Unemployment falls, Pound rises...

Wednesday 18th December 2013 
In my last post I outlined the data this week that I thought would have an impact on exchange rates. I pointed out that today (Wednesday) would likely cause changes in currency rates due to some key data including Unemployment and the latest Bank of England (BoE) minutes. Unemployment was lower than expected pushing the Pound higher, but comments from the Bank of England threaten to put the brakes on the Pounds rise. In today’s post I’m going to take a detailed look at what has happened, and what it means for the exchange rate forecast.  

UK unemployment falls, Sterling rises. 

The UK unemployment rate has fallen to its lowest level since 2009, official figures from the Office for National Statistics (ONS) showed this morning. The market expected a figure of 7.6%, however the actual number came in at 7.4%; the lowest rate since February 2009. As a result, the Pound has risen against the Euro by 1 cent to €1.1915, and also by a cent against the US Dollar to $1.64. 

As the chart above shows, the news gave Sterling a boost and caused exchange rates to rise, as I predicted would be the case on Monday. So why exactly did the Pound gain? 

This 7.4% rate compares with a figure of 7.6% for the three months to September, and is below the rate analysts had expected. The Bank of England has said it will not consider raising interest rates from their record low of 0.5% until the unemployment rate falls to 7%, so the fact that we are getting closer to the 7% target means interest rates in the UK could rise sooner than expected. 

Higher rates of interest attract investment due to the higher return, and this means demand for Sterling causing it to rise in value, and in turn push exchange rates up. However, the BoE governor Mark Carney has said an interest rate increase is not guaranteed even when unemployment falls to this level. Indeed as we will see in a moment, the BoE could even move to weaken the Pound in the coming months.

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BoE say that Sterling strength not good for the UK 

So the Pound is strong, exchange rates are rising, the economy is growing, so all is well right? Not necessarily. Sterling's recent strength risks derailing Britain's recovery and could jeopardise attempts to rebalance the economy, the Bank of England said this morning. 

The nine members of the Monetary Policy Committee (MPC) said while sterling's gains over the last 4 weeks reflected a stronger economic outlook, further rises could harm export growth. You can read the full minutes yourself by clicking here. 

Half our exports go to the Eurozone and so if the Pound gets much stronger, our goods become more expensive and so our recovery could start to falter. 

"Any further substantial appreciation of sterling would pose additional risks to the balance of demand growth and to the recovery," minutes from the Bank's December meeting showed.  

Sterling is at a five year high on a trade-weighted basis, where it is measured against a basket of other currencies, and the Bank said that for Britain's "burgeoning" economic recovery to be sustainable, it needs to rely more on business investment and exports and less on consumer demand. 

So you have been warned; this is the clearest signal I have seen yet that the BoE may move to devalue Sterling as they did in the summer of 2012 when rates fell from €1.30 to €1.14.

Will the Pound go up or down against the Euro?

Summary - when should you fix your rate?

On the one hand the UK economy is good, the Pound is gaining value, and this could continue should economic numbers continue to impress. This would be good news for those that need to buy Euros, but not so good for those looking to convert back into Sterling. 

On the other hand, if the Pound gets much stronger, might we see the Bank of England move to devalue the Pound due to the reasons I have outlined above? This would lower exchange rates, meaning it could be wise to fix a rate soon while it’s on a high. 

There is no way to predict what will happen, but if you need to make the most of your exchange, having a good currency broker on your side can make a huge difference. In addition to helping you achieve rates up to 5% better than banks can offer, I can explain various options and contract types that I have available, that can protect you against rates moving against you, while still allowing you to take advantage if the market moves in your favour. 

The first step is to send me a free enquiry by clicking below. I can then have a brief discussion regarding your requirements, explain the options you have, and enable you to make an informed decision on when to fix your rate of exchange. 

Click here to send me a free enquiry now. 

I look forward to hearing from you. 

Alastair Archbold

Pound/Euro rates jump to 2 week high of €1.18

Friday 1st November 2013 
Good morning.  It’s only been 2 days since my last post, but things can move very quickly in the currency markets. For most of this week exchange rates have been very stable, however yesterday was saw some significant negative data from the Eurozone that has weakened the Euro and pushed Pound/Euro rates back up. This is what we will look at in today’s report.

Why have Pound/Euro rates jumped to a 2 week high?

This week we’ve moved from a 2 month low to a 2 week high, due to poor data from the Eurozone. So what has caused the surge in rates? The single currency's weakness was caused by a number of factors, and we have seen the single currency fall pushing Pound/Euro rates to their highest in 2 weeks.

Data on Thursday showed euro zone inflation fell to the lowest in 4 years, which increases the chance of an interest rate cut in the EU.  We also saw German retail sales fall by half a percent, against a forecast of gains of half a percent. EU unemployment was also worse than expected, and all of this combined weakened the Euro significantly.

“In light of those inflation numbers, we have changed our call and are now expecting the ECB to cut its main refinance rate at next week's meeting," said Geoffrey Yu, currency strategist at UBS.

ECB about to cut interest rates?

Next Thursday both the Bank of England (BoE) and European Central Bank (ECB) announce their decision on interest rates. I expect the BoE to leave things on hold, but in light of the poor inflation numbers from the EU, there’s now a good chance the ECB could cut the rate.

This is the reason the Pound/Euro rate has risen. An interest rate cut would mean less return for savers and investors in the EU, and so these investors have been selling Euros in anticipation of the cut. This means the cut has now started to be priced into exchange rates, and Pound/Euro has climbed by over 1% as a result.

What does this mean if you are converting Euros to Pounds?

Those that took note in my last post of my suggestion to take advantage of the 2 month EUR/GBP high will be pleased, as it was short lived. Moving forwards, if the ECB do indeed cut rates, we could see the market continue to get worse for you. Some forecasts suggest rates will climb to €1.20 by the end of the year.

Looking for the best Euro to Pound rates? Click here.

What does the latest news mean for those converting Pounds to Euros?
 
It’s good news as we have seen rates rise significantly. We’re now 2 cents below the best it’s been all year. A rate cut in the EU could push things higher, however for the most part this may now be priced in. Next week’s GDP estimate for the UK will also have an impact, as it will indicate whether the UK economy is still growing.

So good GDP and a rate cut could push things higher, but as we’ve seen this week trends can change very quickly. If I needed to buy Euros, I would place a ‘Stop Loss’ order, so if rates drop below a certain level my currency is purchased. In this way, you can still take advantage of further gains should the rate rise further, however have a worst case scenario should rates start to drop again. Stop Loss orders are very useful when markets are moving in a positive direction for you.

• Need to buy Euros at the best rate? 
• Want to find out more about Stop Loss orders?   

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Pound/Dollar rates fall

In contrast to the euro zone, U.S. data was far more encouraging this week. A strong Chicago activity survey strengthened the US Dollar, and the good data means there still may be the case for the Federal Reserve scaling back its QE stimulus programme.

This has boosted the US Dollar, making it more expensive to purchase, and as a result Pound/Dollar rates have dipped back below $1.60 again.

Look for the best Pound/Dollar exchange rates? Click here.

Have a free consultation to help you get the best exchange rates
 
Regardless whether you are buying or selling a foreign currency, market movements such as we have seen this week can have a huge impact on the cost of your currency.

I can offer you a free consultation on your currency requirement, and explain the current trends and forecasts for which way rates will go. This, combined with the excellent rates of exchange I can offer can save you a significant sum on your conversion.

Therefore if you need to get the best exchange rates, why not take advantage of a free consultation with me. Click below to send me a free no obligation enquiry today, and I can get in touch to explain the options available to you. Our rates are up to 5% better than banks can offer, so find out today how much you could save.

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Sterling surges higher as Mark Carney issues Forward Guidance

Wednesday 7th August 2013 
Good afternoon. Today has been extremely volatile on the currency markets with Sterling surging higher against other currencies. The new Bank of England governor Mark Carney addressed Parliament and delivered his Quarterly inflation report. 

After months of decline for Sterling, the Pound has surged against other currencies today, so in my post this afternoon I will analyse what he said, the impact on the economy, why it caused exchange rates to rise, and what this means for exchange rates going forwards. 

‘Forward Guidance’ from the Bank of England 

The new Bank of England (BoE) governor Mark Carney today addressed parliament, giving his quarterly inflation report, his first since taking over the helm last month. It was already widely expected he would outline his new policy of ‘Forward Guidance’ and indicate that interest rates would remain low for some time. 

How did it affect exchange rates? 

 

As you can clearly see from the chart, when the speech started at 10:30am, Sterling immediately dropped quite significantly, as had been expected. You can see the dip at 10:30am this morning when Pound/Euro rates fell from 1.1530 to 1.1440.

The dip was not to last however, and very quickly the Pound recovered its losses, and kept on going. Again looking at the chart you can see the exchange rate rocketing higher, above where it started the day, and eventually levelled out around 1.1645 against the Euro. 

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So why did the rate drop, and then make a huge recovery? 

Firstly the reason it dropped was speculation that he would indeed say interest rates would remain low for some time. Market analysts, myself included, have been saying for some time that if he did indeed say interest rates would remain low, expect Sterling to drop, and initially this is indeed what we saw. 

The reason there was such a massive bounce back was the terms that he outlined as parameters for when rates would start to rise. He pledged to keep them on hold until the official unemployment rate fell below 7%. This is his ‘forward guidance’. Under its central forecast, though, the Bank does not expect unemployment to fall to 7pc until September 2016. So in effect, he’s saying interest rates will remain low for another 3 years. 

So you would have expected the Pound to fall further on this news, however Economists said traders were expecting a much tougher target than 7 % unemployment, hence the reason for today’s robust performance for Sterling. The Institute of Economic Affairs said Mr. Carney's forward guidance was "the most dangerous development in UK monetary policy since the late 1980s". So experts are mixed on the effect it will have. 

So what does this mean for the economy? 

If rates do remain on hold until 2016, they will have been at their record low for nearly 8 years. The last time this happened was the 12 years that spanned the Second World War and the period of austerity that followed. 


The economy does seem to be recovering however. Recently we’ve seen good Retail Sales, good growth figures, strong manufacturing and industrial production, good growth forecasts and decent house price increases. And although welcoming the recovery, Mr. Carney stressed that it “remains weak by historical standards”. 

“There is understandable relief that the UK has begun growing again. But there should be little satisfaction. Much is at stake as we seek to secure the recovery and return inflation to target,” he said. 

The Bank expects inflation to remain at 2.9pc this year, fall to 2.4pc by the end of 2014 and hit 2pc in late 2015. The Bank stressed that it will keep the stock of quantitative easing steady at £375bn until the end of 2016 as well, and could increase it if the economy slipped backwards. 

You can read a detailed report here on the BBC website of what he said and the impact on the economy.

What does this mean for exchange rates? 

Right now this means good buying opportunities for anyone that is buying a foreign currency with Sterling. The gains are a surprise to the market, and so if you need to buy currency, consider taking advantage of the gains we have seen. We can fix your exchange rate for up to 2 years into the future, and you only lodge 10% of what you want to convert now. This protects you from the rate falling. 

Moving forwards much will depend on economic figures. If they start to disappoint, then we could still see further QE from the BoE which would cause the Pound to fall back away. 

Need Euros at the best exchange rate? Send me a free enquiry. 

For those selling converting currency back in to Sterling, rates are now moving against you. A week ago the Euro to Pound rate was close to a 2 year high, with Forward guidance in place and the economy recovering, further good figures could mean the rate gets worse for you. 

Selling property abroad and want the best Euro to Pound rate? Make a free enquiry now and find out about your options.

How to get the Best Exchange Rates

The first step is to send me a free enquiry by clicking here. I can discuss your requirements in detail, run over the options you have available, and help you decide on the optimal time to convert your funds. This means you can make an informed choice on what is best for you.

When you decide to fix a rate, the levels I can achieve are incredibly good commercial rates, that are up to 5% better than you can achieve at banks and other financial institutions. 

Send me a free enquiry now and find out how good our exchange rates are.