Sterling/Euro exchange rate forecast

April was an interesting month for Sterling/Euro exchange rates. In the first part of the month, the recent decline in Sterling/Euro rates continued, and we hit lows in the €1.23’s not seen since 2014. As you can see from the chart below however, things changed mid-month as we saw rates recover back to €1.29. Things now seem to have peaked however, and the rate has started to slip back away. In today’s post, we’ll look back at what has caused the rate to fluctuate so much, and take a look at what could move exchange rates this week.

A retrospective… 

The chart above clearly shows the changing fortunes for Sterling. The first part of the month was dominated by fears over a ‘Brexit’ which weakened the Pound, and global risk aversion which weakened riskier currencies, and caused ‘safe haven’ currencies like USD, JPY, EUR, CHF to strengthen. Mid-way through the month however, risk appetite returned to the market due to optimism surrounding China, one of the world’s largest economies. Signs of stability have started to emerge, and that’s all it took to give a boost to global stock and equity markets. This increased appetite for risk, and weakened the aforementioned ‘safe haven’ currencies making them cheaper to buy.

Then we have the ongoing EU referendum that’s causing a headache for those buying or selling the Pound. In the first half of April, polls were split with some giving a slight lead to the ‘leave’ campaign. However we then had the treasury, and organisations like the Confederation of British Industry (CBI), Organisation for Economic Cooperation and Development (OECD), Bank of England (BoE) and President Obama all warning of the dire consequences of a Brexit. This swung polls back towards the remain campaign, and the Pound recovered as a result. GBP/EUR hit the highest in over a month (€1.29+) however the rally has now run out of steam, with rates slipping back into the €1.27’s as investors covered short positions and took profits ahead of the bank holiday weekend.

What causes exchange rates to move, and what does this week have in store? 

I'm often asked what actually moves exchange rates. Its various things but the main ones are: Acts of terrorism/war, natural disasters, political events, and economic data. Of these 4 things, you can only really plan for the latter 2; economic data and political events, as the former are of course impossible to foresee and usually catch the markets by surprise, such as the recent terror attacks in Paris and Brussels.

A perfect example of political data is the current referendum uncertainty. This has caused large swings in the value of Sterling, and is likely to continue to do so until the vote in June. That leaves us with fundamental economic data. It's forecast in advance what various financial data releases will be, and these are priced into the exchange rate. If however the actual figure is better or worse than expected, then we'll often see exchange rate movements. This is paramount for anyone that needs to convert a large sum of money, as even a fractional change in the rate can make a very big difference. Below I've listed the main financial releases for the week that I think might have an effect on exchange rates. If you have currency to convert, would like to discuss what could move the rate in more detail, or simply get a quote from me to compare with your bank or existing broker, contact us today. 

This week’s data releases 

Tuesday 2rd May – The full working week gets going today, but in terms of economy data it’s relatively quiet. The UK and EU both releases measures of inflation, and the European Commission releases its economic Growth forecasts. These releases could affect Pound/Euro rates.

Wednesday 3rd May – There is nothing of note from the UK today. In Euro, there are further measures of inflation that could affect monetary policy from the ECB. Over in the USA we have a raft of data releases at lunchtime including Inflation, Employment and trade balance data.

Thursday 4th May – The only release of note is an Economic Bulletin from the European Central Bank. It’s 2 weeks since the policy meeting and this release could give hints to action at its next meeting and so could affect the value of the Euro.

Friday 5th May – It’s Jobs day in the USA, so at 13:30pm we’ll see the latest Unemployment numbers and the all-important Non-Farm Payroll numbers. These are important as the actual result often differs significantly from what the market expects, and can therefore cause a significant change for exchange rates.

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Pound gains further, as Brexit looking less likely

Sterling has continued it's strong run as we start the week, with Pound/Euro rates not far from €1.29, and GBP/USD close to $1.45. The current levels are a good 5 cents higher than two or three weeks ago.

The reason for the rise upwards is the simple fact it's now looking less likely that Britain will vote to leave the EU The fact that President Obama has entered the debate, putting into doubt the ability for the UK to arrange trade deals with the US in the event of a Brexit. Odds are therefore starting to swing towards the remain campaign, and sentiment is higher helping to push the Pound higher against other currencies.

I think that the currency markets will move in line with opinion polls in the coming weeks, and anything that suggest we may leave the EU will weaken the Pound, anything that supports the remain vote, could help keep the Pound supported. Other than developments surround Brexit, there will also be the usual scheduled economic data releases that could move rates. Below I have listed the main releases for the coming weeks.

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This week's economic data releases

Below I've listed the main scheduled events for the coming week that I think will impact exchange rates. There are of course other things that will affect rates, such as the latest Brexit Opinion polls. For a detailed explanation of what could move exchange rates for the currency you need to buy, contact us today.

Tuesday 26th April 2016 - The only data of note today is from the USA, so GBP/USD could be affected by: Consumer Confidence data, Inflation numbers and Durable Goods orders.

Wednesday 27th April 2016 - Today we see the latest UK GPD figures, which show if the UK economy is growing. It's an important release that could affect Sterling exchange rates. I expect quarterly growth of 0.4%. Anything below this may send the Pound lower and vice versa. Elsewhere we have Homes sales data from the states, and the latest US FED decision and accompanying statement. It could be a volatile day for GBP/USD rates.

Thursday 28th April 2016 - There's nothing from the UK today other than a measure of consumer confidence, but we do have plenty from Europe that could move GBP/EUR rates: Unemployment figures, Inflation data, various measures of market confidence, and an economic sentiment indicator. From the USA we have jobless claims, GDP numbers.

Friday 29th April 2016 - We end the week with UK mortgage approvals, EU unemployment and inflation data, and various inflationary measures from the USA.

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Pound/Euro rates hit €1.28, despite poor economic data

It's been a very good week for the Pound, rising against the Euro to hit levels not seen all month, peaking at €1.28 today:

There haven't been any particular economic figures causing the rise. Indeed this week we've seen poor Retail Sales, worse than expected Jobs figures, The BoE governor Mark Carney warning about the economic impact of a Brexit, and a plethora of influential political figures warning that the UK economy faces huge risks should the UK vote to leave the EU. All of this would usually mean the Pound dropping against the Euro. I'm as surprised as most that Sterling has continued to march upwards in light of the poor economic figures. I expected the spike earlier in the week to be short lived, however that has not been the case. This illustrates that it's impossible to predict and second guess where exchange rates will move.

So why has the GBP/EUR rate continued to climb?

There are 2 reasons for the gains for the Pound. Firstly, risk sentiment has increased. Global investors this week have become more confident about the global economy, and have shunned safe haven currencies in favour of riskier bets. This has weakened currencies like the Euro and strengthened others like the Pound. Secondly, the latest polls on the EU referendum seem to suggest a swing towards remaining in the EU. In recent weeks uncertainty had been priced into the market, weakening GBP/EUR to the lowest levels since late 2014. More confidence in the market and an increased likelihood of the UK remaining in the EU has reversed the downward trend, for the time being.

Markets always fluctuate however, and given we've seen the rate gain all week suggest to me the rally may now be running out of steam. While it's impossible to predict market movements, I wouldn't be surprised to see rates correct downwards next week, given we now seem to be hitting a barrier at €1.28. A 5 cent gain in just a few weeks is unusual, and consideration should be given to protecting yourself against a reversal of these gains.

Do you need to convert Pounds to Euros?

If you need to buy Euros, then this week has been very good for you. You don't want to miss out on the 5 cent rise in the GBP/EUR rate, so one option you can consider is a 'Stop Loss' order. This works by placing an order to buy your Euros should the rate drop below a pre-agreed level, €1.25 for example. In this way, should the rate continue going up, then you can take advantage of any further gains. However should the rate correct back to where it was a few weeks go, then you have a 'worst case' scenario and safety net should the recent uptick prove to be short lived.

Alternatively, if you don't want to take any risks, you can fix the rate now with a 'Forward contract' which allows you to fix today's rate for up to 2 years, and lodge 10% of the total to be converted. The remaining 90% is paid when you want your Euros to be transferred. This is a great budgeting tool when purchasing property in the Eurozone.

Get the best exchange rates

If you would like to get a quote, or discuss the contract types like those I've outlined above, then why not get in touch. You can make an enquiry for free, get a quote and find out more about the contract types available. I provide rates very close to the 'mid-market' rates, and these are up to 5% better than your bank or existing broker may offer.

Pound remains supported despite poor jobs figures

The Pound brushed off the poor unemployment figures this morning, and GBP/EUR rates remain around the 1.2650 mark:

There haven't been any significant economic figures released that would strengthen the Pound, and the reason rates have recovered is due to investors covering short positions and profit taking following the recent weakness for Sterling. Indeed even Mark Carney, the BoE governor, warning yesterday of the risks of the UK leaving the EU did nothing to affect Sterling.

Tomorrow (Thursday) is key to the next move for GBP/EUR rates. There is a very good chance they will announce, or hint at, further stimulus for the Eurozone. If the ECB president Mario Draghi hints at this in his press conference tomorrow, then it may cause the Euro to gain strength, and pull rates lower again.

The current levels are around the best in 3 weeks, and certainly worth considering taking advantage of. It was only several weeks ago that GBPEUR was in the €1.23's, the lowest the currency pair has been since late 2014. The general feeling in the market is still that the Pound is likely to come under pressure due to the EU referendum, so those that need to buy Euros should consider their position ahead of tomorrow's ECB release.

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What could move exchange rates this week?

Sterling/Euro rates are settled in the mid €1.25's after last week's positive moves for this currency pair. In today's post, I'll run through the coming week's economic data releases that I think will affect exchange rates. With a speech by BoE governor Carney, an interest rate decision and comments from Europe, and the EU referendum campaigns starting in earnest, it could be another volatile week on the currency markets.

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This week's economic data releases

Monday 18th April 2016 - Today is very quiet on the data front, with the only release of note US Housing prices at 3pm. Any moves on GBPEUR will therefore be caused by risk sentiment.

Tuesday 19th April 2016 - From Europe we have EU and German economic sentiment measures. Over in the states we have building permits and housing starts. The most important event today however is a speech at 15:35pm by BoE governor Mark Carney. He could provide information on his views on the UK economy and might mention the EU referendum, so there is potential for him to affect Sterling exchange rates today.

Wednesday 20th April 2016 - A very quiet day today, with the only data of note German inflation data.

Thursday 21st April 2016 - Today is a very important day for GBP/EUR rates. From the UK we have the latest Retail Sales and Public Sector borrowing figures, both of which could affect the Pound. At lunchtime we have the European Central Bank (ECB) interest rate decision and accompanying comments from their president Mario Draghi. His comments often affect GBP/EUR rates. There are also US jobless numbers at 13:30pm that might change GBP/USD rates.

Friday 22nd April 2016 - We end the week on a quiet note, with nothing of note from the UK. In Europe however German and EU inflation figures are released.

Getting the best exchange rates

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