Pound/Euro exchange rate forecast Feb 2013

Wednesday 6th February 2013

Good afternoon everybody. As usual today I'm posting up a quick mid week update on what has been happening with exchange rates, and the Pound/Euro rate in particular. As regular readers will know, Sterling/Euro has been in sharp decline over the last few weeks, however we have seen things steady a little over the last few days. Read on for more on what the predictions and forecast is for Sterling/Euro exchange rates over the next few weeks. 

Well let's get started then. To kick off, I'm going to take a retrospective look at what has happened this week, before moving on to where rates are headed. 

Pound steadies against Euro

On Friday, we saw rates fall as low as 1.1475, the lowest in around 16 months. this was after a particularly sharp decline in rates on Friday, reminding us all the exchange rates can often move very quickly and without warning. 

On Monday the Pound recovered nearly all its losses and rose back up to around €1.16. There was no particular reason for the rise - indeed we actually had poor inflation data from the UK. I think the main reason was simply a slight correction following the dramatic decline in previous days.

Tuesday saw the downward trend continue yet again, dashing any hopes amongst Euro buyers that a recovery was on the cards. We had cold water poured on the growth forecasts for the UK, this pushed rates down again to around 1.15.

Today, rates are on the up again, demonstrating what a yo-yo the GBP/EUR cross is, meaning it's impossible to predict where it will go - day to day it's fluctuating up and down by 1% or more. We've had some better than expected Retail Sales, and also signs the service sector is improving, which is part of the reason for rates climbing back a little. We're still way off the €1.23 of a month ago, and at the time of writing rates remains steady a little under €1.16.

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So will rates continue to climb, or will they fall?

This of course is what everybody wants to know, but in reality nobody can predict which way rates will move. Instead I will now outline the arguments for both rates climbing and falling, and then you can make your own mind up on what you think will happen. I'll give my opinion after the summary. 

The case for rates continuing to fall
 
UK borrowing is likely to be £64bn higher in 2014-15 than forecast in 2010, according to a closely watched report. The Institute for Fiscal Studies (IFS) says a weak economy will mean the government has to borrow more than it forecast, unless it imposes tax rises and further spending cuts. 

We also have real fears the UK is heading back into recession which in turn means more Quantitative Easing is on the cards along with a downgrading of our credit rating. If the economy continues to disappoint, GBP/EUR could continue to fall towards €1.10.

The case for rates going back up

The weakness in Sterling is partly due to the fears of recession being priced in to the value of the Pound already. 

If figures later this year show growth, it could give the Pound a boost. 

Also the Euro is very strong at the moment, should they decide to 'talk the Euro down' in order to make it's exports cheaper, this would weaken the Euro.

What do I think?

Personally I think there is much more chance of rates continuing to fall than suddenly get back to €1.20. I believe there will be more negative GDP figures, further Quantitative Easing, and all the while most global investors are now much more confident on the Euro, giving it strength. 

In the short to medium term, I think the Pound will continue to struggle against the Euro, but in the latter part of the year would expect to see a modest recovery towards 1.20. 

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What to watch out for in the next few days. 

If you are buying or selling Euros in the coming days, then there is some important events you should watch our for. 

On Thursday at 12:00pm and 12:45pm respectively, we have the latest decision from the Bank of England and European Central bank on interest rates. I don't expect any change in rates from either bank, but there is a small chance of more Quantitative Easing from the Bank of England. Should this be the case, expect the Pound to drop against other currencies by some margin.

Also tomorrow, we have UK Trade Balance and Manufacturing/Industrial production figures. Poor numbers here would really weaken the Pound and could mean a further decline in the rate. 

Also on Thursday at 3pm, we have a GDP estimate, which will include the figure for January. This will give us some idea whether the UK is heading back towards recession, so the currency markets could be very choppy tomorrow. 

Send me an enquiry to find out more about how this data could affect your currency requirement. 

Making the most of your currency

Regardless whether you are buying or selling a foreign currency, having a good broker that can keep you up to date with events in the markets is very important. In addition to my expert market knowledge, the rates I can source are significantly better than available at banks and other financial institutions, sometimes by as much as 5%. 

So if you are worried about which way rates are going, send me a free enquiry now. I can spend 5 minutes discussing your requirements, running over your options, and explain how our service works. I look forward to hearing from you.

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Pound/Euro forecast; rates could drop further

Monday 26th November 2012

Good morning. The Pound/Euro exchange rate fell quite a bit last week, and the forecast is for this to continue. This is partly due to events in Europe, but also due to the fact the Bank of England governor is speaking again this week, and could well talk the Pound down further. So what have I got for you in today's post?

 

In this week’s Report: 

• Pound/Euro rates in decline last week
• Bank of England speech this week could weaken Pound further 
• EU fails to resolve Greek/EU debt issues 
• Round up of the week’s other data that may affect rates

Sterling vs. Euro; 

Pound/Euro rates last week were largely dominated by discussions between the IMF and EU Finance Ministers, over a €44 billion Greek bailout. The single currency strengthened considerably, due to the optimism of the aforementioned plan, but was clouded mid-week by continued disagreements between the two deciding factions. As you can see by the chart below, rates have been in decline now for a few weeks. 

Reports on Monday last week outlined that an agreement was expected the following day that would allow Greece to access the bailout monies allocated from December 5th. However, following a twelve hour meeting no solution to Greece’s debt problems could be met, prompting Christine Lagarde to say that the meeting had yielded progress but the technical details could not be ironed out. 

The euro, which had been steadily strengthening due to the meeting’s publicity, retraced part of its gains as speculators were reminded that solving the region’s debt-crisis cannot be done by simply releasing bailout funds. 

What caused the Greek debt crisis?

 

The Greek crisis emanated from enormous borrowing which grew exponentially since joining the euro. Public spending soared after adopting the single currency; costs which were not offset through taxation, largely due to widespread tax evasion, making it impossible to balance the books. When the Global Financial Crisis occurred it wiped the foundations from Greece’s house of cards, and essentially made it impossible to repay their lenders due to the staggering debt-levels they had accumulated. 

The high emphasis on a Greek rescue stems from a fear of contagion. Contagion is the notion that if Greece were to default on their debts, a similar cycle of events could affect countries like Spain, Italy and Portugal. The cause is a result of the fear that these countries could follow Greece’s example and default on their obligations. 

Not only this, but the losses associated with a Greek default would significantly dampen Global liquidity; in a nutshell, when people are fearful and refuse to spend, economies become stagnant. Talks are on-going which for the GBP/EUR rate means that an agreement could see the rate drop further as the euro strengthens. However if there are more delays or compromise can be met, this could see the rate bounce back as the single currency will weaken. So things really could go both ways in the coming weeks. 

Mervyn King could talk the Pound even lower

One argument for rates dropping further, is a continuing weakness in Sterling. The Governor of the Bank of England is speaking on Thursday and is largely expected to pour cold water on Britain’s economic progress, as he did a few weeks ago. Many believe that this is an attempt to weaken the pound as a ploy to increase our competitiveness in the export market; as the EU is major trade partner. This comes despite some positive data from the UK which saw momentary retracements on the euro’s strength last week. 

How to protect against the rate dropping

If the euro is your currency of interest, send me a free enquiry and I can get in touch to discuss your options. If the Market appears to be moving against you, Forward Contracts and Stop Orders are great ways of protecting yourself from adverse Market movements. If the rates are going in your favour, Limit Orders allow you to set an optimistic level in the Market which can be automatically purchased, 24 hours a day, seven days a week. 

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Weekly Economic Data that may affect exchange rates 

Monday – The main data that could affect GBP/EUR rates today is from Germany. We have a host of data from Europe’s largest economy, including Retail Sales, Import Prices and a Consumer Confidence Survey. Staying in Europe, we also have the EcoFin meeting, which covers areas such as coordinated economic measures, budgetary policies, public finances, capital movements and financial markets. Elsewhere we have Trade Balance figures from New Zealand, and manufacturing data from the USA. 

Tuesday – An important day for the Pound, as we will have GDP figures, House Prices and Business Investment measures. There is nothing major from Europe, but across the pond we’ll see US House Prices, Consumer Confidence, and Speeches by various members of the Federal Reserve. 

Wednesday – Nothing from the UK today. We do have some German inflation figures along with Spanish Retail Sales. IN the USA we will see some further Home Sales data, which is a good barometer of overall economic health. 

Thursday – A fairly busy day today. Starting in the UK we have Consumer Credit, Mortgage Approvals, and a Speech by the Bank of England governor Mervyn King. Be very mindful of this, as last time he spoke he talked the Pound down by a significant amount. It’s followed by a UK Financial Stability report. In Europe we will see Consumer Confidence, Economic Confidence, Industrial confidence along with German unemployment numbers. In the states we have Jobless Claims, Homes Sales and manufacturing numbers. 

Friday – The only UK data of note is consumer confidence and an inflation report. In the Eurozone we have Inflation numbers, unemployment numbers and Retail Sales. We end the week in the Americas with inflation numbers from the USA and GDP figures from Canada.  

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