Pound/Euro falls after BoE MPC vote. Will GBP/EUR keep falling?

Wednesday 20th February 2013 

Good morning. Sterling has dropped again dramatically this morning, after The Bank of England released the minutes to its latest Monetary Policy Committee meeting, showing that some members voted for more Quantitative Easing. In today’s post I will look at the effects of the news, and what this means for those looking for the best exchange rates. 

Bank of England minutes

At 09:30am this morning, the minutes were released. It looks like the Bank of England took a dovish tone, as it showed that three members of the Monetary Policy Committee voted for an increase in quantitative easing, including Bank governor Sir Mervyn King. 

The members of the rate-setting committee showed the nine-member committee split 6-3 in favour of holding the asset purchasing programme at £375bn, but the fact that 3 voted for more QE, including the governor, weakened Sterling significantly as you can see from this morning’s daily chart below. You can read a full breakdown of the minutes here on the Bank of England site.

Send me a free enquiry now

So why has this weakened the Pound? 

It’s because there is now a very high chance of further Quantitative Easing in the coming months. The split raised the prospect that the central bank might restart the QE programme. The last time there was a similar 6-3 split on the MPC was in June 2012, and the following month a majority of the MPC backed a £50bn increase in asset purchases. 

Quantitative Easing effectively floods the market with Sterling, and reduces its value as a result. In the past when QE has been announced, the Pound has dipped sharply and so should we see more stimulus then the Pound may well fall further. 

Along with Sir Mervyn, executive director for markets Paul Fisher and external MPC member David Miles voted for an increase in the central bank's bond purchases of £25bn to take the total to £400bn. The release of the dovish minutes caused the pound to continue its decline, falling 0.9pc to hit the lowest level in more than 15 months against the euro. At the time of writing Pound/Euro rates sit at 1.1425. 

Click here to make an enquiry about our exchange rates

So will the Pound fall further? 

There is a very good chance of this in my opinion, given that more QE is now likely, our credit rate is under threat, and there is still the ever present risk of the UK slipping back in to recession. 

 Also of worry to those hoping the Pound will recover is comments made recently by the BoE governor. He said that “there are limits to what can be achieved via general monetary stimulus” as he urged the Government to “find ways of boosting overseas demand for our products” and push through “supply reforms” – often associated with tax cuts and deregulation. 

This means that they want the Pound to weaken further to try and boost exports to help the economy recover. 

Your options if you need to convert Sterling to another currency 

If you are looking for the best exchange rates, it’s likely you have been watching the markets in dismay as the rate has fallen all year. In January GBP/EUR rates were at 1.2350, and rates have fallen over 7% since then to the lows of 1.1420 we see today.

Given the huge volatility we're seeing at the moment, don't simply leave things to chance and hope things will move your way. You should take control of what you need to do, know your options and allow yourself to make informed choices on when to fix a rate.

So what to do if you need to convert funds? 

The first option is to simply fix the rate now. Even if you don’t need your funds for some time, you can lock in the rate today by lodging 10% of the total you want to convert. This protects you against further falls in the rate, removes your exposure to the market, and will allow you to budget effectively. 

Alternatively you could hold off and hope rates recover. This is a risk of course, as there is every chance rates could continue to drop away.

A third option is to hedge your bets. For example if you need to convert £100,000.00 to Euros, you could fix a rate today for £50,000.00. You can then take a gamble on the remaining funds. In this way you have some level of protection regardless what the rate does. If it gets better, then you can convert your remaining funds at a higher rate. If it continues to fall, then at least you converted some of your funds at a better rate. 

Have a free consultation now

Take the next step to getting the best exchange rates 

If you need to buy or sell foreign currency, send me an enquiry now. I can get in touch to discuss your requirements, run over the options you have, and provide all the information you need to make an informed decision on when to fix an exchange rate. When you do this, the rates we can provide are up to 5% better than the banks. 

So now that you’ve finished reading, take the next step to making the most of your currency, and send me a free enquiry now by clicking here 

Weekly Sterling/Euro forecast & predictions

Tuesday 10th April 2012
Good morning. I hope everybody enjoyed the Bank Holiday weekend. In today's report I'll take stock of the huge gains seen in GBP/EUR rates last week, and how to take advantage of them even if your requirement is some way off.

In this week’s Report:

• Pound/Euro rates surge into the €1.21’s
• Best way to fix the record Euro rate for the future
• Round up of the week’s data that may affect rates

Sterling vs. Euro;

After the previous week’s constant bad news about the UK economy we would have been led to believe that the national papers had their printers on standby, ready to run off huge spreads about the UK heading back into recession and how we were all doomed.

However last week couldn’t have started any differently with the British Chamber of Commerce contradicting the previous week’s expectations and saying that they felt the first quarter of 2012 had actually been more positive than most thought, and that the UK could avoid a “double-dip” recession.

This view set the tone for the week as we saw manufacturing, construction and service sector PMI all surprise to the upside on 3 consecutive days (Mon-Wed), and even more surprising was the Halifax house price data on Wednesday which showed house prices rising 2.2% in March, up from a drop in February. This really helped to buoy Sterling and forced the rate up from 1.1970 Monday morning to nearly 1.21 by Wednesdays close.













News out of Europe was a little different to say the least. We had confirmation that the Eurozone economy as a whole had shrunk 0.3% in the previous quarter and the data last week didn’t do much to help the Euros prospects for the future. Unemployment rose again to a new high of 10.8% while retail sales fell and German factory orders showed much lower than expected. The Euro fell against most other currencies too (2.3% against the USD) as Eurozone issues were bought back into focus on Wednesday when we saw a disappointing bond auction in Spain and further political rumblings in Greece.

Thursday saw the Pound reach a 2 ½ month high of 1.2137 against the Euro after shrugging off a surprise drop in UK factory output which showed an annual decline of 1.4 present. At lunchtime the Bank of England held the interest rate at 0.5% and didn’t announce any more Quantitative Easing as was expected. The Pound garnered further support as the National Institute of Economic and Social Research (NIESR) released its estimate for UK GDP for the last 3 months and they predicted that the economy grew at 0.1%. Such a small reading would normally be bad news but after the expectations that a technical recession in the UK was just around the corner it may actually be the first sign of further recovery.

Whatever happens over the next few weeks as we move towards the actual GDP reading, the current rate is a perfect time to forward buy currency as I can’t see the rest of the year being anything but uncertain. A Forward purchase is where you can fix a rate of exchange for up to 2 years into the future, but only need to pay a 10% deposit straight away with the balance when you need to complete on the contract.

It is a perfect budgeting tool for property purchases or stage payments, and can also be used by anyone needing to sell currency to avoid potential negative market movements.

Speak to us today about how to make the most of your currency.

Weekly Economic Data that may affect exchange rates

Monday – UK, French, German and Italian Markets are all closed yesterday for Easter. We still some released however including some UK House Prices, EU Investor confidence and Australian Business confidence figures. Trade was very thin and so there was little effect on the markets.

Tuesday – Markets worldwide resume today, and the main data for UK is the BRC Retail Sales, and UK House price data. In Europe we have Industrial Production and German Trade Balance data. Stateside we have wholesale inventories and Consumer Sentiment measures.

Wednesday – Nothing of note from the United Kingdom today. The main data is from the US including Trade Balance Data, The Fed’s budget statement and the Fed’s beige book.

Thursday – Today we see Trade balance figures from the UK. In Europe the main releases are Industrial Production and an ECB monthly bulletin. Again the USA comprises the bulk of data releases today including Jobless Claims, Trade Balance and Inflation data.

Friday – We end the week with UK Producer Price Index & US Consumer Price Index

Getting the best exchange rates

You want the best exchange rates, of course you do. That's why you're reading this blog to try and gauge your timing. Take the next step and send us a free enquiry and have a consultation on all the options available to you.

It's free, it doesn't obligate you, and you may be surprised how much you can save by using us to get exchange rates that are up to 5% better than offered by banks. Click below to send your free enquiry now, and get a response the same day.

Click here to send me a free enquiry