Thursday, 25 May 2017

Pound/Euro and Pound/Dollar forecast May 2017

Sterling


This morning UK GDP figures were released and were expected to come in at +0.3% and they came in just below at 0.2%. As the figure didn't impress or beat forecasts it has sent the Pound a little lower this morning. It's the continuation of the recent trend as the Pound has been weakening of late for several reasons. The conservatives lead in the polls has narrowed so political uncertainty has been pushing the Pound lower.

Also, as soon as the election is over on the 8th of June, all focus will shift to the Brexit negotiations. In the short term I think this will be negative for the Pound, especially while the 'divorce bill' that the UK will have to pay is agreed. I think that ultimately a good trade deal will be agreed and the Pound will bounce back to better levels, but this isn't likely until the end of 2017, and the short term forecast for the Pound is for it to weaken as negotiations begin.

US Dollar


GBP/USD rates have risen back to $1.30, the highest in 8 months. It's due to a weaker USD as last night the US Federal reserve released the minutes to their latest interest rate decision. This shows that they talked about holding off raising interest rates until it's clear the economic slowdown is over.

The fact that rates may not now be pushed up in June weakened the USD and made it cheaper to purchase.



Euro


As investors sold the USD they moved to the Euro, and that caused the single currency to strengthen, pulling GBP/EUR rates lower. We often see an inverse correlation between GBP/EUR and GBP/USD, and this is clear to see in the graphs where you can see Pound/Euro dropping as Pound/Dollar rises.

The other reason for the fall in GBP/EUR rates is the fact the Euro is strengthening in general. Sooner or later the European Central Bank will end its stimulus programme and raise interest rates, and the more likely this is, the stronger the Euro will get, potentially pushing GBP/EUR even lower in the coming months.




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Monday, 22 May 2017

Why has the Pound fallen against the Euro?

It's not been a good start to the week for Pound/Euro rates, with the pair now trading in the €1.15's, 3% lower than it was just a few weeks ago:


Why has the Pound fallen against the Euro?


There are 2 reasons for the drop in the rate. The first reason is the UK general election. Polls over the weekend indicated that Theresa May's lead has halved to just 9 points, following their manifesto that has not gone down well due to the scrapping of free school meals and proposals to reduce state support for the elderly.

What the polls show is that nothing is certain, and if her lead can be halved in just a few days, who knows what could happen in the next few weeks. The prospect of Corbyn becoming Prime Minister and leading Brexit negotiations has not been welcomed by the market, and that's the reason for the drop in the value of the Pound.

The other reason is due to the Euro gaining strength and becoming more expensive to purchase. German Chancellor Angela Merkel blamed a weak Euro on the large German trade surplus, and markets took this as a sign that the European Central Bank may need to curb their stimulus programme and start to raise interest rates soon. This strengthened the Euro and compounded the fall in GBP, pushing GBP/EUR exchange rates into the €1.15's.

Where next for Pound/Euro rates?


We've been saying for some time that it was likely rates would start dropping, and we continue to believe this will be the case. If the Conservatives do win a huge majority, or polls indicate that they will, then we may see Sterling bounce back and recover some of its recent losses. After the election on June 8th however, focus will switch to the Brexit negotiations, and they have the potential so send the Pound lower still, until it's clear what kind of deal we will get with the EU moving forwards.

In the shorter term, there are various releases this week that have the potential to affect the Pound, including a UK Inflation report on Tuesday, a speech by ECB president Mario Draghi on Wednesday, and the latest UK GDP figures on Thursday.

If you need to make a currency transfer and would like to find out what effect these releases may have on exchange rates, make a free enquiry with us today. We can also offer you a free quote to see what rate we can offer. Even if you already use a currency broker, it's likely we can offer you a better rate and on large transfers we could save you thousands.


Thursday, 18 May 2017

Pound/Euro and Pound/Dollar Forecast 2017

Sterling has been given a boost this morning following the release of the latest Retail Sales figures. Markets had been expected a monthly  rise of 1% but the actual figure was more than double that, coming in at 2.3%. It's a very good barometer of the health of the UK economy, and as a result it's sent the Pound higher.

Pound/Euro


Rates have climbed back up to around the €1.17 mark but still about 3 cents lower than it was a few weeks ago. Rising inflation is to blame for the decline, as it's currently sitting at 2.7% and with no chance of the Bank of England raising interest rates, it's likely to get higher. Wage growth however is only around 2.4% so in real terms, people have less money to spend. This is one reason for the Pound/Euro rate falling, the other being a stronger Euro. Now that elections are out of the way in France and Holland, it's given the EU some much needed stability and the Euro has strengthened as a result, and become a little more expensive to buy.

All things considered however, the current rate is not too bad. At the end of last year it was in the €1.09's, and even back in March this year it was as low as €1.13. With Brexit negotiations due to begin as soon as the UK election is out of the way, I wouldn't be surprised to see the rate head back towards these levels.

Pound/Dollar


Despite the Pound weakening off a little recently, GBP/USD rates are actually the best they have been in about 8 months, and this morning levels have finally broken through the $1.30 level. This is down to weakness in the US Dollar. Donald Trump has courted controversy yet again, amid allegations he has been interfering with Federal investigations, and that hasn't helped the Greenback. It's also now less likely the US Federal Reserve will raise interest rates next month, so the USD has dropped in value and become cheaper to buy.

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Tuesday, 16 May 2017

GBP/USD up, GBP/EUR down

The Pound has fallen against the Euro this week, dropping to the €1.16's which is the lowest it has been in the last 4 weeks. This is mainly due to the US Dollar weakening, and the single currency gaining strength and becoming more expensive to purchase.

There have been doubts cast on whether the USA will raise interest rates this month, and that has weakened the USD, helping to push GBP/USD into the $1.29's. It's also helped to strengthen the Euro, as investors move funds from USD to EUR. The single currency is now more attractive now that political risks in Holland and France have dissipated.

Even higher than expected inflation numbers this morning haven't helped the Pound go higher against the Euro, due to the fact that last week the BoE stated that even if inflation moves higher, they would not raise interest rates to combat this due to it being caused by a weak Pound. In fact, at the time of writing, since the figures were releases half an hour ago the Pound has been dropping sharply as it's clear that inflation is going to be higher than wage growth for some time, which means consumers will soon start to feel the pinch.

Below, you can see the GBP/EUR and GBP/USD charts so far this week up until 09:30am this morning. (Click here for the latest live graphs). You can clearly see the inverse relationship between the two, as Pound/Dollar rates go up and Pound/Euro rates go down. This illustrates that it's not the Pound driving these pairs, but rather weakness in the USD and strength in the EUR for the reasons I've outlined above.

Pound/Euro:

Pound/Dollar:

We've been warning for some time that it was probably a matter of when, and not if, the Pound would start dropping back away against the Euro and that's what we're now starting to see. We're expecting more volatility in the coming weeks, as we approach the UK general election and the start of serious Brexit negotiations. If you need to convert currency and would like a free telephone consultation to talk about which way rates are going, get in touch with us today. We can also offer you a free quote to compare with what your bank, or existing currency broker, may be able to offer you. We often provide significantly better rates of exchange that could save you thousands when converting a large volume.

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Thursday, 11 May 2017

Super Thursday keeps lid on Sterling

For several weeks GBP/EUR rates have been fairly range-bound between the €1.18-€1.19 mark and have been unable to move higher. For it to do so, the market needed further information; this morning provided lots of new data however the end result was Sterling moving slightly lower.

Things got off to a bad start when the latest Industrial and Manufacturing production figures came in below forecast, sending the Pound slightly lower against the Euro and US Dollar. Then came the key BoE ‘Super Thursday’ releases. As expected they left interest rates on hold at 0.25%, with Kristin Forbes the only member to vote in favour of a rise in interest rates.

Other members were more cautious as they trimmed their UK growth forecast for 2017, saying that household spending is slowing more quickly than expected, adding that consumers were being squeezed between sluggish wage-growth and rising inflation. While inflation is still expected to remain above their 2% target, they pointed out that this is purely due to the impact of a weak Pound, stating that raising interest rates would not be an effective way of tackling that inflation.

Markets took this as a sign that interest rates were unlikely to rise any time soon and Sterling fell as a result. The prospect of higher interest rates strengthens a currency due to the higher return on offer, and the fact that it’s now likely to be 2019 before we see any tightening of monetary policy is the main reason for yesterday’s drop in exchange rates. When all is said and done though, we’re back to where we were on Monday with GBPEUR still range-bound at a level it seems comfortable in.

Will Pound/Euro rise or fall in the coming months? 


Market movement has been fairly flat of late, but it’s important to remember that GBPEUR is within 1% or so of the best we’ve seen since last summer. In March it was in the €1.13’s, and towards the end of last year it dipped into the €1.09’s, so relatively speaking the current rate is very attractive indeed to anyone that needs to buy Euros. A common question we hear at the moment is whether the rate will go higher or drop back away again.

It’s impossible to predict market movement of course, but by understanding what is affecting the rate you can make an informed choice about what to do. The reason Pound/Euro rates are close to 10 month highs is that since Article 50 was triggered, Sterling has been given some much needed breathing space as everyone knew it would be a few months before talks start in earnest. The UK general election also lifted the Pound higher as it’s almost certain the May will win a huge majority. If so, it will mean a much greater chance of striking a good deal with the EU as she will be able to make the compromises needed to be able to do so. Soon, the time for sound bites will be over and actual negotiations will begin. Ultimately, a deal will be done, a free trade agreement reached, and the Pound will recover, but in the short to medium term while initial proceedings are on-going, market uncertainty will return and I think there is a good chance that Sterling will retreat back to levels seen earlier in 2017.

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Those that need to convert one currency to another in the coming months shouldn’t be complacent as there’s ultimately no way to know in which direction rates may move. A risky approach would be to sit back and just hope the rate moves in the direction you want them to. A prudent approach would be to get in touch today for a detailed outline of what may affect your particular currency pair (e.g. GBPEUR, USDGBP, AUDEUR) and to get a full understanding of the ways in which we can protect you against adverse exchange rate movements. We can also provide you a free quote so you can see how much we can save you. Typically our rates are up to 3% better than your bank or existing broker may offer you, which on a purchase of €250,000.00 would save you more than £6000.