Monday, 27 March 2017

How could article 50 affect the Pound?

This week Theresa May will formally begin the process of the UK leaving the EU when she invokes article 50 on Wednesday, but how will the currency markets react when it happens?

The Pound is actually performing very well at the moment, following robust retail sales figures and inflation numbers that suggest the Bank of England may have to raise interest rates later this year. The current Pound/Euro exchange rate is the highest it's been since about the 5th of March.

It's very hard to know how the market will react in 2 days time when article 50 is triggered. It's certainly not going to come as a surprise and for the most part, it could already be priced into the value of the Pound, and if that's the case we may not see any movement at all. However last Monday when Theresa May announced the date Art 50 would be triggered, the Pound fell about a cent against the Euro. That wasn't really a surprise either, but the Pound fell anyway. There is certainly a good chance the Pound may fall a little on the news as investors sell off the Pound. If you are worried about rates dropping, then get in touch to find out how you can protect yourself against a fall in rates.

What else is happening this week?

It's a quiet start to the week, and I think markets will mostly be waiting to see what happens on Wednesday when the Brexit process begins. That's also the day we see the first UK economic data of the week: Consumer Credit and Mortgage approvals.  We also have consumer confidence figures on Thursday and GDP figures on Friday. I expect a very volatile period for the latter part of the week for Sterling crosses.

Need to exchange currency?

In addition to providing regular market commentary to explain what is happening to exchange rates, we also provide a foreign exchange service for any private or business client that needs to convert more than £1k. Our rates up to 3% better than banks or other brokers may offer. You can also take advantage of our market knowledge to help with timing when to fix your rate.

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Thursday, 23 March 2017

Bumper Retail Sales figures strengthen Sterling

We have just seen the latest UK Retail Sales figures for the UK, and they were significantly better than forecast. Markets expected a +0.4% rise. I thought that it would be lower than this, but the actual figure came in at a staggering +1.4%. This is way above forecast, and the Pound has risen as a result.

Retail Sales are seen as a barometer of the health of the economy and how confident consumers are. The fact that people are still spending is very positive for the UK economy and is reflected in the upward movement we have seen for the Pound this morning.

Risk of Pound falling when Article 50 is triggered

The GBP/EUR rate is now the highest it has been since the beginning of the month. The fact remains however that next Wednesday article 50 will be triggered, heralding the start of the process of the UK leaving the EU. Most analysts agree that this is likely to push the Pound lower in the short term, and so clients should consider their options if they need to buy Euros or another foreign currency in the next 6 months. It would certainly be prudent to look at what action you can take to protect against the possibility of a falling Pound.

One way of removing your exposure to the currency markets is by fixing a rate with a 'Forward Contract'. This allows you to freeze the current exchange rate for up to 2 years by lodging a small deposit of 10%. This protects you against any market movement and helps you to budget.

Another option is a 'Stop Loss' order. This is an instruction for us to buy your currency if the rate drops below a pre-agreed level. In this way you have a safety net and a worst case scenario should the rate plummet. If it doesn't however, you are still free to take advantage of any subsequent gains in the rate.

It's tools like these coupled with exceptional rates of exchange that enable us to help our clients make the most of their currency. To find out more about how we can help you or simply get a quick quote, click here or complete the form below.

Wednesday, 22 March 2017

Pound steadies ahead of Retail Sales tomorrow

The Pound has slipped a little today but has found it's feet at around the €1.15 level. With Article 50 coming a week today initially Sterling had started to drop away, but has been supported in the last few days by higher than expected inflation figures.

Retail Sales to affect Sterling exchange rates tomorrow

Tomorrow morning at 09:30am will be key to which way the rate goes in the short term, as we have the latest UK Retail Sales figures. These are seen as an overall barometer of the health of the UK economy as it demonstrates how confident consumers feel. Since the referendum vote, the economy has been performing very well indeed, confounding expectations of a recession as many experts had predicted. Retail Sales had also help up pretty well, but that changed in the last few months. Last month for example, the number showed a 0.2% decline.

Analysts expect tomorrow's figures for Feb to show a rise of around 0.4%, and if the actual reading is lower than this, expect an immediate drop for the Pound. Conversely if we get a higher reading the Pound will rise, but I think this is unlikely.

Getting the best exchange rates

Those that need to buy Euros are heading into a very uncertain time. We have had a huge increase in clients getting in touch to fix the rate now ahead of Brexit talks by using a Forward contract. It's impossible to forecast which way the rate will go of course, but by fixing a rate you remove your exposure to the currency markets, meaning you don't get caught out by rates falling.

If you need to make a transfer in the next 6 months then why not get in touch to see how we may be able to help you. Our rates of exchange are much better than you can achieve at the bank, and we can also beat other currency brokers rates. When converting a large sum the savings can be considerable, often many thousands of Pounds.

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Tuesday, 21 March 2017

Sterling jumps on higher inflation figures

UK inflation figures have just been released, showing that the annual CPI reading was 2.3%, a little higher than expected and above the 2% target at which the Bank of England would normally raise interest rates. Following on from last weeks BoE minutes, the markets have taken the news that there is now a much higher chance of interest rates going up later in the year.

Mark Carney to speak at 10:35am

This caused GBP/EUR to jump from €1.1460 to €1.1535, but in reality we're simply back to where we were this time yesterday. In about an hours time at 10:35am the BoE governor Mark Carney will be giving a speech and I think this will be key to the Pound holding on to these gains or not. On the one hand, the BoE have already stated that they will tolerate above target inflation for a period without moving interest rates. If Carney re-iterates this view later this morning, then it's likely the Pound will fall. If however he replicates the view published in the most recent BoE minutes in which some members of the MPC said that they may want to move rates higher if inflation keeps rising, then the Pound may gain further.

Worried about the Pound falling?

Those with Pounds to convert to other currencies should give serious consideration however to putting some protection in place to cover the chance of the Pound dropping in the coming months as I outlined in yesterday's post. There is a good chance we will see Sterling fall when EU negotiations begin, so if you want to lock in a rate in advance of the Brexit talks, contact us today to discuss your requirements and get a free quote. Even if you don't have your funds available now, by lodging 10% of what you want to convert we can guarantee today's rate for up to 2 years. This allows you to budget and means you won't be affected should the Pound fall as many think it will.

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Monday, 20 March 2017

Brexit process to start March 29th

Downing Street have said today that Theresa May will begin the process of leaving the EU next Wednesday the 29th March. Negotiations will then begin, which is likely to herald a period of extreme uncertainty that could send the Pound crashing.

As soon as the news was announced the Pound fell by around half a cent against the Euro. I think that next week when it's official, the Pound is at risk of falling further.

Markets hate uncertainty and it's this uncertainty that has pushed the Pound lower since the vote last June. As soon as negotiations begin there will be many issues that start to materialise, but the fact is that until we get a clear picture of what a post EU UK is going to look like, Sterling is likely to remain under pressure.

Protection against the Pound dropping

With only a little over a week to go until negotiations start, now is the time to consider what protection you need if you need to convert Pounds to another currency in the next 12 months. Simply waiting could mean that you end up with a much lower exchange rate should the Pound plummet.

One option is to fix your exchange rate now with a 'Forward Contract'. This is a type of contract that allows you to guarantee the current rate of exchange for a period of up to 2 years. You only have to lodge 10% of the total to be converted, with the remaining 90% due when you want your currency to be transferred. This is especially useful for those buying property overseas, or a business that needs to pay invoices in a foreign currency. It protects you against the rate dropping while allowing you to budget effectively knowing exactly what your currency will cost.

Need to exchange currency? Get in touch today.

If you need to exchange currency and would like to discuss Forward contracts, or simply get a quote for your exchange to compare with your bank or existing broker, contact us today.