Wednesday, 10 May 2017

Will Pound/Euro exchange rate improve?

Sterling remains at pretty good levels against our 2 most commonly traded currencies, the Euro and the US Dollar. Since the announcement of the UK general election the Pound has risen by around 5%. This is because the likelihood is that May will win a huge majority. If she does, then it means she has more scope to strike compromises with the EU, as she won't have to pander to the Eurosceptic back-benchers as she currently has to do due to her slim majority.

At the time of writing GBP/EUR is at €1.1920 and GBP/USD $1.2970. Both pairs are likely to encounter resistance at the key levels of €1.20 and $1.30 respectively.

Will the Pound go up or down this week?


The UK election is now largely priced into rates already, much as we saw with the French elections last weekend. For the Pound to move higher we need new information, and we're going to see lots of this tomorrow. So whether Sterling is able to go higher largely depends on what happens tomorrow with the Bank of England's 'Super Thursday'. This is when the BoE release lots of data all at the same time and it happens once every 3 months. Tomorrow morning we will see the following releases from the UK:

  • BoE Interest Rate Decision
  • BoE Quantitative Easing
  • Monetary Policy Statement
  • BoE Quarterly Inflation Report
  • How the members voted for interest rates
  • The Minutes to their discussions
  • GDP estimate

As you can see, there is much for the market to chew on, and the potential to send the Pound higher or lower depending what we see. It's almost a given that interest rates will be left on hold at their record low of 0.25%. What to look for then, is hints at when rates may move higher. (Higher interest rates strengthen a currency due to the higher return on offer for investors.)

There are 9 members of the MPC that vote, and if we see a few of them voting for higher rates that might send the Pound a little higher. The Inflation report will also be of great interest, as if inflation is projected to remain above the 2% target then this also increases the chance of a rate hike later this year. The Monetary Policy statement will give clues on the BoE's growth forecast and the GDP estimate will also play it's part in how exchange rates move tomorrow. This is how Pound/Euro rates have moved since last summer:


If we do see the Pound gain however, I think it's unlikely to break the €1.20 barrier against the Euro. As you can see from the chart above, we have seen this pair touch €1.20 several times since last July, but each and every time we see it drop back away again due to uncertainty over Brexit.  For those that need to buy Euros, this is an important point to remember. The rate is 8% higher than at the end of last year and therefore not a bad time to consider fixing a GBP/EUR rate.

If you have a currency transfer to make then contact us today. Even if you are already using a broker, it's highly likely that we will be able to provide you better rates. When converting a large sum, even a small improvement in the rate can save you thousands of Pounds.