Sterling/Euro & Pound/Dollar forecast outlook

Saturday 2nd June 2012
Good morning. For a change today's post comes to you on a Saturday morning - I thought given the long 4 day break in the UK, I would post the latest currency news for the next 4 days. UK markets will re-open on Wednesday morning, and blog posts will resume then. Today I will do my usual analysis of where rates have moved in the last week, and the forecast for future exchange rate movements.

In today's Report:

• Pound/Euro falls back on poor UK data
• Pound/Dollar tumbles 10 points in a month
• EU debt crisis continues to spook markets
• Round up of the week’s other data that may affect rates

(For currencies other than GBP, EUR and USD, contact us for a consultation)

Sterling vs. Euro;

Last week we have again seen a similar fluctuation in the GBP/EUR cross to previous weeks, with the rates moving close to the recent 3 and a half year high near the mid 1.25’s, before dropping down to the high 1.23’s later on in the week. This has been as a result of some important activity within the Eurozone which includes increasing troubles within Spain and poor manufacturing data within the UK which will be explained in more detail below the graph.













Eurozone Problems Continue to weaken the Euro

Over recent weeks the main problems within the Eurozone were from within Greece due to the political unrest that we have seen recently. However this week we have seen fresh concerns from Spain surrounding their banking sector. The Spanish bank ‘Bankia’ on Friday revised their 2011 figures from a €300m profit to a €2.98bn loss, followed then by a request to the state for a €19bn bail-out. Shortly after this announcement, the rating agency Standard and Poor's (S&P) downgraded Bankia and four other lenders within Spain to ‘junk’ status.

Another big problem in Spain at the moment is the status of their bond yield. They are currently trading at a level of 6.5%. In the long term yields higher than 7% are deemed to be unsustainable. Greece, Portugal and the Rep. of Ireland were all at this level when they received international bail-outs, which is beginning to look like a very big possibility for Spain.

There is also still a massive amount of uncertainty surrounding Greece’s future within the Eurozone. Recent opinion polls within Greece have been contradictory of each other with varying results on whether the left wing Syriza party, or the right wing New Democracy party are leading the election, which is to be held on the 17th of June. With these problems in the Eurozone we saw the pound rise to mid €1.25’s throughout the week against the Euro, and we saw these levels stay quite flat until the end of the week.


UK Data disappoints, pulling Sterling lower

Pulling rates back down was the UK Purchasing Managers’ Index (PMI), which came in very low on Friday against what was expected. We currently have a level of 45.9 compared to the predicted 49.8. Companies cut back on production and employment as inflows of new business declined amid rising uncertainty among domestic and overseas clients. The headline index fell by 4.3 points over the month, the second-steepest fall in its 20 year history. At 45.9 we currently have the lowest PMI figures for over 3 years which has significantly weakened Stirling against a basket of currencies and pushing the GBP/EUR rate towards the high 1.23’s.

The only other key data releases of note within the Eurozone came from Germany. Unemployment change data was released with an unchanged figure following a predicted 5k decline. Consumer Price index data was also released at 1.9%, coming in 0.1% lower than predicted.

We have a very important week coming up with regards to data releases. There is lots of data being released by The European Monetary Union (EMU) including Producer Price Index, Retail Sales, GDP figures and interest rate decisions from the European Central Bank. Spain also have the release of their PMI data.

Back in the UK we have the very important releases of interest rate decisions and Quantitative easing, of which an increase of monetary stimulus has been predicted by many experts over the last month.

With some very important data being released it is shaping up to be a very volatile week for the GBP/EUR cross with the potential for the rates to fluctuate massively. It will definitely be worth your while if you are looking to exchange your currency over the next few weeks, to get in touch with us to discuss your options:

Click here to send me a free enquiry now

Sterling vs. US Dollar;

Last week was a dramatic one in the markets with the GBP/USD rate shedding around six cents in a week. Throughout last week the dollar strengthened against the pound ending the session around a four and a half month low. More talk of a Greek exit from the Euro-zone and a lacklustre response to the fiscal crisis in Europe is weighing on the pound, which had a miserable May, losing ground against the surging US dollar.













In the US, consumer confidence fell to its lowest levels in eight months as fears over the global economy caused unrest. The Consumer Confidence Index fell from 68.7 in April to 64.9 its lowest levels since October 2011. Consumer spending currently makes up around 70% of the U.S economy activity so the figures are watched closely, but even with the announcement the dollar continued to gain strength over the course of the day.

A run of positive UK data midweek could not save sterling from falling to its lowest levels for a long time. Worries over Spain’s rising borrowing costs and banking sector once again caused the value of the greenback to increase as investors headed back to the safe haven dollar.

Last Friday data showed that British manufacturing activity shrank at its fastest pace in three years in May as a broad-based global economic slowdown hit demand for British goods. This weakened the pound heavily and saw fresh lows for the currency pairing.

Also on Friday the hotly awaited non-farm payroll figures were released, American employers in May added the fewest workers in a year and the unemployment rate unexpectedly increased as job-seekers re-entered the workforce, further evidence that the labour-market recovery is stalling. There was not much of a reaction to the figures but as soon as the US markets opened, Greenback weakened against Sterling and rates pushed up higher.

It is a brave person who simply waits for the rates to move in their favour. With so much uncertainty in the markets it is important to know your options to help you make an informed decision as to when you make your move.

Click here to send me a free enquiry now

Weekly Market data that might affect exchange rates

Monday – UK Markets are closed for Spring Bank Holiday, however we will see some Halifax House Price data. There will also be various EU releases however including inflation data and Investor Confidence measures.

Tuesday – UK markets remain closed for the Jubilee. There are some EU retail Sales, Inflation data and German factory orders. There is also an interest rate decision for Australia and Canada.

Wednesday – UK Markets reopen today and there’s a lot to digest. EU GDP figures are released at 10am, and later in the morning we have an interest rate decision for the EU, followed by a press conference. There could be GBP/EUR volatility on the back of what happens today. Over in the states there are some productivity measures and the Fed’s Beige Book (this reports on the current economic situation in the USA).

Thursday – Today we see the latest decision on UK interest rates and Quantitative Easing. It’s this that will likely drive Sterling’s value in the coming weeks, so keep a close eye on what happens today. Over in the USA we see Jobless Claims and measures of consumer credit.

Friday – We end the week with a raft of data from Germany, Europe’s biggest economy: Wholesale Prices, Imports and Exports & Trade Balance figures. These releases are followed by inflation measures for the UK. Later in the afternoon we see US Trade Balance figures and Unemployment data from Canada.

Getting the best exchange rates

You want the best exchange rates, of course you do. That's why you're reading this blog to try and gauge your timing. Take the next step and send us a free enquiry and have a consultation on all the options available to you.It's free, it doesn't obligate you, and you may be surprised how much you can save by using us to get exchange rates that are up to 5% better than offered by banks. Click below to send your free enquiry now, and get a response the same day.

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Spanish bailout fears drive Exchange Rates

Thursday 31st May 2012
Good morning. So far the week had been fairly flat, hence the lack of updates since Monday morning. Pound/Euro rates had been stuck at €1.25 and Pound/Dollar rates range bound in the $1.56 to $1.57 range. This all changed yesterday however and we saw market movement on the back of developments from Spain...

Spain concerns spook markets

Further concern in the Eurozone has caused the Euro to drop further, boosting GBP/EUR rates slightly. Concerns grew yesterday that Spain may be forced to seek a bailout, which caused the Euro to plummet yet again. It’s all to do with Bond yields; they are trading above 6.5%, very close indeed to the 7% level beyond which borrowing costs are deemed unsustainable over the long-term.

A rate consistently above 7% is considered to be unsustainably high and an indication that markets think a country will be unable to pay its debts; Greece, Portugal and the Republic of Ireland were at that level when they received international bailouts.

Spain's economy has become the focus of investor concern due to the uncertainty surrounding the fate of its banking system. On Friday, Spanish banking group Bankia, which was formed from the merger of several struggling regional lenders, asked for a 19bn-euro bailout, a much larger amount than had been expected.

This of course has not been focused on too much due to the more publicised problems in Greece, but the fact is Spain, Italy and Ireland are also facing significant problems. These concerns in Spain have caused the Euro to fall, hitting its lowest rate against the US dollar for two years, falling to $1.2433. Pound/Euro rates rose slightly to €1.2530 on the uncertainty.

Pound falls against US Dollar

There was an inverse effect on GBP/USD rates, as we saw Sterling fall to a 4 month low on the worries about Spain's banking sector problems and its rising borrowing costs. This has caused a flight to safety, with investors selling currencies that are perceived to be risky to the safety of the Dollar. This caused it to gain strength, making it more expensive to purchase.

Summary on where Pound/Euro rates may go

It’s still the EU problems driving rates at the moment. A weak Euro means people want their funds in perceived safer currencies such as Sterling and the US Dollar. This is keeping the Pound nicely supported against the Euro, however it has meant the stronger USD has become more expensive to purchase.

Moving forwards, many analysts are worried that the UK will need to pursue more Quantitative easing, indeed the Bank of England and International Monetary Fund both warned as much last week.

If they do pursue QE, it could weaken the Pound and make it a less attractive alternative to the Euro. This could well start to pull GBP/EUR rates back down.

But won't the EU problems mean the rate will keep getting better?

Not necessarily. Many clients reading the news are holding off buying their Euros on the expectation Europe will continue to have problems, the Euro will continue to weaken and thus become cheaper to purchase. I do happen to think the Euro will weaken more, but what most people are not factoring in is how the UK may be affected by the crisis, and by how much Sterling could weaken if we do see more QE.

While nobody can predict where rates will move in the coming weeks and months, I would caution that in holding out for an inch, you could very easily lose a yard. Rates to buy Euros are currently just shy of the best in over 3.5 years. Now of course they could go even higher, but it’s just as likely we could see things plummet back below 1.20 again, as forecast recently by Deutsche Bank. If you need to buy or sell Euros, simply hoping the rate will move your direction could prove very costly indeed. It’s simply gambling and speculating and could cost you dearly.

You therefore have several options:

• Fix your rate now so you know where you are and are protected against any decline in the rate. With the current uncertainty this is what I would do, but then I am risk averse and don't like gambling!
  

• Wait and see and buy your currency later; this could result in a win or lose situation and is no more than a gamble.

• Hedge your bets; convert half your funds now, and take a gamble on the other half. This strategy gives you some level of protection regardless where the market moves

• Use Currency Options – Stop Loss and Limit Orders allow you to instruct us to buy your currency if the rate drops below, or rises above, a certain level. This means you can still take advantage of gains in the rate while having a worst case scenario.

Each person’s requirements and attitude to risk are of course very different, so the best course of action is to discuss the options available, the market forecasts and to see how good our rates are.

So, get in touch now and send me a free enquiry. We can have a brief chat regarding your options and I can explain the mechanics of how our service works. I look forward to hearing from you.

Send me a free enquiry now to make the most of your currency.

* Please note we can only assist with bank to bank transfers for transfers of £5000+
I’m afraid we don’t deal in cash, or holiday funds at all.

Weekly GBP/EUR forecast, and the weeks data

Monday 28th May 2012
Good morning. The volatility in the currency markets continues, with wild swings in the exchange rate on a daily basis. On Friday alone the GBP/EUR rate fluctuated from 1.2430 to 1.2530 within 4 hours. Today as usual for a Monday I will look back over what has affected the exchange rate in the last week, and where rates may go in the coming weeks and months.

In this week’s Report:

• Greek worries continue to weaken Euro
• BoE & IMF warn on UK Growth
• USD strengthens due to its safe haven status
• Round up of the week’s other data that may affect rates

(For currencies other than GBP, EUR and USD, contact us for a consultation)

Sterling vs. Euro;

Last week we saw the pound falling off the top of a three and a half year high against the euro. During the middle of the week the pound slumped against a basket of currencies, with the Bank of England (BoE) and International Monetary Fund (IMF) concerned over growth within the UK. However towards the end of the week the pound had made a slight recovery, as you can see in the graph below.













There is still a lot of uncertainty surrounding the position of Greece within the Eurozone. The uncertainty is causing the euro to weaken significantly against worldwide currencies as we have seen with the EUR/USD cross drop below 1.26 and the EUR/JPY drop below 100.00 throughout the week. However the effect on GBP hasn’t been as large, due to concerns over UK growth keeping Sterling in check.

Greece recently announced that they were to hold a re-election on the 17th on June which will further prolong the uncertainty surrounding Greece remaining within the Eurozone. Many political and financial experts are predicting that Greece will leave the Euro, some even predicting that this will happen before the start of 2013. Despite this the European Monetary Union (EMU) will do whatever they can to keep Greece in the Euro as a default on Greek debts would be a disaster for the Eurozone and may even prompt Spain, Portugal and Ireland to attempt to do the same.

The main reason that Sterling has not seen the same strengthening against the Euro as most other currencies is due to two main factors. During the middle of last week the bank of England announced that UK growth will be strongly affected by the Eurozone debt crisis, this then lead to the BOE and the IMF suggesting that more quantitative easing (QE) may be required to protect the UK economy from the crisis in the Eurozone. The UK retail sales data was also released. Sales figures fell by 2.3% in April though some analysts feel the figures were distorted by April’s record rainfall and the sale of fuel dropping by 13.2% on the back of drivers panic buying in March over the threat of strike.

With speculation about more QE, the pound weakened against the Euro after revised GDP figures from the UK were released and showed a further 0.1% decrease to -0.3% due to the construction industry being weaker than first expected. However towards the end of the week, concerns surrounding the Eurozone came back into focus following the predictions of Greece abandoning austerity measures and leaving the euro before 2013, and the fall in German bonds and manufacturing figures. This led to a slight recovery for the pound pushing the rate back up over the €1.25 mark having dropped down to mid €1.23’s earlier in the week.

As was mentioned in posts last week, there are very contrasting forecasts regarding market movements with Deutsche Bank forecasting €1.16 in the next few months and Barclays capital forecasting that rates will reach €1.32 within the next year. As we have seen with the markets this week, there has been a very large fluctuation sometimes over the course of just a few hours.

Of course changes in the exchange rates can have a big impact on the cost of your currency purchase, so to discuss the options available to protect you, get in touch today.

Weekly Economic Data that may affect exchange rates

Monday – US Markets are closed for Memorial Day today and so markets are very quiet. There are no data releases of note.

Tuesday – In the UK today we will see Nationwide House Prices and an Industrial Trends Survey. In the Eurozone markets will look to the latest German inflation figures and Retail Sales. In the USA there are measures of consumer confidence and Home Prices.

Wednesday – Starting in the EU today we have Money Supply, Economic Confidence, Consumer Confidence & Industrial Confidence. In the UK we will see Consumer Credit, Money Supply, Mortgage Approvals and a measure of consumer confidence. We end with Home Sales data from the USA.

Thursday – Germany releases its latest unemployment data. Staying in the EU we also have some inflation data. Over in the USA we see the latest GDP figures, Unemployment and Jobless Claims. There are no UK data releases of note.

Friday – German and EU inflation data is released this morning, closely followed by EU unemployment. In the UK we also have some inflation data. We end the week in the USA with average earnings, inflation data, Non-Farm payrolls and employment data.


Getting the best exchange rates

You want the best exchange rates, of course you do. That's why you're reading this blog to try and gauge your timing. Take the next step and send us a free enquiry and have a consultation on all the options available to you.

It's free, it doesn't obligate you, and you may be surprised how much you can save by using us to get exchange rates that are up to 5% better than offered by banks. Click below to send your free enquiry now, and get a response the same day.

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Pound/Euro forecast: recovers on Greek worries

24th May 2012
Good morning. It’s been yet another volatile week for Sterling/Euro exchange rates. Early in the week the Pound weakened off, falling into the €1.23’s. This was due to concerns by both the Bank of England and IMF on growth, increasing the chance of further Quantitative Easing. The fall in rates was halted yesterday however, when the Euro weakened again significantly over Greek Euro exit fears, pushing rates back close to €1.25.

In today’s post I’ll look at these events in detail and analyse what may cause Pound Euro rates will go up or down in the coming months.

Pound/Euro rates gain on Greek concerns

GBP/EUR rates surged yesterday after a report saying that the Greek government may be making preparations for leaving the euro. Also weakening the single currency was Germany’s central bank saying that the developments in Greece were "highly alarming".

"Greece is threatening not to implement the agreed reforms and consolidation measures," the Bundesbank said in its latest monthly report. It said that scenario could create substantial challenges for the Eurozone.

Many analysts think that Greece may abandon the austerity measures and be forced out of the euro. Ms Lagarde from the IMF said that they did not like that prospect, but that it was "prepared for all possible situations". But she said that the costs of Greece leaving could be so high that other members of the Eurozone might be prepared to pay more to keep Greece in the euro.

The continued worries have pushed rates back up as the chart demonstrates.

Bank of England: More QE on the cards?

Yesterday we saw the latest Bank of England (BoE) minutes on their recent decision to hold off further Quantitative Easing. Policymakers voted by 8-1 this month against pumping more money into the economy, but the decision was "finely balanced" for some members.

One interesting thing the minutes showed was that the crisis in the Eurozone could hit the UK's economy, which would make the case for extra stimulus more compelling. This is what will likely stop GBP/EUR rates continuing to surge towards €1.30, as any further QE will likely weaken the Pound significantly.

IMF also pushing for more QE

On Tuesday, the International Monetary Fund (IMF) said the UK's continuing economic weakness meant authorities should consider more QE and even cutting interest rates. The IMF said the BoE should “reassess the efficacy” of cutting rates below 0.5 per cent and called for “further monetary easing”, adding that while monetary stimulus has helped, the economy remained flat.

This again shows that while the EU problems are weakening the Euro, they may also start weakening the Pound which may actually cause rates to fall back away.

The case for Pound Euro rates going up

Looking at the Euro on its own, there is a logical case for rates rising further. The Euro will likely continue to weaken; it’s highly unlikely the Greek problems will be solved any time soon. This continued weakness will likely mean a cheaper single currency which means exchange rates would rise. However we’re not just looking at the Euro on its own, we have to factor in the value of Sterling…..

The case for Pound Euro rates going down

While the EU problems continue, the Bank of England and IMF have warned that it will soon start to affect the UK. 50% of our exports go to the EU, so a strong pound is not attractive to the BoE. For this reason, further EU problems will affect the UK economy, and with more QE now looking very likely, the Pound will weaken off and exchange rates could fall.

How to get the best exchange rates in a volatile market

As outlined above, future rate movements are highly uncertain and there are logical arguments to show both gains and falls in the rate in the coming months. Of course it can’t do both things, so for clients looking to buy or sell Euros, some could lose out significantly if rates move drastically one way.

The best option is to send us an enquiry and have a free consultation on the current market conditions, and to find out what options you have to protect against the market moving the wrong way. When converting a large sum, exchange rate movements can have a huge impact on the cost.

In knowing what options are available to you, and armed with sound market knowledge, you can make an informed decision on what action to take to help you make the most of the market. Don’t just follow the rates hoping it will move in your direction. Contact us now and take control of your currency requirement, rather than letting it control you.

Our exchange rates are much better than you can achieve at the bank, so get in touch now for free and see how much you can save.

Click here to send me a free enquiry

Weekly GBP/EUR forecast, and the weeks data

Monday 21st May 2012
Good morning. As regular readers will know, on Mondays I like to take a retrospective look at the previous week in the currency markets, analyse what has been moving exchange rates, and look at what the Pound Sterling forecast to Euros may be going forwards.

In this week’s Report:

• Pound/Euro hits new 3.5 year high before dropping
• Bank of England warns on UK economy and EU threat
• Greek exit spooks markets
• Round up of the week’s other data that may affect rates

(For currencies other than GBP, EUR and USD, contact us for a consultation)

Sterling vs. Euro;

Last week was an exciting one for the GBP/EUR cross seeing a fresh three and a half year high which was quickly followed by a slump as sterling weakened against the single currency. There are a number of reasons for last week’s erratic market movements; below the graph is a summary of the key factors that have driven rates recently.













EU Debt/Greece worries

The troubles in Greece are well documented, the sheer uncertainty hanging over Greece and the lack of a proper government is greatly increasing the room for costly financial accidents. One in five Euros that Greek banks now lend to households or companies is propped up by the ECB. If Greece left the euro, all of that would stop and the Greek banking system would simply be unable to function.

It would be no surprise if the ECB were trying every trick in the book to get Greece to toe the line. Why? Because if things continue on their current trajectory and Greece leaves, the ECB is the only institution with even a fighting chance of seeing off a panic in countries like Portugal Spain and Ireland, and "saving" the euro. Mario Draghi does not want to be the Euro's "saviour" because that ought to be a job for governments. But nor does he want to be the one to pull the plug.

This uncertainty has weakened the Euro significantly and has helped push the GBP/EUR rate to the best in over three and a half years.

Bank of England Meeting

Towards the middle of the week Mervyn King spoke following the bank of England meeting. He was quick to stress that the Eurozone posed the greatest threat to the UK recovery, and there was a "risk of a storm heading our way from the continent”. The Eurozone was "tearing itself apart" and the UK would not be "unscathed", said Bank governor Sir Mervyn King.

Alongside King’s comments, in a fiery prime ministers questions last week Prime Minister David Cameron also spoke of the financial storm clouds across Europe, warning that Eurozone leaders must act swiftly to solve its debt crisis or face the consequences of a potential break up. It looks like a storm is coming!

This halted the rise in GBP/EUR rates and the Pound fell by around 1% against the Euro, as markets worried about the effect of the EU crisis on the UK, and the ever present threat of further QE. Indeed also on Friday, a Bank of England MPC member voiced his concerns, stating further QE could be on the cards. You can read all his comments here on the Telegraph website. QE weakens a currency due to increased supply.


Spanish Bank downgrade

Late last week Moody's Investor Service carried out a sweeping downgrade of 16 Spanish banks, including Banco Santander, the Eurozone's largest bank, citing a weak economy and the government's reduced ability to support troubled lenders. All the banks' long-term debt ratings were downgraded by at least one notch, and some suffered three-notch cuts.

Spain's banks, awash in bad loans after a real estate boom went bust, are at the heart of the Eurozone debt crisis because markets fear a state bailout would put a severe strain on the country's already stretched public finances. It looks like the contagion that has been mooted by many analysts has started touching the weaker countries in the Eurozone. This didn’t really affect GBP/EUR rates too much, due to the exposure the UK has to the banking sector.


Pound Sterling to Euro Forecasts

There are various forecasts at the moment that are quite different. With Deutsche Bank forecasting €1.16 in the coming months and Barclay's capital firm in the belief that rates will hit €1.32 within the year, it is essential to get in touch to find out your options, which can help you make the most of your currency. We will help you arm yourself with the knowledge which could assist you in getting the timing right and look at helping you take control of the market.

Don’t simply wait for last minute and risk seeing the rates to move against you, click here to make an enquiry for free, and take the first step to letting us help you make the most of your currency now.

Weekly Economic Data that may affect exchange rates

Monday – There are no UK releases today, and the only data of note is some construction output figures, and a speech from the US Federal Reserve.

Tuesday – The first UK data of the week is released at 09:30am including Mortgage Approvals, Consumer Price index, Housing Prices, Retail Sales and Public Sector borrowing. This will give a good barometer of the UK economy and so could affect Sterling. In the EU the only release is consumer confidence. The US has some Homes Sales and Manufacturing data in the afternoon.

Wednesday – This morning the BoE will release its minutes, showing policy discussion on its recent decision to hold interest rates and QE. The most recent news from the BoE weakened the Pound so these will be closely watched. Stateside today we will see Home Sales measures. Trade Balance figures from New Zealand are released at 11:45pm.

Thursday – Today we’ll see lots from Germany: Retail Sales, GDP figures, Inflation data and business climate assessment. As Germany is the largest EU economy expect Euro volatility. EU wide inflation measures are also released. Later in the morning we see a host of UK data including Retail Sales, GDP figures and business investment. Expect a choppy day for GBP/EUR. In the US we have Jobless Claims and Durable Goods orders.

Friday – A quiet end to the week, with only German consumer Confidence figures and a consumer sentiment survey from the United States.

Getting the best exchange rates

You want the best exchange rates, of course you do. That's why you're reading this blog to try and gauge your timing. Take the next step and send us a free enquiry and have a consultation on all the options available to you.It's free, it doesn't obligate you, and you may be surprised how much you can save by using us to get exchange rates that are up to 5% better than offered by banks.

Click below to send your free enquiry now, and get a response the same day.

Click here to send me a free enquiry

Pound/Euro drops after dire BoE report - forecast

Thursday 17th May 2012
Good morning. The volatility continues in the currency markets, with the EU debt crisis and Greece’s problems continuing to drive exchange rates. Earlier in the week we hit new highs of €1.2580 against the Euro, however as is often the case, the gains were short lived. Sterling has now started to weaken following grim growth forecasts by the Bank of England. So in today’s posts we’ll look in detail at:

• The EU debt crisis situation; what will happen next?
  
• What would happen if Greece leaves the Euro?
• Forecasts for Pound/Euro going up in 2012
  
• Forecasts for Pound/Euro going down in 2012

I’ll then analyse the UK’s economic prospects and look at the arguments for where Sterling/Euro rates could move throughout the remainder of 2012. Let's start with the obvious - the situation in Greece....

Greek worries weaken the Euro pushing GBP/EUR rates higher.

The failure of Greece to form a government has plunged its membership of the Euro into doubt this week, and is the reason the Euro has weakened so much. Indeed earlier in the week we saw rates get very close to €1.26.

It now looks like Greece will hold fresh elections in June after final talks to form a coalition failed on Tuesday, and this raised new concerns over Greece's continued membership of the Euro. The uncertainty pushed the GBP/EUR rates up at the start of the week, peaking at a new 3.5 year high of €1.2577.

EU officials fear Greece will elect an anti-bailout government, which could trigger a Greek exit from the euro. That possibility is now discussed openly among Europe's leaders

So what would happen if Greece leaves the Euro?

For a few years now, everyone has been asking what would happen if Greece left the euro and reverted to the Drachma. It’s not something that would happen overnight, however it is looking increasingly likely. The more uncertainty we see in the euro zone, the more the euro could weaken.

While the question of Greece leaving is real one, the fact remains that there is no mechanism to do so. The possibility was never envisaged when it was created in 1999; to exit the euro it would have to leave the EU. There would probably be an interim period after which any Euros would be converted to Drachma at a pre-agreed rate, much like when countries switch to the Euro. Supply and demand would then dictate the new currencies value. The likely result is the new currency would fall through the floor and inflation would spiral.

So the best case scenario of Greece leaving would leave Greece with no buying power and high inflation. However, with its currency so weak the idea is that the economy would then grow.

Of course at the moment all of this is speculation, and given there is no mechanism for them to leave, even if they decided to do so tomorrow it would take many months before any potential return to another currency would be implemented. So let’s first look at the UK economy and where Sterling could move, and then at the more immediate effects we may see on exchange rates.

Sterling weakens on Bank of England forecasts

Yesterday Mervyn King, governor of the Bank of England said it has cut its growth forecast for this year to 0.8% from 1.2%, saying the Eurozone "storm" is still the main threat to UK recovery. The news shifted focus back towards the UK, and the Pound dropped across the board, bringing rates back down from their recent highs. Indeed I have warned in recent days that the UK is not immune to the EU’s problems, and the markets are now pricing this into the Pounds value.

The Eurozone was "tearing itself apart" and the UK would not be "unscathed", said Bank governor Sir Mervyn King. He told a news conference that the euro area posed the greatest threat to the UK recovery, and there was a "risk of a storm heading our way from the continent".

"We have been through a big global financial crisis, the biggest downturn in world output since the 1930s, the biggest banking crisis in this country's history, the biggest fiscal deficit in our peacetime history, and our biggest trading partner, the euro area, is tearing itself apart without any obvious solution.

On quantitative easing, he said that no decisions had been made whether or not to continue pumping money into the economy. The last stimulus programme was still "working its way through the system.

So will Pound/Euro rates go up or down this year? 2012 forecast

This is what everybody wants to know, but what nobody can predict! Indeed forecasts are differing between some big players. Deutsche Bank have revised their forecasts to rates dropping to €1.16 by the end of the year, citing the fact that the UK economy will be affected byt he EU problems, and further QE is likely which will weaken the Pound. Deutsche Bank trade more currency than anyone else in the world so you should certainly take notice if you need to buy Euros.

In stark contrast however, Barclay’s Capital are forecasting €1.30 by year end due to the EU’s debt crisis. This really shows how uncertain things are going to be this year, but also highlights the huge difference that these levels would make to you if you need to make a large transfer.

Taking the Euro on its own, I would say that it will likely weaken more which should make it cheaper to buy, but what is hard to factor is the effect it will have on Sterling. Half our exports go to the EU so that could push the Pound down, and it wouldn’t surprise me to see Mervyn talk the Pound down some more to help the export led recovery, as he’s not keen on a strong Pound.

So there are logical arguments that point to both rates continuing to rise, and also for rates to drop back below the €1.20 level, and this really illustrates the uncertainty over which way rates will go.

If you need to get the best exchange rates, know your options.

If you have a requirement to convert currency and want the best Pound/Euro exchange rates, what is imperative is you know the options available to you, and have protection against rates moving the wrong way. Simply leaving it to chance could prove very expensive indeed should the market move against you.

If you need to buy or sell Euros in the next 12 months, send me a free enquiry now. I can provide a free consultation on the various forecasts, and the different options you have to help you achieve the best exchange rate. You can then make an informed decision on what action to take.

Click below to make a free enquiry today to find out what you can do to ensure you don’t get caught out by what is a very volatile currency market.

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Weekly GBP/EUR forecast, and the weeks data

14th May 2012
Good morning. Well, last week was one of the busiest I have seen on the trading floor for some time. With Euro weakness pushing rates to €1.25, many of my clients were keen to fix rates for both buying and selling Euros with a forward contract, due to the uncertainty over the future movements of the GBP/EUR rate.

In today's report as always for a Monday morning, I'll review last weeks movements, and take a look at what might happen to the rate this week. If you are looking for the best exchange rates for a transfer of £5k+, get in touch today to find out more about our service.

In this week’s Report:

• Pound/Euro rates hit 3.5 year high
• EU political uncertainty still driving exchange rates
• Round up of the week’s other data that may affect rates

Sterling vs. Euro;

Last week again saw the Euro weakening significantly after further uncertainty within the Euro zone, along with some positive data being released from the UK surrounding decisions made by the Bank of England, which combined have led to the mid-market levels for GBP/EUR reaching a high of €1.2501 before dropping slightly on Friday. This is the highest we have seen over the last three and a half years! With some more important data coming out of the euro zone this week it will be hard to predict which way the market will shift.













Euro weakness causes GBP/EUR rate to rise

The main reason for such uncertainty within the Eurozone has come as of a result of the recent elections in France and Greece. Greece are yet to form a coalition government and there is a lot of uncertainty as the leader of Greece's left-wing Syriza bloc has stated to the two major parties that if they want to form a coalition they have to end their support for the austerity terms. This has increased speculation that Greece may leave the Eurozone which is a big worry for Germany as Spain, Portugal and Ireland may look to follow suit.

Indeed there was an interesting article on the BBC website outlining how Greece may leave the Euro.

Francois Hollande (the new socialist French leader) is also looking to reduce austerity and to focus on increasing growth which has led to a lot of uncertainty regarding the economic recovery within France and the Eurozone.

EU economy forecast to return to recession

The eurozone economy is forecast to shrink this year as its debt crisis continues to bite. The European Commission's spring forecast confirmed its prediction of a 0.3% contraction in 2012 in the economies of the 17 countries that use the euro. Growth figures for the first quarter of 2012 will be released by the European statistics agency Eurostat tomorrow, Tuesday 15 May.

"Economic activity in the EU contracted in the last quarter of 2011 and is estimated to have also done so in the first quarter of 2012," the Commission said in its statement.

This is probably priced into exchange rates already for the most part, but could of course cause some further weakness in the Euro.

Pound supported by Bank of England decisions

Back in the UK, the Bank of England released data for interest rates and quantitative easing (QE). The decision was made to hold interest rates at 0.5% which has now been kept at this level for over four years. There was also the decision for there to be no further QE this month.

This has come as a surprise to many experts as the UK recently dropped into a double-dip recession and it was expected that there may be a further injection of QE into the economy. As a result of these announcements the pound strengthened slightly pushing the GBP/EUR rate into the high 1.24’s.

What data this week may affect exchange rates?

This week we have some important data that may affect the GBP/EUR rate quite significantly. On Tuesday Germany will release their GDP figures followed then by GDP figures released from the European Monetary Union (EMU) which may have a big effect on the exchange rate.

Then on Wednesday we have data from the UK in regards to average earnings and unemployment figures followed up by core consumer price index data released by the EMU which may lead to some large fluctuation in the exchange rate.

We round off the week with German producer price index release which again could lead to a large swing in the GBP/EUR rate. Full details of the week’s data releases can be seen in the Market Data section below.

Do you need to buy or sell Euros?

Taking into account the volatility of the Eurozone at the moment and the data that will be released over the next week, it is important that if you are looking to sell Euros this week and you are wary about the data releases, you make an enquiry to discuss your options.

Even if you don’t need to convert your funds for some time, you can hold the current rate through a forward contract for as much as up to two years, thus protecting against further adverse exchange rate movements.

Likewise if you are looking to purchase euros you should get in contact to discuss the current market movements. Of course many will hope rates will continue to rise, but of course this is not a given. The currency markets can move very quickly indeed, and having a well thought through strategy to help time your purchase can save you thousands of pounds.

As I have often said on this blog, the other options is simply hoping the market will move in your direction, and hope is not a reliable economic tool.

Weekly Economic Data that may affect exchange rates

Monday – It’s a quiet start to the week in terms of fundamental data, with the only release of note Industrial Production data from the EU.

Tuesday – In contrast to Monday, today sees lots of important data. Potentially affecting GBP/EUR rates is the Germany GDP release, Europe’s largest economy. This is followed by EU GDP figures later in the morning, and economic sentiment surveys for the EU. In the UK we have Trade Balance figures which may also have an impact on exchange rates. Stateside we see Inflation data, Retail Sale & Housing Index data.

Wednesday – We’ll start in the UK today with a host of unemployment data including the Claimant count, average earnings and the ILO unemployment rate. We will also see an inflation report from the BoE, so lots that could affect the Pounds value. In the EU we have inflation data and trade balance figures. Across the pond we have Housing data, industrial production, the FOMC minutes and a FED speech.

Thursday – The Ascension Day bank holiday sees many EU markets closed today, so data today is weighted towards the states, with Jobless Claims, the Philly Fed survey and a FED speech the main data to watch for as it may affect Sterling/Dollar rates.

Friday – The G8 Meeting starts today which could throw up some economic surprises. Scheduled data releases include German and Canadian Inflation data. There are no UK releases today.

Getting the best exchange rates

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