Friday, 9 December 2016

Euro weakens pushing GBP/EUR to €1.1870

As I mentioned in yesterday's post, there was a chance that the ECB would increase their QE stimulus programme, and this is exactly what they decided to do. They were supposed to have finished the stimulus by March next year, but they've extended this to December.

This means that every month, the ECB will buy €80bn of corporate bonds with newly created money. From March, they will buy €60bn every month. The fact that new money is created to do this weakens the Euro due to the fact it is diluted, and when the Euro weakens, it becomes cheaper to purchase, pushing up the Pound/Euro exchange rate. ECB president Mario Draghi also said that uncertainty persists, and they would increase the scope and amounts next year if necessary, further hampering the single currency.

If you look at the chart below, you can easily see the moment the Euro weakened, pushing GBP/EUR rates up to around the €1.1850 mark:


The current GBP/EUR levels are pretty good considering last month they were down at €1.10. The market has simply corrected due to the fact that the UK economy is doing very well, despite the doom mongering in the press following the referendum. In stark contrast, the EU economy is stagnant, unemployment is high, and there is discontent and political uncertainty across the bloc. This is now reflected in the exchange rate.

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Thursday, 8 December 2016

GBP/EUR drops to €1.1750 ahead of ECB meeting today

Pound/Euro rates have slipped back away this week, and currently sits between €1.17 and €1.18, the range within which it was stuck for the latter part of November:


Sterling has weakened after Parliament voted last night to stick to the governments timetable of triggering Article 50 my March 2017. There had been hope in the financial markets that 'Brexit' would be delayed. Personally I think that this news is welcome and removes much uncertainty about when negotiations would start.

Another reason for the fall in rates is renewed Euro strength, making the single currency more expensive to buy. The Italian and Austrian political events are now out of the way, and the next political events in Europe aren't until March next year.

All in all the current levels aren't too bad considering GBP/EUR was at €1.10 last month. The Pound has seen a huge rally in the last 4 weeks but that rally now seems to be running out of steam.

European Central Bank could move GBP/EUR rates today


Today, the European Central Bank (ECB) meet to discussed extending their QE stimulus programme beyond March next year. On it's own, this would weaken the Euro pushing rates higher, however I think while they will extend the programme, they will also reduce the amount of QE which the markets may take as positive.

All in all, I think what the ECB president Mario Draghi says in his press conference after lunch will be the main driver of rates. The EU economy is stagnant and showing barely any growth at all, and if he touches on this fact then the Euro may weaken pushing rates higher. Of course he may well say that all is fine and the EU project is fine in which case the Euro may strengthen, but I think the markets are aware of the reality that there is much uncertainty to come next year for Europe, so I think this will keep the single currency subdued, along with Sterling due to Brexit.

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Monday, 5 December 2016

Pound/Euro hits €1.2050 before dropping back to €1.19

Pound/Euro rates hit €1.2050 overnight after Italy lost the referendum and their Prime Minister Matteo Renzi resigned. It didn't last long however and rates have since come back down to below where they were last week, just below €1.19:



What has caused the volatility in GBP/EUR rates?


The result wasn't much of a surprise, but the fact nearly 60% of people voted 'No' was a surprise. The Euro weakened on the back of the news and became cheaper to buy, pushing the GBP/EUR rates above €1.20.

The move was largely priced in to the market already and that's why after a brief spike, investors decided that they weren't going to sell the Euro in droves and the market has settled down at around the  €1.19 mark. The fact that the Austrian election at the weekend saw a defeat for the far right has also calmed the markets and given the Euro a little more support.

All in all the current levels are still very attractive for those that need to buy Euros, having risen from lows of €1.10 in November.  Going forwards, there are still some important events that will keep this currency pair volatile. Next year there are elections in France and Germany that could cause further Euro uncertainty, however any gains are likely to be limited. The reason the Pound was weak remains; uncertainty due to what will happen in EU negotiations next year when article 50 is invoked.

Will Pound/Euro rates go up or down in the next 6 months?


This is a very tricky one to forsee. On the one hand the Euro may weaken due to political uncertainty in Europe and push Pound/Euro rates up. On the other hand, the Pound may also weaken due to political uncertainty in the UK due to Brexit. So in the coming months, GBP/EUR rates are going to be driven by a political tug of war in Europe and the UK, and this make it impossible to predict how the market will react and what direction GBP/EUR may move in the coming months.

While nobody can predict the market, what you can do is take a pro-active approach to any currency transfer you need to make in the next 6  months, regardless whether you need to convert Pounds to Euros or vice-versa. We have various contract types such as Forward Contracts, Stop Loss orders and Limit orders, which help you avoid currency fluctuations and help you make the most of your currency.

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Thursday, 1 December 2016

GBP/EUR rises to €1.1940 on softer Brexit hint

Today we have seen the Pound surge higher against the Euro and other currencies, after the Brexit Secretary David Davis hinted that they may consider paying in to the EU budget in order to secure access to the single market. He made the comment in an answer to a question in the house of commons (see below). Despite some poor economic data this morning, Sterling has risen significantly, demonstrating that it's politics rather than fundamentals that is currently driving the Pound. Here's how GBP/EUR has moved over the course of the last month:


What caused the Pound to rise?


This morning the Labour MP Wayne David asked in the commons "Will the government consider making any contribution in any shape or form for access to the single market?"

David Davis replied: "The major criterion here is that we get the best possible access for goods and services to the European market - and if that is included in what you are talking about, then of course we will consider it."

That's it. That statement caused the huge gains seen the charts above. It doesn't really change much and I'm quite surprised that the Pound has risen so much on the back of a handful of words that don't really provide any new information. I think the market has overreacted to this, and I think the rate will come back down pretty soon. Anyway, as you can see, it's a huge rise of almost 10 cents in a month, and the Pound/Euro is now around a 3 month high. The currency markets are unpredictable at the best of times, but in the current climate, even more so.

To put the last months gains in to monetary terms, those looking to purchase a €350,000.00 property in France or Spain, have effectively seen it become £22,000 cheaper over the course of a month, highlighting how quickly exchange rates can change.

Will the Pound continue going higher?


It is of course impossible to predict exchange rates, however such a large price adjustment is likely to be unsustainable. Just one comment from an MP has sent the Pound surging to 3 month highs vs the Euro, and another comment from government could send things back down into the €1.16's again where rates were yesterday. If you need to buy Euros, it's certainly worth considering getting a rate fixed while it is so high. It may go higher still of course, but equally it could very quickly drop back away at any moment. If the Italian referendum is a 'Yes' on Sunday, then the Euro could regain strength and pull rates back down.

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Tuesday, 29 November 2016

Italian referendum effect Pound/Euro exchange rates

Sterling/Euro rates seem to have been range-bound between around €1.17 and €1.18 over the last week as the chart below shows.  After rising by 5% earlier in the month, the pair now seems to have found a comfortable level around the best it's been in nearly 3 months.


Part of the reason the rate has recovered is the fact that the UK economy, for now, does not seem to have been negatively affected by the vote to leave the EU and continues to show resilience. The other reason rates have risen is due to the single currency becoming weaker and cheaper to buy.

Euro weakens on EU political concerns


Next week there is an Italian constitutional referendum, and next year, French and German elections. In the wake of Brexit and the surprise Trump victory, there are concerns that there may be populist voting in Europe, and this uncertainty has started to weaken the Euro which is one of the reasons rates have recovered by 5% this month.

Italian referendum and effect on GBP/EUR exchange rates


Take next week's  Italian referendum as an example. The vote itself is simply a decision on amending the Italian Constitution to reform the appointment and powers of the Parliament of Italy. In reality however, it means much more than that and has far reaching consequences. If for example the results don't go the way of Prime Minister Renzi, then it would undermine Italy's fragile political stability. In turn this could lead to Renzi resigning and the Five Star movement could win power. They have promised a full on referendum on staying in the Euro area, and so could effectively lead to the break up of the EU. That's why markets are concerned and the Euro is weakening.

If Renzi does lose the vote, then there will be political and economic turmoil across the EU, which may well weaken the Euro further and push GBP/EUR higher. If he wins however, expect the single currency to regain strength and rates to drop back away from the current highs.

Options to consider if you need to buy or sell Euros


Next week's political event in Italy is likely to move GBP/EUR rates out of the current €1.17 to €1.18 range. A win for the Prime minister is likely to push rates lower, losing could push rates higher. Either way, I think we'll see some movement for Pound/Euro rates. If you need to buy or sell Euros then you should get in touch to discuss your options rather than just waiting to see what happens and hoping that things move your way.

For example those that need to convert Pounds to Euros may want to hold out to see if rates improve next week, but should also take in to consideration that rates are close to a 3 month high. In this example a client that doesn't want to take a risk should lock in the rate now with a Forward contract. Those that are happy to take a gamble, should consider placing a Stop Loss order to ensure that if the rate moves the wrong way, they are protected, while still being able to take advantage of a further spike in the GBP/EUR rate.

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