What goes up must come down...

Friday 10th January 2013 
Well, as is often the case in the currency markets, spikes are short lived and the gains we saw yesterday against the Euro have been eroded. In today’s post I’m going to have a look at what has happened this week with Pound/Euro rates, Pound/US Dollar rates, and Pound/Australian Dollar rates. I'll also take a look at where the rates have been historically, and what may happen during 2014.

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First things first, let’s see what’s been happening with exchange rates this week. 

Pound/Euro 

The rate is around the best it’s been in 12 months. The ECB meeting yesterday that I touched on in yesterday’s post, caused rates to hit €1.2150. As I explained in my brief post yesterday, the fact that the ECB hinted at lower interest rates significantly weakened the Euro, and this made it cheaper to buy, pushing rates to the mid €1.21’s. 

It was not to last however. This morning we saw some disappointing industrial and manufacturing production figures that were well below forecast. The result was a weakening of the Pound/Euro rate back to where we started the week! 

During the last week though, the fluctuations mean converting £150k netted you a Euro amount differing by up to €2500.00, illustrating that getting your timing right can make a huge difference. 

Pound/US Dollar 

Exchange rates to buy US Dollars are close to a 4 year high. The poor UK data this morning, as I outlined in the Euro section above, pulled rates from 1.65 down to 1.64. 

However this afternoon we had some extremely low jobs numbers from the states. Analysts thought nearly 200,000 new jobs would be created, but in fact it was only 74,000. As the number was way lower than expected, the Dollar weakened and pushed the GBP/USD rate back up to 1.65 again. 

Pound/Australian Dollar 

Exchange rates to buy Australian Dollars are currently the best they have been in over 4 years. Remarkably, this time last year the GBP/AUD rate was the worst it has been in decades. This was because the AUD was very strong, Australia avoided recession and China import huge amounts of raw materials from Australia and so this gave the currency support and making it expensive. That all changed 6 months ago and the rate is now the best in over 4 years! 

This is in part due to the UK recovering, so the Pound is strong. I think it's more to do with China though - their growth has slowed massively, so less demand for raw goods from Australia, this in turn has significantly weakened the Aussie and has made it very cheap to buy indeed. 

I think it's going to continue to be china that drives the rate - if their economy starts growing at a ridiculous pace again, then we'll see the rate drop back away. 

To put it in perspective, converting £150k to AUD is netting you nearly $60,000 more than beginning of last year, which is quite amazing really when you think about the fact rates were at the lowest in 30 years 6 months ago. 

Summary 

So there we go, and that’s my view on some of the major currency pairs. If you are looking for the best exchange rates, want to discuss which way the market may go, or simply want to get a quote on the exchange rate I can offer you, then click below to send me a free no obligation enquiry. 

I’ll be back on Monday with a breakdown of how next week’s economic figures might affect exchange rates. 

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Alastair Archbold

Pound/Euro, Pound/Dollar, Pound/Aussie forecasts

Wednesday 3rd October 2012

Good afternoon everybody. I'm taking a few minutes to give an update on what has been happening so far this week int he currency markets. The Pound has not fared very well so far this week, and exchange rates to buy US Dollars have dropped to a 3 week low, while against the single currency, GBP/EUR rates have dropped to the lowest in 2 weeks. 

Why has the Pound fallen against the Euro?

The reason for the decline is mainly due to UK data, rather than events in the Eurozone. Poor economic data releases this week have dented confidence in the recovery in the UK economy, and Sterling has weakened as a result.

For example, so far this week we have seen poor inflation numbers, figures confirming we are still in recession, lower than expected manufacturing data, and also today a showing Britain's service sector growth slowed in September and also other services providers shed jobs for the first time in 10 months.

In recent times it has been the EU debt crisis driving exchange rates, with fears over Spain and Portugal weakening the Euro. This trend now seems to be moving the other way, and GBP/EUR rates have now dropped below €1.25 as you can see from the chart below. 

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Central Bank meetings on Thursday

The next important event for the currency markets will be the central bank meetings for both the Bank of England (BoE) and European Central Bank (ECB). They will make announcements tomorrow with regards to interest rates, and also if the UK Quantitative Easing (QE) programme will be increased.

The UK will announce first at 12:00pm, and I don’t expect any change to rates or QE. Most in the market hold the same view, and we expect further QE in November. So if indeed there are no surprises, then there is not likely to be any impact on rates. If they do announce any QE, expect the Pound to fall.

At 12:45pm the ECB will make their announcement, and again I don’t expect any movement in their interest rate of 0.75%. Of more importance will be the press conference that follows at 13:30pm, as if the ECB president Mario Draghi makes any comments that the market perceives as positive or negative, then we could see movement in the GBP/EUR rate. In a recent meeting, he announced they will do ‘whatever it takes’ to save the Euro, and this simple comment caused the Pound/Euro rate to drop significantly in just a few seconds, highlighting how this press conference could affect rates.

Pound/Aussie Dollar rate climbs

There was a surprise cut to the Australian Interest rate earlier this week, and as a result the Aussie Dollar weakened and became cheaper to buy. Due to the lower return now on offer, investors sold the Aussie, and this has helped push rates up significantly, as the graph below shows. With more QE likely in November for the UK that could weaken the Pound, if you need to buy Australian Dollars it would be wise to consider your options now. 

 

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