EU hints at rate cut, but GBP/EUR won't break €1.20

Tuesday 25th March 2014 
Good afternoon. We have seen a little volatility today with Pound/Euro rates rising from €1.1920 up to €1.20, before hitting resistance and falling back away. Pound/Dollar continues to trade around the $1.65 mark. 

In today’s post I’m going to explain what caused the swing in GBP/EUR rates. First, let's look at today's GBP/EUR chart. In it you can see rates rising to €1.20 before falling away. I will explain why in a few moments...

UK Inflation better than expected 

First let's look at UK data. In my post yesterday I outlined that one of today’s key data releases was UK inflation, mentioning that if the figure was higher than 1.6% the Pound would strengthen. 

The actual number came in at 1.7%, so slightly above forecast. This gave the Pound a little push from €1.1920 up to €1.1945 – a small gain, reflected in the small increase in the inflation rate. 

You can read a full report about the inflation numbers here on the BBC website  

EU President gives speech, hints at ECB rate cut

The main reason for the spike in rates up to €1.20 was comments by the ECB president Mario Draghi, which I also highlighted yesterday as something that may move rates. A week or so ago, his positivity about the Eurozone economy cause the Euro to strengthen and pull GBP/EUR below €1.20.

You can read his full speech here, but to outline the key comments I took from it: 

“we commit to keep our policy interest rates as low as they are currently or even lower for an extended period of time." ... “In particular, our forward guidance implies that short-term real rates, which are negative today, will become even more negative in the foreseeable future.”  

So today was different – as you can see from the above, he hinted at interest rates coming down in the EU. This weakened the Euro due to the lower return a cut in interest rates would offer investors. A weaker Euro is cheaper to buy, and so the Pound/Euro rate rose to €1.20.  

Sterling/Euro hits €1.20 before dropping back away – why was this?  

In a recent post I explained something called Support and Resistance. In it I outlined the reasons why I think rates won't go above €1.20 for some time, which has been illustrated quite clearly in today's market movements. If you haven’t read it already, it’s worth looking at if you need to buy Euros any time soon, as this may be the highest the exchange rate gets for a while.

Pound/Dollar also remains around $1.65 for the same reasons I outlined in the Support and Resistance post I've linked to above.

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Pound/Euro €1.20 Pound/Dollar $1.65 (Support & Resistance)

Thursday 20th March 2014 
Things have settled down in the currency markets after the economic data released yesterday. Pound/Euro is at €1.20, and I don’t expect it to go higher in the short term. Pound/Dollar has dropped to $1.65. 

Today I’ll take stock of where exchange rates stand, explain something called ‘Support and Resistance’ which is limiting the rate going higher, and look at how to ensure you get the best possible exchange rate. 

Sterling/Euro rates hit a resistance barrier at €1.20 

As outlined in my post yesterday, the warnings from the Bank of England about the strength of the Pound have been limiting any gains. It has crept up a little more today, hitting €1.20 before dropping back slightly. This is what I thought would happen earlier in the week. 

So why is it hitting the barrier at €1.20? It’s to do with something called resistance. For those interested in the technical side of it, you can find a detailed explanation of Support and Resistance here. 

The chart above shows today's movements, and you can see the rate hitting €1.20 before dropping back away. 

In simple terms, a resistance level, in this case €1.20, is a key level at which the rate hits a barrier and drops back away. It happens because at certain levels the number of sellers exceeds the number of buyers causing the price to go back down. 

It’s really only of interest to investors and speculators. I don’t cater for that type of exchange, as most of the clients I can help are buying or selling property abroad, or businesses that need to buy and sell foreign currency. It is wise to have a basic understanding of it however, as it’s likely to stop the rate getting any higher in the short term. 

Because of this, I now expect the GBP/EUR rate to struggle to break through the €1.20 level for some time. As you can see from today’s chart, when it got to that level it fell back again, and this is now likely to happen again and again. This will continue until there are new economic figures that would have to be above expectation and causing Sterling to increase and break through. If and when it does, which may take some time, its likely keep rising towards €1.21. 

At the end of last year, it took a few months to break through the €1.20 level. So if you need to buy Euros then this resistance level could mean this is the peak for some time. If I needed Euros, I would either fix a rate now, or at least place a ‘Stop Loss’ order to protect against the market dropping back away. 

Discuss your Euro requirement and your options with me today. 

Pound/Dollar drops to $1.65 

GBP/USD has moved down today, after a speech by the new FED chairman Janet Yellen. 

She hinted that interest rates in the US could start to rise in early 2015, which caused the Dollar to strengthen and become more expensive to buy. 

Again looking at the chart, you can see a good example of ‘Support’ that I mentioned earlier, which is at $1.65. 

Other Currencies: GBP/AUD, GBP/NZD, GBP/AUD

Sterling exchange rates against the commonwealth currencies, such as the Australian Dollar, New Zealand Dollar, and also the South African Rand have been dropping in the last few weeks. This is because their economies have been improving, and also interest rates in these zones may start to rise soon. Also the strengthening of the US Dollar has also helped strengthen these currencies, making them more expensive to buy and pulling exchange rates down.

Find out more about the rates and service I offer 

I can help with market knowledge, various contract types, and can source exchange rates that are significantly better than the banks usually offer, sometimes by as much as 4% or 5%. If you need to convert currency, then it will do you no harm to contact me for a quote to compare. 

If you have a currency transaction to perform and would like to find out how I can help you, get in touch in the following ways:

Click here to send a free enquiry 
Call me directly: +44 (0) 1442 892 066 

You can reach me between 08:30am and 17:30pm UK time. 

Ask for Alastair Archbold, and quote ref ‘FERF’