Pound/Euro forecasted to hit €1.54. Or €1.12. Who's right?

Friday 21st November 2014 
The Euro has weakened again today, pushing the Pound/Euro rate up from €1.25 to €1.26, marking the end of a topsy-turvy week in which was saw GBP/EUR climb 2 cents, recovering half of last week’s losses. In today's post, I'll explain the jump in the rate, and also have a look at a forecast that Pound/Euro will hit €1.54. Or €1.12, depending who you believe. Let's start with today's movements :




Why has the Pound/Euro rate gone up?


It’s nothing to do with Sterling, and all to do with the Euro. This morning the ECB president gave a speech and his comments caused the Euro to weaken and become cheaper to buy. So what exactly did he say? 

“We will do what we must to raise inflation and inflation expectations as fast as possible, as our price-stability mandate requires,” adding that some inflation expectations “have been declining to levels that I would deem excessively low,”

With the next ECB policy meeting only a few weeks from now, and the EU economy facing a period of stagnation, he may make further comments that show the markets that he is committed to reigniting growth and inflation. 

This is a clear signal that the ECB may embark on unconventional methods such as Quantitative Easing to help the economy. This caused the Euro to weaken and that’s the reason for today’s upward swing.

Will the Pound go up or down against the Euro ?


So what next for Pound/Euro rates? In the last few weeks we’ve seen the currency pair trading in a range from €1.24 to €1.28, and currently we’re slap bang in the middle of that range. I personally can’t see it going too much higher, but just to illustrate that nobody can predict the way exchange rates can move, consider these two differing forecasts...
 
The Pound is to climb relentlessly against the euro over the next three years and will reach levels last seen at the turn of the century, according to new forecasts by Goldman Sachs. They are predicting that rates will reach €1.54 within a few years. I find that hard to believe! In the 10 years I have been working as a Currency Broker, I have seen highs of €1.55 and lows of €1.01, but the current level of a little under €1.30 is a more realistic value in my opinion. Moreover, such a dramatic rise in sterling cannot easily be justified by the underlying weakness of the British economy, which already has the worst current account deficit in the developed world. It was running at 5.2pc of GDP in the second quarter. 

The IMF have a totally different view, stating that they think the Pound is up to 10% overvalued, which could mean a correction in the GBP/EUR rate down to €1.12. Again I think such a drop is highly unlikely. 

So Pound/Euro could rise to €1.54. Or fall to €1.12. Clear as mud. 


What the two differing forecasts show is the total uncertainty over which way the rate will move into next year. So whether you are buying Euros, or have Euros to convert back to Pounds, it’s understandably very difficult to know when to fix a rate, given nobody really has any clear idea about the direction the currency pair will take. 

That’s where I can help you. While predicting the market is impossible, having a good currency broker with a sound knowledge of the markets can save you thousands of Pounds. Part of this is arming yourself with the knowledge to make an informed choice on when to fix a rate. The other part is using tools to your advantage, such as Forward contracts, Stop Loss and Limit Orders to make sure you don't lose out unnecessarily. In this way you can employ a sound strategy with regards to when to convert your funds, and take some control over what is a very unpredictable currency market.

The worst thing you can do is just sit back and hope the exchange rate moves in your favour. Hope is not a reliable economic tool. If you need to convert currency, perhaps for buying or selling property abroad or for business purposes, then get in touch with me today for a free consultation on how I can help you. A can discuss your requirement, discuss the currency pair you are converting, and explain the different options you can consider to help you make the most of your currency. When you decide to fix a rate, I can source you an exchange rate up to 5% better than banks and other brokers. 

Click here to send me a free no obligation enquiry today.

Pound recovers after Bank of England Minutes

Wednesday 19th November 2014 

Sterling/Euro recovers to €1.25 


Just a quick update this morning, as we have finally seen the Pound recover slightly after the last week in which we saw rates drop from €1.28 to €1.24. 

Earlier this morning the Bank of England released the minutes to its recent meeting where they decided to leave rates on hold. Of the 9 member committee, 7 voted to hold rates, with 2 voting to raise them, which has been the case for the last few months. You can read the full minutes here on the BoE website.



Why did this cause the Pound to rise? 


Given inflation numbers have been lower recently, some analysts including me thought that the 2 members that had been voting for a hike would not do so. The market had also been expecting this and it starting getting priced into rates in advance, and before the release of the minutes GBP/EUR rates were as low as €1.2440. As you can see from the chart above, as soon as the result was out Sterling exchange rates jumped to €1.25 where it now stands. 

This is a key technical level so I expect rates to remain at around €1.25 in the short term. 

Sterling/Dollar 


Focus will now be on Pound/Dollar rates. Currently this sits at around $1.57, but there is some key data out in the next few days that could change this. This evening at 7pm we have the US Federal Reserve minutes, and if there are hints at an interest hike in the states we could see the exchange rate drop further. Tomorrow we have a host of inflation data and jobless claims from the states and quite simply, good economic news could strengthen the US Dollar and cause the exchange rate to drop. 

Do you have an upcoming currency transaction? 


If you need to convert currency then get in touch to find out more about the exchange rates I can offer. I regret we do not deal with cash or holiday money, only bank to bank transfers for amounts £5k+. You may have bought or sold a property abroad, or perhaps your business buys and sells goods from the Eurozone. Whatever your currency needs, you could save thousands by achieving a better exchange rate. 

Click here to find out more about the rates and currency services I can offer you.

Sterling/Euro falls into €1.24’s – will it go back up?

Tuesday 18th November 2014 
The Pound has continued to fall against the Euro, and today has dipped into the €1.24’s. A week ago rates were €1.28+ so this is a big drop in a short period of time. The rate started to drop when the UK inflation numbers came in very low, which I touched on in a post last week. This means that the Bank of England are likely to keep rates on hold for quite a while. 

The reason for today’s drop was twofold. Firstly we had further UK inflation numbers that were slightly lower than expected, compounding the view the economy isn’t ready for a rate hike, and the Pound dropped a little. Soon after, we had some sentiment data from Germany, Europe’s largest economy. This showed that sentiment rose in November for the first time in almost a year, surpassing expectations and raising hopes of an improvement in their economy after it dodged recession in the third quarter. 

This data gave some strength to the single currency, and made it more expensive to purchase. 


What will happen with Sterling/Euro next? 


It is very hard to call. On the one hand you can look at the trend over the last 3 months. If you look at the chart above, you can see that rates have dropped to these levels quite a few times, only to then bounce back up. This could well happen again, especially as the EU may well pursue a Quantitative Easing programme which could weaken the Euro. However this is not a given; past performance is not necessarily an indicator of future performance. 

Tomorrow we have the minutes from the recent Bank of England interest rate decision. Last time 7 of the 9 members voted to hold rates, and 2 voted to raise them. In the light of the recent inflation numbers, if less than 2 voted to raise rates this time, expect the Pound to fall further. 

When should you buy or sell Euros? 


Given there is no way to predict the market, the best course of action is to use tools to make sure you don’t get a lower rate than necessary. In this climate if I had Euros to buy or indeed convert back to Pounds, I would use a ‘Stop Loss’ order. 

This allows you to instruct me to convert your sums if the exchange rate drops below a pre-agreed level. If the rate gets better for you, great you can take advantage of a swing in your favour without leaving yourself at risk of a further drop in rates. 

This is just one example of the tools I offer to help you get the most out of your currency, in addition to very sharp exchange rates that are close to the mid-market level. If you have an upcoming currency requirement, why not get in touch with me by completing an enquiry form here. I can discuss your particular needs, run over your options, provide you a quote and see if we can save you money over your bank or existing broker. It’s free to make an enquiry and does not obligate you in any way. 

The exchange rates I achieve for my clients can be as much as 5% better than banks offer, and when converting large sums the savings often run into thousands of pounds. 


Click here to send a free enquiry today.