Wednesday, 21 June 2017

Pound/Euro rate rises to €1.14

Pound/Euro rates have staged a recovery today. Initially we saw the pair drop through the morning to as low as €1.13, however just before midday it started rising, and has now levelled off at €1.14 as the chart below illustrates:

Why did the Pound/Euro rate rise to €1.14?

Interest Rates. Yesterday we saw the rate drop when the Bank of England governor Mark Carney said that now was not the time to raise interest rates, and this weakened the Pound and the GBP/EUR rate dropped. Today however, the Bank of England's Chief Economist Andy Haldane said in a speech that he would back a rise in interest rates later this year. This helped the Pound gain as investors purchased Sterling in the hope of a better return should rates indeed rise.

It's a welcome gain and a reversal of the drop we saw tomorrow, and GBP/EUR is now back at the level it has seemed comfortable in of late at around the €1.14 mark.

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Tuesday, 20 June 2017

Pound falls but remains relatively flat vs the Euro

Pound falls on Interest Rate News

Sterling/Euro rates have slipped to the lowest we've seen for a week or so, after the Bank of England governor said this morning that they would not be raising interest rates any time soon. There had been some speculation that they would look to increase the base rate due to rising inflation.

2 members of the BoE's monetary policy committee did vote for a hike last week, but the majority decided to keep rates on hold. It's probably the case that due to slowing wage growth and concerns about what effect Brexit would have on the economy that swayed their decision.

With interest rates likely to remain at a record low of 0.25% for the foreseeable future, the Pound fell due to the fact only a very low return is on offer for investors.

Political Uncertainty & Brexit

Elsewhere, 10 days after the election Theresa May is still to formally announce that they will form a government with the backing of the DUP. Brexit negotiations also started yesterday, but nothing much has happened so far other than initial soundbites from the UK and EU sides that they both want to agree a deal. In the coming weeks, it will become clearer how these negotiations are going, and any sign that they are strained will likely send the Pound lower.

So all in all since my last post, much remains the same. Political uncertain, Brexit uncertainty, and a weak Pound. The current period for Sterling/Euro rates is the least volatile I can remember for quite some time, with the GBP/EUR rate remaining around the €1.14 level. I don't expect this calm to continue however, and whether the Pound/Euro rate will go up or down in the coming weeks or months is going to be almost entirely driven by how the Brexit talks go.

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Wednesday, 14 June 2017

Sterling remains subdued due to slow wage growth

Pound/Euro rates staged a slight recovery yesterday, rising to €1.14 due to higher than expected inflation figures. The gains have not lasted however and levels have already dropped into the €1.13's again. This is due to the fact that despite inflation rising, the Bank of England are unlikely to move interest rates for fear of slowing the economy further. Wage growth figures this morning also showed that wages are rising much slower than prices, which means consumers are being squeezed and that's not helped Sterling either.

Central Banks and Interest Rates

This evening the US Federal Reserve are widely predicted to raise interest rates to 0.25%. If they do it might strengthen the USD and pull GBP/USD rates lower. It's probably priced in to a certain extent already though due to the fact it's almost certain to happen.

Tomorrow, the Bank of England announce their decision, but if they move rates I will eat my hat! They have said rates will stay low for the foreseeable future. The Governor Mark Carney gives a speech later in the day, and his comments could move the Pound depending on what he says. If he is positive about the economy and hints at reducing their Quantitative Easing measures, it could help the Pound.

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Monday, 12 June 2017

Pound/Euro falls to €1.13

Pound/Euro rates have fallen a further cent today, dropping from €1.14 into the €1.12's before settling back at around the €1.13 mark. (View live graphs by clicking here.) There have been no economic data releases of note, so the fall is simply down to the political and economic uncertainty due to last week's election resulting in a hung parliament.

The UK is supposed to start Brexit negotiations next week, and while the EU side have set out their stall and are ready to go, the UK side is a bit of a shambles. Without a clear majority, the Conservatives will form a minority government with support from the DUP. In practice, the government are now in a much weaker position both with the Brexit negotiations and in terms of how difficult it will be politically for Theresa May.  This uncertainty has led investors to sell the Pound and cause it to weaken.

Could the Pound fall further against the Euro?

I think that the rate could easily fall further. It may be that negotiations have to be delayed for some time, and the latest developments simply mean that investors are not likely to push the Pound higher. Personally I expect lower rates for the next few months. Longer term, once negotiations have made some progress and it becomes clearer what type of deal the UK can agree, it's likely the Pound will strengthen again, but that's a few months away. As I mentioned in my pre-election post about the likely outcomes, I think that we'll probably see a softer Brexit that would have been the case with a conservative majority, and this may also help the Pound in the longer term.

Those that need to buy Euros, for a property purchase for example, can consider locking in the current rate using a 'Forward Contract'. This allows you to freeze the current rate for up to 2 years by lodging a 10% deposit, and be protected against a further decline in the rate. 

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Friday, 9 June 2017

Pound falls on Hung Parliament

As I'm sure my readers will know by now, yet again the polls were wrong and the election has resulted in a hung parliament. The Pound fell quite sharply as a result, dropping as low as €1.13 vs the Euro. However when markets opened at 8am this morning, we saw a recovery back to €1.14 so all in all, I'm surprised the reaction has not been more severe. In fact, the rate is around the same as it was on Monday, so not a complete disaster for clients that need to buy Euros. The chart below shows the GBP/EUR rate over the course of this week.

Why hasn't the Pound fallen further?

I think part of the reason that the Pound hasn't fallen further is that Theresa May has said she has no intention of resigning. They won many more seats than any other party (318) with only 1 more seat yet to be announced. Labour only won 261. 326 are needed for an overall majority, and with the DUP having 10, I think that the conservatives will try to form a coalition with them that would give them the outright majority they need. In order to do this, they may have to make concessions with regards to a softer Brexit, so that might help the Pound a little moving forwards.

In the here and now however, it's that word again 'uncertainty' that is driving the Pound, and with Brexit negotiations supposed to start next week, it's likely that the Pound may suffer further losses.

Need to exchange currency at the best rates? 

If you need to make a currency transfer in the next few weeks then it's highly likely that we can save you money. Our rates of exchange are usually much better than your bank or existing broker may offer. To get a free quote to see how much you could save, click here or complete the form below.