Pound/Euro rates drop to €1.39

Tuesday 17th March 2015
The spike of last week to €1.4255 appears to have been short lived, with the Pound falling during trading on both Monday and Tuesday, testing the €1.40 level before breaking below it. The drop continued today and at the time of writing the rate is a little above €1.39: 

 

Why has the rate fallen? 

It’s to do with events in Europe, the USA and the UK. Over in the EU the recent QE programme has been well accepted, and this shows confidence that the Eurozone will sort out their issues and return to growth. This view was supported with economic data released this morning, showing better than expected numbers for consumer sentiment, inflation, and employment. The better numbers have given the Euro back some strength, dragging down the GBP/EUR rate. 

Over in the USA, there are nerves ahead the FED’s meeting tomorrow, halting the Dollar buying and in turn Euro selling. The Dollar has weakened a little after weaker than forecast manufacturing, industrial output and housing data. 

Here in the UK, its Budget day tomorrow, and the Conservatives last chance to convince voters they are the only choice to protect the UK economy. Tomorrow is going to be a very important one for the currency markets, so let’s take a closer look at what’s on the agenda. 

Wednesday a very important day for exchange rates 

Tomorrow we will see much that could affect exchange rates. In the UK at 09:30am we have the latest Bank of England announcement, various unemployment numbers. Both of these could affect the Pound significantly better than expected figures could strengthen the Pound and vice versa. 

Later on we have the UK Budget Statement which is of more importance than usual, given there is a UK general election in less than 2 months. There could well be some surprises in this budget to woo voters ahead of the election, and given the economy is going to be the main weapon in the Conservatives arsenal, there is every chance we could see a significant effect on exchange rates for Sterling. 

Over in the United States at 6pm we have the Federal Reserve’s monthly statement. The markets are nervous ahead of this as analysts try to determine when the FED will raise interest rates. This is very important for exchange rates, as flows in and out of the Dollar can have knock on effects for the Pound, the Euro, and other major currencies. 

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Pound/Euro hits €1.32 after QE announced by ECB

Thursday 22nd January 2015 
The European Central Bank (ECB) today announced its Quantitative Easing (QE) package, outlining over €1tn of stimulus for the economy. It’s been the main driver of exchange rates in recent weeks and today it became a reality. You can read a very good outline of the measures and how they work here on the BBC website. 

What has it meant for exchange rates? 

The Euro has weakened as markets expected it would. As you can see from the chart below, Pound/Euro rates have risen to a new 7 year high of €1.32, so fantastic rates for Euro buyers: 

Will it go higher or drop back down? 

I can’t see rates going that much higher, and given the GBP/EUR cross is now comfortably above the €1.30 benchmark, I think it will stay at this level. For this reason anyone that needs to buy Euro soon should consider fixing a rate while it’s so good. If you want to gamble on the hope of higher rates, then you should place a ‘Stop Loss’ order to protect against rates going back down. 

Euro sellers don’t have much on the horizon that could improve things. This weekend’s election could cause further uncertainty for the beleaguered Eurozone, and so if you need to sell Euros, consider cutting your losses and getting something done sooner rather than later. 

Getting the best exchange rates. 

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Effect of US Debt Ceiling on Exchange Rates

Thursday 17th October 2013
Good afternoon. Markets have reacted to the news that the US has averted hitting it’s debt ceiling, so today’s post is a quick analysis on the effect it has had on exchange rates.

Let’s start at the beginning; what is this debt ceiling that’s been in the news?
 
The US government is forbidden from borrowing more than $16.7 trillion by law, under legislation that dates its way back to World War I. The first debt ceiling was set at just $5bn, but as America has continued to spend more than it earns, it has repeatedly had to raise the debt ceiling nearly 100 times since then. 

The last time it was set was in May, following a suspension of the ceiling during the first few months of 2013. If it had been hit, the government would have to pay $6bn in debt repayments.

Defaulting on debt would be catastrophic, since trillions of dollars in capital flows are backed up by US bonds - a traditional safe haven. This could result in a credit crisis equal or worse to that seen during the financial crisis, so is obviously a nightmare scenario.

Before the agreement, how had it affected exchange rates?

Normal logic dictates that problems for the US would have caused the US Dollar to weaken. However, due to the fact that it’s a safe haven currency, it actually had the opposite effect. 

Due to the uncertainty it generated in global markets, it actually strengthened the Dollar as investors sought the safety of the Dollar, and this caused Pound/Dollar rates to drop, and also Pound/Euro rates as investors sold the Pound and bought the Dollar.

So what has been agreed?
 
The 2 week political crisis came to an end last night as Congress voted through an eleventh-hour deal to re-open the government and avert a devastating debt default.  After 16 days of government shutdown and only 24 hours before the deadline to raise the debt ceiling, both the Senate and House of Representatives voted through a compromise bill.

The shutdown is estimated to have taken a $24 billion (£15 billion) toll on the US economy while the Fitch rating agency to put America on "rating watch negative" ahead of a possible downgrade.

And what has the effect been on exchange rates now the US won’t default?

Once the agreement had been announced, those that had put funds into the US Dollar pulled back out into other currencies. This has caused the Pound/Euro rate and Pound/Dollar rate to rise, as you can see from the charts below.

I hope this has been useful in explaining how these recent events have affected exchange rates.

Do you need to get the best exchange rates? 

I write this blog to keep my existing clients and potential clients up to speed with what is happening to exchange rates. I am a Senior Currency Broker for one of the UK’s leading foreign exchange companies, and I can help you source the very best rates of exchange.

Whether you need to convert Sterling to another currency, or convert I foreign currency back to Pounds, I can help you. My rates are up to 5% better than banks can offer. 

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