figures show that we’re still mired in the worst double dip recession in 50 years, and so we now expect more action to try and combat this.

What shape will this action take? It’s probably going to either be Quantitative Easing shaped, or take the form of an Interest Rate cut in the UK. Both of these would weaken the Pound further due to the lower return Sterling will give investors.

Analysts confirmed these fears yesterday when they said that sterling could be vulnerable to more falls as the market starts to price in the prospect of further quantitative easing or even a cut in interest rates by the BoE.

Paul Robson, currency strategist at RBS, said the GBP/EUR rate could drop even lower if the market starts to price in an increasing probability of a cut in interest rates from their current record low 0.5% in the coming months.

So that’s it then, rates are going to keep falling?

Probably not by too much. Despite all the doom and gloom, I do not expect sterling to stray too far from its recent high against the euro. As fears grow about whether Spain will need a full bailout and whether Greece will leave the euro, I expect that Sterling will still be a very attractive option for investors seeking alternatives to euro zone assets.

Having said that, things are so uncertain we may not test the highs again.

How to avoid getting caught out by market movements.

Clients that read my reports knew that continued gains were not a given. In a recent post I suggested 2 options – a Forward contract to fix rates while they were high, or a ‘Stop Loss’ order where your currency is bought if it drops below a pre-agreed level.

Those that pursued either of these options will have saved a significant sum given the recent market movement. If you had fixed forward, the drop would have had no impact on you as your rate is already fixed. If you had a Stop Loss in place, then you had a worst case scenario and your currency will not have cost you any more than you had budgeted for.

Both of these options still hold true as a sensible strategy to ensure you have some control over the market. Those selling Euros should consider taking advantage of the spike to the downside. Those buying really should have some protection in place as outlined above.

Don’t just sit there and hope rates will go back up. Of course they might well do, but a Stop Loss means that if they do keep dropping you won’t be kicking yourself of what 'could have been'.

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Pound falls sharply on news of more BoE Stimulus

Friday 15th June 2012
Good morning everybody. Why has the Pound fallen against the Euro this morning? Things can change very quickly in the currency markets, and in my last post GBP/EUR rates were getting close to €1.25. The facts have now changed, and so has the exchange rate; the Pound has fallen sharply this morning, after The Bank of England announced yesterday evening that it will launch two new stimulus packages in response to the worsening economic outlook:


Sterling falls sharply on news BoE to pursue more stimulus

When the markets opened at 8am this morning the reaction was severe, and Sterling has dropped sharply across the board, as the chart above shows.

In the new developments, it was announced that together with the government, it will provide billions of pounds of cheap credit to banks to lend to companies. Banks will also have access to short-term money to deal with "exceptional market stresses". The chancellor said the measures would "inject confidence".

In the announcement, the governor Mervyn King said that "We are not powerless in the face of the eurozone debt storm. Together we can deploy new firepower to defend our economy from the crisis on our doorstep,"

Indeed on this blog I have been warning for some time that the EU debt crisis could well start to affect the UK, and this is what we are now seeing.

The Bank has already pumped £325bn into the economy through its quantitative easing (QE) programmes, hoping that the institutions that sell bonds to the Bank then use the money to buy up other assets, but that hasn’t always been the case. Some have said that they have held on to the money undermining the effectiveness of QE. Regardless the additional currency in the system has weakened the Pound in recent months.

You can read more about the £140bn scheme to kick-start stagnant economy here on the telegraph website.

Euro crisis deepens and affects Spain

As expected, Spain is the latest country to be dragged into the debt crisis, having earlier in the week taking a €100 billion bailout of its banks. Yesterday it was seen that Spain's borrowing costs hit 7% which is a level widely seen as unsustainable. Italy's borrowing costs also rose sharply meaning we could now see bailouts for these two countries.

Greek elections this weekend

With Greek elections taking place this weekend in what is being seen as a referendum on the euro, analysts have warned of potential further shocks to the financial sector. If the anti austerity Syriza party succed, then they may well effectively be voting themselves out of the single currency.

What is certain is that whatever happens this weekend, the market reaction on Monday morning is likely to be quite severe, as for many weeks investors have been waiting for this event before deciding what to do with their currency.

On Monday I will post a full analysis of the results, and what the Greek elections could mean for the Pound/Euro exchange rate forecast.

Pound/Euro exchange rate forecast

Many clients have been convinced that the Euro debt crisis would continue to weaken the Euro making the GBP/EUR exchange rate higher. Indeed on this very blog I have been warning for some time that this may not be the case, and in fact the UK is not immune to the EU’s problems. Sterling is at risk of falling if more stimulus is needed. This is now what has happened, and the 3.5 year highs seen recently now seem a distant memory.

Where rates will go moving forwards is impossible to predict, but with so much uncertainty surrounding the UK and EU economies, rates could go either way. Currently there is not much support for Sterling in the wake of yesterdays announcements, and so in the short term I don’t expect rates to rise back to €1.25 any time soon. I would expect rates to stay in the €1.22 to €1.2350 range for the moment, but on Sunday when the election results are seen, I'm sure the market will correct accordingly. Of course I will post a full analysis of what the election results mean on Monday morning.

What to do if you need the best exchange rates

With much volatility and conflicting opinions on where markets are headed, it’s more important than ever to know your options, and take advantage of the expert knowledge I can offer you for no cost. I have worked in the FX markets for nearly 10 years and so have a very good knowledge of not only what moves exchange rates, but strategies and tools you can use to help you achieve the best possible exchange rate.

If you need to buy or sell any international currency, send me a free enquiry now to find out what your options are. Everybody’s requirement & attitude to risk is different, but in having a free consultation and gaining full knowledge of all the options available to you, you can make an informed choice on what is best for you.

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Pound dips below €1.20 / $1.60 - Interest Rates today

Wednesday 4th April 2012
Good morning. As I have been warning in recent weeks, the levels of €1.20 on the Euro and $1.60 on the US Dollar may not last forever, and indeed yesterday so the Pound fall slightly against both currencies, however upbeat manufacturing and construction data gave some support which limited the drops, as the better than expected data tempered concerns over a lack of growth in Britain's economy.

ECB Interest Rate decision; how could it affect GBP/EUR exchange rates?

Later today we will see the latest EU Central bank decision on whether they will make any changes to the base rate of interest. My forecast is that no monetary policy changes are expected from the European Central bank today. The same is true of the majority of the experts, with the general consensus that it is highly unlikely for the ECB to change interest rates.

45 minutes after the decision however, we have a press conference with ECB president Mario Draghi. In this he gives his opinions on the current state of the economy, and we often see his comments interpreted as an indication of future interest rate moves. So while I don't expect a rate change in the EU today, I will be closely watching the press conference for any hints of future monetary policy.

Some analysts are saying a hawkish message from the bank wouldn't be a surprise, as they need to get back to concentrating on quelling inflation instead of helping Europe's economy and financial system out of crisis may give the euro a brief boost. This could give the Euro strength and push exchange rates further lower. However some investors were still looking to sell the euro as concerns grew about a fragile outlook for the euro zone and high debt levels in Spain.

So, yet again there are views to both sides and so it's impossible to predict what effect today's ECB decision will have on rates.

Will the Bank of England announce more Quantitative Easing today?

I don't think that the BoE will decide to increase its bond purchase program, despite the fact that two of the MPC members called for it at the last meeting. The minutes from the BoE MPC March meeting revealed that David Miles and Adam Posen voted in favor of extending the bond purchase program. Unless there is a very sudden deterioration in the UK economy, I think the central bank will hold off on further stimulus for now.

"Sterling looks like an okay bet for now as most of the bad news for the UK has been priced in," said Geoffrey Yu, currency strategist at UBS. "But I don't think investors are actively (favouring) sterling and in the next few months we think it is likely to head lower."

Sluggish growth in the midst of a strict fiscal austerity programme has already forced the Bank of England into pumping 325 billion pounds of stimulus in the shape of quantitative easing into the economy. Other data from the service sector due this morning will be closely scrutinised for UK growth prospects and could have more of a lasting impact on the pound.

Today's Data

Staring in Australia again today, we see some Trade Balance figures that could affect GBP/AUD rates. In the UK there are PMI figures released which as mentioned above could have an impact on the Pound. Of more importance will be the latest announcement on any Quantitative Easing. The EU also has an interest rate decision today, followed by a press conference. This often causes more volatility than the decision itself, so we will be watching it closely.

Getting the best exchange rates

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