Pound/Euro rates back up to €1.21 after ECB press conference

Thursday 3rd April 2014 
Pound/Euro rates had fallen towards €1.20 this morning ahead of the ECB press conference, caused by slightly poor UK PMI numbers, and impressive EU Retail Sales. 

The dip didn't last long through, and the European Central Bank (ECB) president Mario Draghi has now finished his press conference. Despite some volatility in GBP/EUR rates in the last 24 hours, we’re now pretty much back where we were yesterday, with Pound/Euro rates around €1.21. The ECB news has caused GBP/USD to fallinto the $1.65’s. So let’s have a look at what he said, and how it affected exchange rates...

The chart above shows how the GBP/EUR rate has moved today. Let's look in detail what casued the swing in rates...
 
In my post yesterday, I expected one of two scenarios. Either Draghi would say inflation will sort itself out without intervention, which would have caused exchange rates to fall. The other scenario was that he would hint at easing, which I thought likely, meaning rates would go up. 

So what happened? He said both! You can read his comments in full here. At the start of his speech he said: 

“recent information remains consistent with our expectation” following this with “inflation expectations for the euro area over the medium to long term continue to be firmly anchored in line with our aim of maintaining inflation rates” – this was scenario one, and as expected this strengthened the Euro and pushed rates as low as 1.2030. 

But quick as a flash, he then added: 

“we do not exclude further monetary policy easing and we firmly reiterate that we continue to expect the key ECB interest rates to remain at present or lower levels for an extended period of time.” And then added that “The Governing Council is unanimous in its commitment to using unconventional instruments within its mandate in order to cope effectively with risks of a too prolonged period of low inflation.” – this was scenario two, effectively hinting that in fact they may pursue some type of Quantitative Easing programme. This caused the Euro to weaken, and pushed rates back to the €1.21 level.

I expected him to hint at easing, which he did, but I didn’t expect him to cover all bases, which is why despite a bit of volatility, Sterling/Euro effectively remains unchanged at €1.21. 

If you need to buy Euros, this could be the peak 

I don’t personally think it will go much higher, unless there are further signs that the ECB want to pursue a QE programme, so if you need to buy Euros, consider locking the rate in where it is with a Forward contract. 

In this way you can lock in the rate now for up to 2 years by lodging 10% of the total you want to convert, protecting against the rate dropping. 

To be perfectly honest, I think the market will remain flat for some time now, and I don’t expect it to drop below €1.20, so Euro sellers should consider the same strategy. Contact me to get a quote on your exchange.

Pound/US Dollar 

The fact the Euro has weakened has caused investors to move to the safe haven of the US Dollar, this has strengthened it, making it more expensive to buy and pushed Sterling/US Dollar lower. 

This is why the rate to buy dollars dropped, while the rate to buy Euros rose.

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Why has Sterling fallen into the €1.18's? Will it recover?

Wednesday 11th December 2013 
Sterling has been falling today, and exchange rates have dropped further from recent highs. In today’s post I’m going to examine the reasons why the Pound has dropped, and also give my views on where rates may head for the remainder of 2013. If you need to buy or sell currency in the near future, you're in the right place, so read on...

On Tuesday we actually saw rates rise slightly on the back of Bank of England governor Mark Carney’s comments on the economy, but the gains were short lived, and today rates have steadily dropped. So before we look at the reasons for today’s fall, let’s examine what happened yesterday. 

Pound rises on Tuesday, but not for long... 

The Pound hit a 2.5 year high against the US Dollar and also rose against the Euro yesterday, after upbeat comments from the Bank of England, and also strong house price data. These were taken as signs that interest rates in the UK could rise sooner than previously thought. Higher interest rates strengthen a currency as it provides a better return for investors. 

Bank of England Governor Mark Carney's commented earlier in the week saying that the economic recovery is showing signs it can reach self-sustaining momentum, although he also said monetary policy will need to remain exceptionally loose for some time. This caused slight gains through trading on Tuesday. 

Also recent data out of the UK showed slightly stronger than forecast industrial output data while the National Institute of Economic and Social Research released figures yesterday showing the economy grew an estimated 0.8 percent. 

Why has Sterling fallen against the Euro today? 

As you can see from today’s chart below, the Pound has fallen against the Euro and has dropped into the €1.18's; several points down from the highs of €1.21 we saw last week. 

So why was this if UK economic news is good?

There are a number of reasons the Pound has fallen today. We haven’t seen any significant economic data releases, and I thought today would actually be quite uneventful. However we have seen UK gilt yields fall which has caused the Pound to fall slightly against other currencies. 

The main reason GBP/EUR rates have fallen however is due to events in the Eurozone. I have read reports today that there is very tight liquidity in the euro zone, and European banks have been repatriating funds to shore up their capital bases for an ECB asset quality review. What this means is EU banks have been buying Euros, and the demand has strengthened the single currency, making it more expensive to buy. 

Also the European Central Bank's reluctance to cut interest rates any further has also helped the euro make gains, pulling GBP/EUR rates down into the €1.18's.

So what next? Will the Pound fall further or recover to €1.20? 

I personally feel this is a temporary dip. The reason rate were as high as €1.21 was speculation on interest rate cuts in the EU, that now seem much less likely, and the exchange rate has corrected itself accordingly. In the medium term I expect rates to break back above €1.20 although possibly not until next year. This of course depends on continued positive economic news from Britain. 

So for those needing to convert Euros to Pounds, I would consider taking advantage of the 2 cent move in your favour. You can fix the current rate for up to 2 years even if you don’t need your currency for some time. 

If you are buying Euros, I expect rates to recover. However this may take some time, so whether to hang on or not depends on how long you have until you need your Euros. It took repeated attacks on the €1.20 level before we broke through last time, and I expect the same. A Stop Loss order is useful in these conditions. 

If you have found my insight useful and are looking for the best rates, or want to discuss which way the rate is moving and would like to discuss how I can assist you, click below to send me a free enquiry today. I provide exchange rates up to 5% better than banks can offer, and have over 8 years’ experience in the currency markets. 

Click here to send me a free no obligation enquiry. 

Alastair Archbold

Why has Pound/Euro dropped back below €1.20?

Thursday 5th December 2013 
In my recent post I outlined the week’s economic data that I thought would affect exchange rates. I had highlighted today (Thursday) as the most important day of the week for Pound/Euro rates, and indeed that has been the case as the recent highs have evaporated and rates are back below €1.20 again. So in today’s report: 

• Why have Pound/Euro rates dropped below €1.20 
• Will rates go back up or drop further?
• Effect of Budget statement on exchange rates 
• Central Bank Decisions from UK and Europe 
• US economy grows faster than thought 

Why have Pound/Euro rates dropped below €1.20? 

Today we saw rates drop from the recent highs of €1.21 down below €1.20 again, and this was due to comments made by the European Central Bank president. 

Before I touch on that, let’s look at the decisions from the Central Banks. 

The Bank of England has kept interest rates at a record low of 0.5%, despite signs that the UK economy is improving. The European Central Bank (ECB) also has kept its benchmark interest rate at a record low of 0.25%, following its surprise cut from 0.5% in November. 

Both these decisions were widely expected, and so had no real effect on exchange rates. What did have an impact however were the comments from the ECB president Mario Draghi in his press conference after the decision. 

ECB president Mario Draghi said the decision to keep the rate at its current level reflected the fact that the Eurozone’s economy remained "subdued". There was speculation he may again hint at cutting deposit rates. He seemed to pour cold water on this idea for the time being and as a result the Euro strengthened and become more expensive to purchase. 

A rate cut had been partially priced in to the value of the Euro, which was why it was so weak and available at €1.21 recently. You can clearly see from the chart the moment the press conference started and the rate dropping to €1.1940.

Will it go back up? Will it drop back down? 

It’s impossible to predict market movements unfortunately so nobody can say. 

€1.20 is a key benchmark level however, so I can’t see it getting back through this level until further economic numbers are released that shed light on the relative economies of the UK and the Eurozone. 

It could move either way in the coming 6 months, so it’s important not to just watch and wait in the hope it will move in the direction you want it to. 

There are tools I provide such as Stop Loss orders, Limit Orders, and Forward contracts. All of these can help you take control of your currency requirement, and help you budget without your currency costing you more than necessary. 

How these work depend on whether you are buying currency, or converting it back to Sterling, but there are various options I can explain to you, which will help you make an informed decision on whether to fix a rate, or hang on in the hope things might get better. Send me a free enquiry and I can get in touch to discuss your specific requirements, and explain the options available to you. 

Effect of Budget statement on exchange rates 

Chancellor George Osborne has updated MPs on the state of the economy and the government's future plans in his Autumn Statement. There were some interesting things I the statement, but nothing that was really a surprise. You can read a full breakdown of the key points here on the BBC website. Today I’ll just run over what I think is important in terms of exchange rates. 

In a nutshell without boring you with all the figures (they can be found at the BBC link above) – growth forecasts have been revised up, and government borrowing has been revised down. This, if it proves to be true, should be good for Sterling in the long term. The news wasn’t much of a surprise however so didn’t really affect rates, and was overshadowed today by the ECB press conference was had a big impact on Pound/Euro rates. 

US economy grows faster than thought pushing GBP/USD lower 

The US economy grew at an annual pace of 3.6% in the third quarter of the year, up from an initial estimate of 2.8%, revised figures have shown. The growth rate was the fastest since the first quarter of 2012. This was much better than expected, and the other US data released today such as the latest unemployment numbers also impressed. 

The net result was a strengthening of the US Dollar, which was compounded further due to weakness in the Euro, and this has caused Pound/Dollar rates to drop from the recent 2 year high. Tomorrow’s Non-Farm Payrolls will be the next main data that I think will affect Pound/US Dollar rates. 

Are you looking for the best exchange rates? 

If you are looking for the best exchange rates, whether it’s buying Euros, converting Euros to Pounds, or indeed exchanging between any of the world’s major currencies, I would certainly suggest getting in touch with me. 

I can discuss your requirement, keep you up to date with which way rates are moving, and help you achieve exchange rates up to 5% better than banks can offer. I have helped thousands of personal and business clients with foreign exchange over the last 8 years. 

You can make a free enquiry without any obligation by following the link below. I look forward to hearing from you. 

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Alastair Archbold

Why has Pound fallen against Euro? JUL/AUG 2013

Wednesday 31st July 2013
Good afternoon.  Sterling has not had a very good run in the last few weeks, and exchange rates have continued to fall since my last post. This is a bit of a surprise, as the most recent economic figures for the UK have actually been pretty good. It’s all down to speculation on what the Bank of England will do with interest rates, and in today’s report I will explain why the Pound has been falling against the Euro to the lowest rate since February. In today’s post:

• Why the Pound has fallen against the Euro
• How will the Bank of England move forwards?
• What data releases could affect rates in the next week?
• Find out how good our exchange rates are. 

Why the Pound has fallen against the Euro? 

The Pound has fallen to its lowest levels since February, and at the time of writing GBP/EUR rates sit at 1.1425. Just a few months ago rates were approaching 1.20. In some respects it’s quite a surprise the Pound has fallen as there have been some decent economic numbers out of the UK. Let’s take a look at these in more detail… 



Above shows the decline in GBP/EUR rates over the last 3 months. Last week we saw the latest UK GDP figures. These showed that the UK economy is "on the mend" after figures showed it grew by 0.6% in the three months to June.  The latest growth estimate implies that the economy has now recouped almost half of its total 7.2% contraction during the 2008-09 recession, with output remaining 3.3% below its pre-recession peak. 

Great, so good growth means a strong Pound, right?

Not necessarily, and this hasn't been the case this week. The growth figure was in line with market expectations, and share prices on the London Stock Exchange did not react to the news. However, the pound did drop on the currency markets. This was partly due to some market participants believing the data may support further monetary intervention by the Bank of England. Mostly though, the numbers gave little reason to buy the Pound. Some thought the figure would be above 0.6% and because the numbers weren’t a surprise, Sterling lost value. 

This trend has continued with the Pound falling most days since, mainly due to speculation on what the Bank of England will do to keep growth going.

Are you buying or selling Euros? Worried about rates moving against you? Looking for the very best exchange rates? Click here to send me a free no obligation enquiry now. 

How will the Bank of England move forwards?

At the most recent bank of England meeting all 9 members voted against more Quantitative Easing. This indicates that in the short term at least, there will not be any further money pumped in to the economy. Again you would think this would strengthen the Pound, but you have to look at what other tools are left in the box now QE is off the table. 

The tool kit is very thin to say the least! Another good explanation for the drop in rates is speculation the Bank of England are going to announce tomorrow (Thursday) some "guidance" on the future of interest rates; specifically, that it will set out a framework to keep rates at near-zero levels for up to 4 years. So, investors are dumping the Pound ahead of this. Keeping rates at near zero is all they can do. 

This would mean little return for anyone holding Sterling, and so despite better economic figures, the Pound has fallen as a result, and could well continue to do so. At 12pm tomorrow we will see the latest decision from the BoE on interest rates and QE. 

While I don’t expect any change for either, watch for any accompanying statement from the governor that may dictate future moves, as this could impact on the value of the Pound. In 2 weeks’ time we will see the minutes from tomorrow’s meeting to see how the 9 members voted, and if all 9 are still against QE. 

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What data releases could affect rates in the next week? 

Thursday 1st August – The BoE and ECB both announce their interest rate decision. There are also some inflation numbers from the Eurozone. IN the USA we have jobless numbers and inflation data. 

Friday 2nd – We will see UK House prices today, which are a good barometer of overall economic activity. Most data today however is from the USA – Non Farm Payrolls, Earnings and Unemployment data. 

Monday 5th – Lots of numbers from the Eurozone today, mostly comprising inflation, but also Retail Sales and investor confidence measures. The UK releases its Retail Sales numbers. 

Tuesday 6th – Today is busy in the UK, with Industrial Production and Manufacturing numbers being release, in addition to Trade Balance numbers. At 2pm we have a GDP estimate, which could well move the Pound. 

Wednesday 7th – It’s the Eurozone’s turn for Import and Export numbers today. The only UK data of note is House Price data. And the Bank of England inflation report. 

To find out how data releases could affect the currency you need to buy or sell, click here for a free consultation. 

Find out how good our exchange rates are. 

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In addition to better rates, we can also help with various contract types that can help protect against adverse rate movements, or help you target a rate not currently achievable. Most importantly though is my market knowledge. With over 10 years in the FX industry, I can help explain what is moving exchange rates in order to help you make an informed decision on when to fix a level. 

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