Why has Sterling fallen into the €1.18's? Will it recover?

Wednesday 11th December 2013 
Sterling has been falling today, and exchange rates have dropped further from recent highs. In today’s post I’m going to examine the reasons why the Pound has dropped, and also give my views on where rates may head for the remainder of 2013. If you need to buy or sell currency in the near future, you're in the right place, so read on...

On Tuesday we actually saw rates rise slightly on the back of Bank of England governor Mark Carney’s comments on the economy, but the gains were short lived, and today rates have steadily dropped. So before we look at the reasons for today’s fall, let’s examine what happened yesterday. 

Pound rises on Tuesday, but not for long... 

The Pound hit a 2.5 year high against the US Dollar and also rose against the Euro yesterday, after upbeat comments from the Bank of England, and also strong house price data. These were taken as signs that interest rates in the UK could rise sooner than previously thought. Higher interest rates strengthen a currency as it provides a better return for investors. 

Bank of England Governor Mark Carney's commented earlier in the week saying that the economic recovery is showing signs it can reach self-sustaining momentum, although he also said monetary policy will need to remain exceptionally loose for some time. This caused slight gains through trading on Tuesday. 

Also recent data out of the UK showed slightly stronger than forecast industrial output data while the National Institute of Economic and Social Research released figures yesterday showing the economy grew an estimated 0.8 percent. 

Why has Sterling fallen against the Euro today? 

As you can see from today’s chart below, the Pound has fallen against the Euro and has dropped into the €1.18's; several points down from the highs of €1.21 we saw last week. 

So why was this if UK economic news is good?

There are a number of reasons the Pound has fallen today. We haven’t seen any significant economic data releases, and I thought today would actually be quite uneventful. However we have seen UK gilt yields fall which has caused the Pound to fall slightly against other currencies. 

The main reason GBP/EUR rates have fallen however is due to events in the Eurozone. I have read reports today that there is very tight liquidity in the euro zone, and European banks have been repatriating funds to shore up their capital bases for an ECB asset quality review. What this means is EU banks have been buying Euros, and the demand has strengthened the single currency, making it more expensive to buy. 

Also the European Central Bank's reluctance to cut interest rates any further has also helped the euro make gains, pulling GBP/EUR rates down into the €1.18's.

So what next? Will the Pound fall further or recover to €1.20? 

I personally feel this is a temporary dip. The reason rate were as high as €1.21 was speculation on interest rate cuts in the EU, that now seem much less likely, and the exchange rate has corrected itself accordingly. In the medium term I expect rates to break back above €1.20 although possibly not until next year. This of course depends on continued positive economic news from Britain. 

So for those needing to convert Euros to Pounds, I would consider taking advantage of the 2 cent move in your favour. You can fix the current rate for up to 2 years even if you don’t need your currency for some time. 

If you are buying Euros, I expect rates to recover. However this may take some time, so whether to hang on or not depends on how long you have until you need your Euros. It took repeated attacks on the €1.20 level before we broke through last time, and I expect the same. A Stop Loss order is useful in these conditions. 

If you have found my insight useful and are looking for the best rates, or want to discuss which way the rate is moving and would like to discuss how I can assist you, click below to send me a free enquiry today. I provide exchange rates up to 5% better than banks can offer, and have over 8 years’ experience in the currency markets. 

Click here to send me a free no obligation enquiry. 

Alastair Archbold

Pound falls against Euro after poor economic data

Monday 14th October 2013 
Good afternoon all. Well what a difference a week can make! The change in the weather in the UK has been mirrored by a change in the fortunes of the Pound. In Britain we seem to have very quickly entered autumn, and as the leaves started falling, so did the Pound, after a raft of poor economic data. 

This has pulled exchange rates lower and away from the all year highs seen just recently. In today’s report I’ll look at what has happened to cause the fall, and what else may happen with exchange rates in the coming weeks and months: 

• UK Retail Sales drop 
• Industrial and Manufacturing production fall 
• Trade balance in the UK widens. 
• IMF warn world could enter recession again 

Poor economic figures cause the Pound to fall 

It’s only been a little over a week since my last post, and at that time the GBP/EUR rate and the GBP/USD rate were both around the highest we’ve seen all year. Things can change very quickly in the currency markets however, and that’s exactly what we’ve seen. 

In the last week we have seen some poor UK economic numbers. Industrial and Manufacturing production was worse than expected, coupled with lower than forecast Retail Sales. More worrying was the fact the UK’s trade deficit has widened, meaning we’re importing more and exporting less. All of this had the effect of weakening the Pound and bringing exchange rates into the €1.17’s against the Euro, and back to the $1.60 mark against the US Dollar. 



In recent posts I have pointed out that the market seemed to have peaked, and indeed that now seems to have held true. Those that booked their currency on a Forward contract will be pleased at buying at the peak and will have been protected against the drop we have seen. 

If you are buying or selling currency, the market is very volatile at the moment. Simply hoping the rate will move in your direction is no more than a gamble, and could end up costing you dearly. The best strategy is to get in touch and discuss all the options we can offer you. In this way you can have a detailed chat with me regarding what might move the exchange rate, and make an informed decision on what to do. 

Click here to send me a free no obligation enquiry now. 

Is the world about to be plunged back into recession? 

The head of the International Monetary Fund, Christine Lagarde, has warned that a US default could tip the world into recession, saying that a default would result in "massive disruption the world over". 

So what’s happening in the states? The US Treasury will start to run short of funds on Thursday if no agreement is reached for it to raise its debt limit. The president of the World Bank, Jim Yong Kim, has also expressed his concern over the situation. 

He warned that the United States is just "days away from a very dangerous moment" because of the government's borrowing crisis. 

He warned this could be a "disastrous event" for the world. To explain what has been happening, the US government has been in partial shutdown since Congress missed a 1 October deadline to pass a budget, with politicians being unable to agree funding for current spending. 

This has resulted in hundreds of thousands of federal employees being sent home and government offices closing. Republicans refused to approve the new budget unless President Obama agreed to delay or eliminate the funding of the healthcare reform law of 2010. 

On Saturday, Jamie Dimon, boss of the American bank JP Morgan said the possible repercussions did not bear thinking about. "You don't want to know what would happen," he said. "It would ripple through the world economy in a way that you couldn't possibly understand." 

What might this all mean for exchange rates? 

So we’re at a crossroads in terms of the global economic recovery at the moment, and this may well have serious implications for exchange rates. The value of one countries currency against another is usually finely balanced, and uncertainty in the global markets could seriously affect exchange rates. 

If you need to covert one currency to another, perhaps to buy property abroad or maybe you buy or sell goods in a foreign currency, exchange rates can have a big impact on your costs. 

How can you get the best rates and protect against adverse currency movements? 

The first step is to get in touch with me to discuss your options. As a specialist foreign exchange broker, the rates that I can achieve are significantly better than banks can offer, by as much as 5%. So if you need to convert funds then the savings can be considerable. In addition to our great rates, we also have expert market knowledge that can help you decide when to fix your rate. 

This combined with the various range of FX contracts we offer mean that you could save thousands of pounds on your exchange. 

Click here to send me a free enquiry now and find out more.