Volatile weeks ahead for foreign exchange rates

Wednesday 6th May 2015
After a tumultuous end to last week for the Sterling/Euro pair, yesterday we saw rates remain within a 1 cent range between 1.3550 and 1.3650. This still represents a large cost difference when buying a large amount of currency, however relative to the huge drop we saw last week, it actually seems quite stable! Regular readers of my blog and those keeping an eye on the currency markets in general will know that the coming few days will be incredibly important for exchange rates. 

In addition to the usual economic data releases that may cause rates to change we have, of course, the UK parliamentary election on Thursday. It is a significant event to determine the appropriate stance of monetary policy and assesses the risks to long term goals of price stability and sustainable economic growth in the UK, and as such, it’s highly likely to affect the Pound. 

In the last week alone, a purchase of €250,000.00 has differed in cost by more than £6,500.00. Similar cost differences over the next week will not be a surprise. Therefore if you need to convert one currency to another this week, you should have a clear plan in place with regards to what you want to achieve, and how you’re going to achieve it. 

Simply sitting back and hoping the exchange rate will move in your direction is not a wise approach, and in today’s report we will have a look at how you can protect yourself against market volatility the election may cause, and look at ways you can protect yourself. 

Click here to get a quote and discuss your currency requirement

UK General Election likely to cause significant market volatility 

Let’s put things in context. Elections always cause uncertainty, and as I’ve mentioned several times in our analysis over the last few weeks, this election result is highly unpredictable. 

At the moment it looks likely a hung parliament will be the result, so not only will the market face volatility this week, the biggest price movements may actually be in the following few weeks while deals are made and the main parties attempt to form a coalition government. 

Financial markets look for stability in order to spur investment and confidence, and the currency markets are no different. Without intending to sound political, and looking at this from a purely analytical point of view, one example would be the prospect of a Labour/SNP deal. In my view the financial markets would not react favourably to that given the effect it may have on business investment and the economy as a whole and so could send the Pound lower. At the moment there is no way to know what government we will have a few weeks from now, so let’s take a sensible look at ways you can protect yourself against market volatility to ensure your currency does not cost more than necessary. 

How to protect yourself against exchange rates moving the wrong way 

The below is a brief outline of the main contract types I can offer. For a full outline of the options you can consider, the first step should be a free consultation, so that you can make an informed decision on what to do. 

Some options you can consider are outline below. They’re not too complicated and these smart ways to trade offer a host of clever advantages depending on your individual situation. For a more detailed look at the options you can consider and to get a quote for your exchange, contact me today. 

Spot contract - The quickest, easiest and most popular way to buy and sell currency – you simply exchange one currency for another, whenever you need it. You have two days to send us the funds and, as soon as your funds clear, we’ll forward the currency to the account of your choice. 

Forward contract - A forward contract can help protect against market volatility, useful for managing your budget. You can set the price now for a transaction that will take place up to two years in the future, allowing you to fix the exact value of the currency to be paid, regardless of market fluctuations. You secure the forward contract with a margin of 10% of the total value of your transaction (you’ll need to pay this within two working days of agreeing the contract) and then pay the balance before the contract expires. Once secured, the agreed exchange rate will apply for the duration of the contract. This is very popular at the moment. 

Limit order - With a limit order you specify the exchange rate you are hoping to achieve – which may not currently be available. Your currency will automatically be purchased if the market exceeds this rate, meaning you get the price you want. This type of contract is particularly useful when the markets are moving in a positive direction for you. 

Stop loss order - A stop loss order instructs your broker to buy if the exchange rate goes down to a pre-determined level. When combined with a limit order, you can hold out for a better rate while protecting yourself from a sudden fall in the market. 

To have your free consultation and have a detailed chat specific to your currency requirements and timescales, contact us today. 

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Please note I will be overseas for the next 10 days, so will be back in action on Friday the 15th May, with a full analysis on happened to exchange rates after the election 

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Pound/Euro remains near 6 year high

Monday 29th December 2014
Good morning and welcome back to the currency markets after the Christmas break. Given the market holidays there has not been much movement in exchange rates, so today’s report is a reminder how you can take advantage of the commercial exchange rates that we can offer. 

Pound/Euro rate near a 6 year high 

2014 has been a good year for the Pound/Euro exchange rate, and we are currently enjoying exchange rates within a few percent of the best they have been in 6 years. In real terms this means a €250,000.00 property overseas now costs a staggering £20,000.00 less than last summer, purely due to exchange rate movements. The Strong Pound is really driving the overseas property market and there has rarely been a better time in recent years to purchase a property abroad. 

Despite the good Pound/Euro exchange rate however, it has failed to go any higher in recent months. In light of this, it’s an opportune moment to look at the tools and contract types a specialist currency broker can provide, to help save you money when buying overseas. 

If you need the best exchange rates, click here to get a quote a find out more about the services we can offer. 

The tools available to help you take advantage of the best exchange rates 

Using a currency broker as opposed to your bank can save you thousands of Pounds simply by achieving better exchange rates. This is only part of the story however, as a specialist broker has various tools available that can help you take advantage of the current rates even if you don’t need your currency for some time. There are also ways to protect you against adverse exchange rate movements. 

Spot Contract - The Spot Contract is the most basic and commonly used foreign exchange product. It is an agreement to buy or sell one currency in exchange for another. You have 2 days to settle the contract, at a price based on the prevailing "spot exchange rate" (the current value of one currency compared to another.) Although a Spot contract lets you buy or sell currency as you need it, exchange rate movements are highly unpredictable, even during a single trading day. Upon receipt of cleared funds currency is available for onward transmission. This type of contract is typically used for paying an initial deposit for a property, or to top up your account overseas to pay bills. 

Forward Contract - A Forward Contract lets you buy or sell one currency against another, for settlement up to 2 years into the future. Unlike spot contracts, a forward contract eliminates the risk of fluctuating exchange rates by locking in a price today for a transaction that will take place in the future. Most importantly it protects you from unfavourable movements in the market, however, be aware that it will not allow for gains to be made should the exchange rate move in your favour during the period between entering the contract and final settlement for the currency. 

This type of contract is very popular when buying overseas, as usually there is a time period of a few months between paying your deposit and completing your final balance. It allows you to budget as you will know the total GBP cost of your purchase, and protects you against rates falling. For example, you could fix an exchange rate today for £200,000.00 to Euros, and only lodge 10% of the total funds to be converted (£20,000.00) while the majority of your funds remain earning you interest. 

You wouldn’t buy a property in the UK without knowing the final price, and the same should hold true when buying overseas. 

Stop Loss Order - A Stop Loss order protects you against adverse exchange rate movements and secures your currency if it falls below a pre-agreed level. This gives you a safety net and ‘worst case scenario’ and doesn’t leave you exposed to a falling market. This is useful when the exchange rate is rising. For example, the current trading level is 1.25. You place a ‘Stop Loss’ to convert your funds should the rate drop below 1.22. In this way you to take advantage of any gains, without leaving yourself open to unnecessary loss should the market move against you, and you know the absolute minimum you will have to spend. 

Limit Order - A Limit order, which is placed at the top end of the market to secure currency at a specific price that may not be currently available. This type of contract is particularly useful when the markets are moving in a positive direction for you. This type of contract can be using if you are targeting a specific rate, and can be used in conjunction with a Stop Loss order. 

This week’s Market Data 

Monday 29th December – The only data today is Retail Sales from Germany, which are a good overall barometer of the economic health of the EU’s largest economy, so could affect GBP/EUR rates. 

Tuesday 30th December - Very queit, with the only release US Consumer Confidence. 

Wednesday 31st December – Again all US based today, with Jobless Claims, Home Sales, and Inflation numbers. 

Thursday 1st January 2015 – Markets Closed. 

Friday 2nd January 2015 – The first round of economic figures for 2015 include UK Mortgage Approvals and Manufacturing PMI. The EU & US also releases Manufacturing PMI, and we also see construction data from the States. 

Why has the Pound stopped rising against the Euro?

Wednesday 23^rd October 2013

Good afternoon. Sterling remains a little weak against other major currencies, and is in the low €1.17’s against the Euro. This is mainly due to the single currency gaining strength due to more optimism, and effects of the US government shutdown. So what have I got for you in today’s report?

• Bank of England minutes unsurprising
• UK Interest Rates could rise sooner than thought
• Euro gains strength pushing GBP/EUR rates lower
• Spain finally exits recession
• The types of FX contract I offer

Bank of England minutes unsurprising

This morning the latest MPC minutes from the Bank of England (BoE) were released. They showed that the MPC voted unanimously to keep interest rates on hold at 0.5%, and the Quantitative Easing (QE) programme unchanged. This was all as expected and so had no real effect on exchange rates.

What was interesting was the positivity we saw from the BoE. They showed that UK unemployment and economic output are improving at a faster pace than expected, and also that bu0siness and consumer confidence have continued to grow. However, policymakers were divided about how fast productivity would pick up, and by extension, how fast unemployment would fall as the economy recovers.

This is important as they have already indicated interest rates may start to rise once unemployment falls below 7%. It’s currently at 7.7%, so if things keep improving we may see interest rates start to rise as soon as 2014. This is a long way off, but when rates start to rise it should give the Pound some strength.

What’s keeping exchange rates below the €1.20 mark however is Euro strength, and also the fact that it’s not in the UK’s interest to have exchange rates much higher than they are, due to the fact it would make our exports more expensive, so should rates start to rise again, I would not be surprised to see the BoE try to devalue the Pound to keep things in check.

Euro gains strength pushing GBP/EUR rates lower

Another reason for the Pound/Euro rate not forecast to go that much higher is renewed optimism surrounding the EU economy. Things are looking up in the Eurozone, and as a result the Euro has gained strength and become more expensive to buy.

For example, Spain'seconomy has emerged from recession after growing for the first time in more than two years, according to estimates from the Bank of Spain. Spain's economy has been struggling ever since the credit crisis struck in 2008, and has been one of the worst hit by the fallout from the credit crisis. It burst the country's housing bubble, and has needed bailouts to survive after being left holding hundreds of billions of euros in bad debts. Its unemployment rate of more than 26% is one of the highest in Europe.

Also giving the Euro strength is events in the USA. Now that the US debtceiling has been raised, investors that were holding US Dollars due to its safe haven status, have been selling Dollars and moving in to Euros. This has weakened the Pound a little and strengthened the single currency, keeping GBP/EUR rates in check. 

Click here if you are looking for the best exchange rates. 

On the 3 month chart below, you can see how the rate has leveled off in recent weeks. 

 

 The types of FX contract I offer

I write this blog to keep people up to speed with what is happening to exchange rates. You can make a free enquiry with me here to find out more about the service I offer. 

In a nutshell, I can source exchange rates that are up to 5% better than banks can offer, so if you need to buy or sell foreign currency you could save thousands. Click here to make a free enquiry. Below outlines the type of contracts I offer:

Spot Contract

The most common and popular contract. Fix a rate on the phone, settle your currency to use within 2 working days, and we then forward your currency to the account it needs to go to. All at fantastic commercial exchange rates with 0% commission.  

 

Forward Contract

The Forward Contract can help you take advantage of current exchange rates. You can fix the price now for up to 2 years. Within 2 days of fixing your rate, you lodge 10% of the total value of your transaction. You can then pay the remainder, in part or in full, by the end of the contract. This guarantees your rate, protects you against rates dropping, and allows you to budget. Very useful if you are buying overseas and have some time between paying your deposit and settling the balance.

Limit Order

Aiming for a rate higher than the current level? This is for you. With a Limit Order you specify the exchange rate you are hoping to achieve, and your currency will automatically be purchased if the market exceeds this level and you'll get the rate you wanted. This type of contract is particularly useful when the markets are moving in a positive direction for you.

Stop Loss Order

This is the opposite of a Limit Order. You would instruct me to buy if the currency goes down to a pre-determined level. When combined with a Limit Order you can hold out for a better exchange rate and still protect yourself from a sudden fall in the market. This gives you a worst case scenario and a safety net should the market move against you.

Want to find out more?

Click here to send me a free enquiry now.

When you get in touch, ask for Alastair Archbold and quote ref AJA. I can then have a brief chat regarding your requirements, explain the different options you have, and give you a quote so you can see how good our exchange rates are.

I look forward to hearing from you.

Alastair Archbold

BoE upgrade UK growth forecasts / Currency Forecast

Thursday 16th May 2013 
Good afternoon. Sterling Exchange rates remain fairly stable, with GBP/EUR sat just above €1.18 and GBP/USD around $1.5250 at the time of writing. The Pound is being supported by robust UK data, including the upgraded economic growth forecasts for the UK. This is what I’ll be looking at in today’s report, along with an outline of the types of contract I can offer to help you get the best exchange rates. 

If you are looking for the best exchange rates, or are trying to work out whether the Pound will go up or down against the Euro or any other currency, then read on below. You can also have a free consultation on your particular requirements by clicking here.

Bank of England upgrades growth forecasts 

The Bank of England yesterday upgraded its economic growth forecast, with the Governor Mervyn King saying that "a recovery is in sight". He also said that the projections are for growth to be a little stronger and inflation a little weaker than they expected three months ago. "That's the first time I've been able to say that since before the financial crisis.” 

This was good news for the Pound, and as a result exchange rates remain at relatively decent levels compared to earlier in the year. Economic growth this year is now expected to be greater than 1%, up from the Bank's previous estimate of 0.9%. As you can see from today's chart, optimism has pushed the Pound up nicely against the Euro.

The underlining picture remained subdued however. Sir Mervyn said: "This hasn't been a typical recession and it won't be a typical recovery. Nevertheless, a recovery is in sight." So, while the outlook was slightly more rosy than it was three months ago, we are not quite out of the woods yet, with the BoE saying that the recovery will remain weak by historical standards". 

Looking for the best Exchange rates? Click here for a free quote.

Problems in Eurozone could hurt the Pound. 

While the UK is doing better than it had been, the same can’t be said for the Eurozone. Figures released yesterday showed that France fell back into recession, and the Eurozone economy as a whole contracted for the sixth quarter in a row. 

Many of my clients thought that the problems in Europe would weaken the Euro and push rates higher. Of course this may be the case, but it’s important to remember that the poor Eurozone data means that UK exporters will face obstacles in the coming months. 

The UK is trying to bounce back on an export led recovery, and a weak Eurozone means there will be less demand for UK products. Touching on this yesterday, the BoE said that the "main risks to the recovery continue to emanate from abroad". So with the Eurozone economy remaining weak, this could hurt the pound. 

As I mentioned in my previous report, this means that we may see the Bank of England try to devalue the Pound to make our exports more attractive. This is what we saw earlier in the year when the GBP/EUR rate fell from 1.2350 to 1.13 in just a few months. 

You can read an interesting article here from Reuters, where they are forecasting the new Governor will opt for aggressive easing, which would really weaken the Pound and potentially send exchange rates tumbling.

If you need to buy or sell currency at the best rates, send me an enquiry. 

Types of Contract I offer 

As a Senior FX broker for one of the UK’s leading foreign exchange brokerages, I can help you get exchange rates significantly better than the banks, by as much as 4%. 

In addition to better rates, there are various contract types I offer that can help protect you against rates moving the wrong way. Let’s take a look at the main types: 

SPOT CONTRACT 

The Spot Contract is the most basic and popular foreign exchange product. It is an agreement to buy or sell one currency in exchange for another. You have 2 days to settle the contract, at a price based on the prevailing "spot exchange rate" the current value of one currency compared to another. 

Although the spot market lets you buy or sell currency as you need it, spot exchange rate movements are highly unpredictable, even during a single trading day. Upon receipt of cleared funds currency is available for onward transmission. 

FORWARD CONTRACT 

A Forward Contract lets you buy or sell one currency against another, for settlement no later than on the day the contract expires. Unlike spot contracts, a forward contract eliminates the risk of fluctuating exchange rates by locking in a price today for a transaction that will take place in the future (up to a maximum of 2 years). You also have the flexibility to take delivery of your currency in an agreed time period before the expiry date. 

A 10% deposit is required to secure the contract and is payable within two working days with settlement due on the day the contract expires. 

LIMIT ORDER 

A Limit Order is an order to secure currency at a specific price that may not be currently available. This type of contract is particularly useful when the markets are moving in a positive direction for you. This is one of the two most common types of orders, the other being a Stop Loss Order. 

STOP LOSS ORDER 

A Stop Loss Order is used when the market is moving in a negative direction for your currency. An order is placed on file with your broker to help ease the stress of adverse market movements. A stop loss order instructs your broker to buy when the currency hits a certain point. The purpose of the stop loss is obvious – you want to prevent any further movement before the currency falls any further. 

Make a free enquiry with me now 

If you need the best exchange rates, or would like to discuss my service in more detail, click here to send me a free enquiry today. I can provide a free consultation on the options available to you, to help you decide when to fix your rate and on what type of contract. 


There is no cost or obligation involved, and you may be surprised how much you can save in using me to secure currency at the best exchange rates. 

I look forward to hearing from you.

Alastair Archbold.