Pound/Euro up after Unemployment data. What next for Sterling?

Wednesday 16th April 2014 
The Pound has surged higher today, after the latest UK unemployment figures were released. These showed that the jobless rate has dipped below 7%, the first time we’ve seen that for 5 years. As a result, Sterling has surged higher, finally breaking above the €1.21 mark as you can see from today’s chart below: 

UK Unemployment causes Pound to rise 

As the chart clearly shows, as soon as the numbers were released, Sterling/Euro rates rose to €1.2150 before settling off. Sterling/Dollar also rose, hitting resistance at $1.68 to the Pound. You can read a full report on the Unemployment figures here on the BBC website  , and the ONS result can be found here.

So why has this caused the Pound to gain? 

It’s to do with interest rates again. The Bank said last August that it would not begin to think about raising rates until unemployment fell below 7pc. At the time, it believed this would not occur until 2016. Higher interest rates, or the possibility of higher rates in the future, generally strengthens a currency due to the increased return potential, and that’s what we’ve seen happen today. 

As the level started to drop below this, they revised their guidance saying that when the rate falls below this, it won’t trigger a rate hike, but it does mean the Bank of England will move away from its focus on a single threshold to decide when to raise interest rates. It will now look at a broad range of "key judgements" including business investment, exports and productivity, which it outlined in February. 

Will the Pound go higher or drop back away? 

That’s the question everybody wants the answer to, but is impossible to predict. I think that much will now depend what the Bank of England say. They could as I’ve stated above, introduce new judgements before raising rates. This will probably be inflation falling to the 2% target – until we hear the reaction from the BoE the market probably won’t go much higher. 

Those that need to buy Euros should be aware rates were actually even higher than this earlier in the year, but then fell back away. For the last few months the GBP/EUR rate has hovered between €1.19 and €1.21. Today’s events have broken above that barrier. If I needed Euros, then I would consider the risk of the Bank of England moving to weaken the Pound off, which they have already said they would look to do if the exchange rate rose too much. That’s now happened, so we could see it drop back towards €1.20 again in the coming weeks. Don’t take the risk – place a Stop Loss order to protect against the market moving against you. 

Those selling Euros will not be pleased with today’s news. I don’t think that the rate will drop below €1.20 any time soon, and is likely to remain roughly where it is until we hear what the BoE have to say about today’s news. 

Take control of your currency requirement 

http://www.foreignexchangerateforecasts.blogspot.co.uk/2009/01/contact-us.htmlDon’t just sit back and hope the rate will move your way; hope is not a reliable economic tool

I can provide various tools however to protect against the market going the wrong way, ways to fix your rate well in advance of when you need to convert your currency, and explain the different scenarios that could happen in the coming weeks and months. 

In this way you can take control of your currency requirement and make an informed decision on what to do and when to do it. 

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I look forward to hearing from you. 

Alastair Archbold

Sterling/Euro €1.21 & Sterling/Dollar $1.6740

Tuesday 15th April 2014
Sterling is holding firm above €1.21 against the Euro, and has risen to $1.6740 vs the US Dollar. The Pound has however remainder relatively range-bound this week without pushing much higher than that. Its 2 things keeping the rate supported: firstly we had the ECB president over the weekend say that if the Euro strengthens, they will look at stimulus. Today, UK inflation numbers were as expected, increasing the chance of an interest rate hike in the UK next year. 

In today’s post I’ll take a look at these 2 things that are keeping rates supported, and explain how you can take advantage of the current rates which are around a 16 month high. 

ECB warns of stimulus if Euro strengthens further 

ECB President Mario Draghi said in Washington on Saturday that "further strengthening of the exchange rate would require further stimulus." 

So what does this actually mean? 

If the Euro were to strengthen, it would become more expensive to buy and Sterling/Euro rates would fall. His comments effectively say that if the Euro were indeed to strengthen, they may pursue a Quantitative Easing programme to stop it doing so. This has kept GBP/EUR rates at the €1.21 level. 

So if this is the case, could rates go higher? I don’t think so, unless they actually decide to go ahead and pursue a QE programme. At the moment it’s just rhetoric, so while it’s keeping rates from falling, it’s unlikely they will rise in the short term. 

For those of you that need to sell Euros, this means rates are likely to remain range-bound so you may wish to consider fixing a rate sooner rather than later. It’s the same story for Euro buyers, as rates have failed to go higher than these levels recently. 

UK Inflation numbers also keep the Pound supported 

Inflation numbers came in as expected at 1.6% this morning. Some in the market thought the number would be a little lower, which would have meant less chance of an interest rate hike in the UK in 2015. 

Higher interest rates mean a higher return for investors, so speculation it will happen sooner rather than later is good for the Pound. As the number was as expected, it remains the case we think rates will rise in 2015, so this gave Sterling a little boost this morning. 

Are you looking for the best exchange rates? 

Whether you need to convert Sterling to Euros, move Euros back to Pounds, or convert any other major currency – I can help you source excellent rates of exchange that are up to 5% better than banks can offer. When converting large volumes, the savings can be very considerable indeed. 

Why not get in touch for a free chat about the service I can offer? I can offer you a consultation to discuss the options available to you, provide you with a rate to compare with your bank or existing broker, and discuss with you what’s happening in the currency markets to help you decide when to fix a rate. 

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Pound gains on strong data, but spike is shortlived

Thursday 10th April 2014 
Good afternoon. It’s been a busy week since my last post on Monday, and we’ve seen a raft of impressive UK data that caused Sterling exchange rates to rise nicely. We saw the GBP/EUR rate hit around €1.2150 and the GBP/USD rate as high as $1.6820; however in trading today we have already seen rates start to slide back away. 

In today’s post I will explain in detail why the figures caused Sterling to rise, and ways in which you can take advantage of spikes like this, which are often very short lived and hard to catch! 

UK manufacturing figures cause Sterling to rise 

On Tuesday we saw the latest UK manufacturing figures released. Analysts were expecting the figure to show output growing by 0.3%, but in fact output grew by 1%! As the figure was much better than expected, and as you can see in the chart above the Pound spiked hitting as high as €1.2150. 

Output now stands at its highest level in more than 2.5 years, and is a sign the UK economic revival is quote strong. 

UK Growth forecasts also good for the Pound 

Also this week we saw the International Monetary Fund (IMF) says the UK economy will be the fastest-growing in the G7 this year. It said that the UK will grow by nearly 3% this year. So this is quite an upbeat forecast for the UK and helped Sterling gain against other currencies. Only 12 months ago, the IMF forecast 1.5% growth for this year, illustrating how good things are at the moment. 

Pound’s gains are short-lived 

As is often the case in the currency markets, a sudden rise in the exchange rate can often be very short-lived, and indeed the chart above shows how things have now tailed off, with Pound/Euro back just below €1.21. This is partly due to profit taking, as so many worldwide investors flock to take advantage of the gains, the flurry of buying pulls the rate lower again. 

The rate has been getting to these sorts of levels many times this year, only to drop back away again. I expect this trend to continue. In order to take advantage of spikes in the market without watching the rate 24/7, you need to have a good currency broker on your side. If you need to convert one currency to another and targeting a specific rate, then I can monitor the market for you and let you know if your target rate becomes available. Click to here to find about more about the kind of services I offer. 

Find out more about the rates and service I offer 

If you have a currency transaction to perform and would like to find out how I can help you, get in touch in the following ways: 

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