Pound/Euro forecast September 2014

Monday 1st September 2014 
Good morning and welcome to a new month. Pound/Euro rates have started quite strongly at €1.2650 due to a weakening Euro, but Pound/Dollar remains low at just above $1.66. In today’s report I will outline what has pushed GBP/EUR rates higher, the forecast for September, along with this week’s data releases that could affect exchange rates. 

Pound/Euro up to €1.2655 


After a few weeks of decline in the GBP/EUR rate, this morning we saw it recover back close to 2 year highs. This is partly due to the crisis in Ukraine and the risks this presents to the EU recovery. 

The main reason why the Pound has risen against the Euro is weakness in the single currency. Low inflation means that the pressure is on the European Central Bank to provide further stimulus which could take the form of Quantitative Easing. They will announce whether they will do so at a meeting on Thursday. If they do announce stimulus, expect the Euro to weaken and Pound/Euro rates to rise. 

However, Analysts at Barclays said it was too soon for the ECB to announce new policy measures, given that the two most powerful policies announced in June are not yet deployed. So there are mixed views on whether anything will be announced on Thursday. If so, exchange rates will probably go up. If they don’t say anything, then the rate will probably drop. 

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Pound/Dollar remains low at $1.66 


This again is partly due to the problems in Ukraine and the middle-east. When there is global uncertainty like there is at present, the Dollar gains strength and becomes more expensive to buy. 

 The US economy is also recovering well, and they have been winding up their stimulus programme. So like the UK, the USA is recovering and this is being reflected in the strength of the respective currencies. 

Summary 


The UK and US economies are doing well; the Dollar and Pound are strong as a result. The EU economy is doing badly, and they are likely to have to take measures to boost the economy. This is weakening the Euro. 

The geopolitical situation in Ukraine and the middle-east is also causing problems for the EU economy, and causing the safe haven US Dollar to gain in strength and become more expensive. All of the above means GBP/USD is low, GBP/EUR is at a 2 year high, and there are various economic releases (detailed below) this week that could keep the currency markets quite volatile. 

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 *** I'm on holiday from tomorrow so my blog will next be updated on the 10th September ***

This week’s economic data releases. 


Monday 1st SeptemberToday has been very quiet due to a market holiday in the United States. We did have slightly worse than expected UK Mortgage Approval and inflation numbers this morning, pulling the Pound slightly lower. 

Tuesday 2nd September Overnight Australia will have released its latest interest rate decision which I expect will stay at 2.5%. The only UK data of note today is PMI construction released at 09:30am. US Markets open again today with figures showing the latest Construction and Manufacturing. 

Wednesday 3rd SeptemberFurther UK inflation figures today could affect the Pound. GBP/EUR could also be affected by the latest UK Retail Sales figures. Elsewhere we will see Australian growth figures, an interest rate decision from Canada, and the latest US Factory Order numbers. 

Thursday 4th September As always for the first Thursday in the month, the EU and UK release their latest decision on interest rates. They will probably leave them as they are, but there is a chance as I outlined above that the EU could announce stimulus measures. Expect exchange rates to rise if this is the case. Over in the USA we have the latest Jobless numbers and Trade Balance figures. 

Friday 5th September The only UK data of note is a consumer inflation report. The EU releases its latest GDP figures. Canada has some unemployment numbers. Over in the states we have earnings and non-farm payroll figures. These are often very different to forecast to expect a choppy day for Pound/Dollar rates. 

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Pound up, Euro weakens, Dollar strengthens - forecast 2014

Tuesday 26th August 2014 
Good morning and welcome back after the long weekend we enjoyed in the UK, despite the dismal weather! The Pound/Euro rate however is anything but dismal, having recovered today when UK markets opened. This is more to do with weakness in the Euro that I shall explain in a moment, in addition to looking at why Pound/Dollar rates dropped. I will also outline what data released we’re looking at this week that could affect exchange rates. 

Sterling/Euro rates up, but not due to the Pound 


Over the weekend there was a meeting with the US and EU central bank chiefs in the United States. There were some interesting comments from the European Central Bank (ECB) president Mario Draghi that has caused the Euro to weaken. 

Unlike the UK, Europe is still struggling to grow and they are facing a problem of very low inflation. Usually you would lower interest rates to combat this, but rates in the EU are already at a low of 0.15% so they can’t cut it any further. So what I expect them to do is look at other stimulus measures, much like the Quantitative Easing we saw in the UK. 

His comments over the weekend hinted at this when he said that they would “use also unconventional instruments to safeguard the firm anchoring of inflation expectations over the medium- to long-term.” Adding that they would “use all the available instruments needed to ensure price stability over the medium term.” 

Markets have taken this as the clearest signal yet that they may indeed have to create money to pump money into the economy. If so this would weaken the Euro, and this has started to get priced into the market and the Euro has weakened off, causing the Pound/Euro rate to recover back towards to €1.26 level.

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Pound/Dollar rates drop 


Again this was not due to Sterling, it was due to the US Federal Reserve Chair Janet Yellen being very positive about the US economy, their growth and unemployment levels, and the fact they will continue winding up their stimulus program, all of which points to the USA raising interest rates next year. As a result, the Pound/Dollar rate dropped as the US Dollar became more expensive to buy. 

This week’s data releases 


Tuesday 26th Augusttoday has been quiet in terms of economic data, with only US figures of note. We’ve seen good orders higher than expected compounding the strength of the US Dollar. 

Wednesday 27th AugustYet another quiet day, and while there are some minor releases, there is nothing that I think should affect exchange rates. 

Thursday 28th August - It is quiet again in the UK with nothing of interest other than some consumer confidence figures at midnight. In the EU however, Germany (Europe’s largest economy) has a raft of unemployment and inflation data. Over in the United States we have Gross Domestic Product figures, Jobless Claims and Home sales, all of which could affect GBP/USD rates. 

Friday 29th AugustThe only UK release is a measure of business investment, but with a lack of other UK data this week it may have a larger effect than normal. Elsewhere we have EU inflation and unemployment, Canadian GDP figures, and income and expenditure figures from the USA. 

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Pound rises on MPC vote, but gains likely to be limited

Wednesday 20th August 2014 
The Pound has recovered slightly this morning after 2 members of the Bank of England's Monetary Policy Committee (MPC) voted to raise interest rates in August, the first time in three years that policymakers have done so. In today’s post I’ll explain why this caused Pound/Euro rates to rise, and why I think any gains will be limited and that Euro buyers should consider fixing rates sooner rather than later. I’ll also give my views on the Pound/Dollar forecast. 


Bank of England Split on interest rates 


This morning’s data showing 2 of the 9 members voted for a rate hike shows division within the BoE. It is the first time there has been a split in over 3 years. (Interest rates have been unchanged since March 2009.) It also suggested an early interest rate rise was desirable as a way of anticipating inflationary pressures from wage rises. 

Despite the split vote, it doesn’t really change all that much because yesterday’s inflation figures showed the Bank remained under no immediate pressure to raise interest rates. With inflation well below target and wage growth stagnating, any increase in interest rates at the moment would be premature. It’s for this reason that I think that the GBP/EUR rate will now be settled at around 1.25 or so for the moment and is unlikely we’ll see any more gains. Sterling has actually been in decline of late so this is likely a temporary spike upwards. 

Therefore if you need to buy Euros in the next 3 to 6 months, consider fixing the rate sooner rather than later while it’s still within a few cents of a 2 year high. You can do this by simply lodging 10% of the total you want to convert, and guarantee today’s rates for up to 2 years. 

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Sterling /US Dollar 


We saw this rate increase too today, but gains were limited and short lived. The current rate sits a little above $1.66. Later this after we have the US version of today’s UK BoE release – the FED minutes. Any indications that they discussed easing policy or raising rates would cause the USD to strengthen and become more expensive to buy. 

Exchange rates to buy Dollars were at a 5 year high recently, but has since dropped from $1.72 to $1.66. I personally expect this currency pair to keep dropping as the US economy recovers. Rates closer to $1.60 are likely in 2015. 

Other data this week that might affect exchange rates. 


The remaining data this week is thin on the ground. We have UK Retail Sales tomorrow morning which are a good indicator of economic activity. I expect a rise of 0.4% and as usual if the number is lower than this, Sterling will likely drop in value. 

We have US Jobless numbers tomorrow, along with some EU inflation numbers. Friday is very quiet, and markets are closed on Monday for Bank Holiday. 

What does this mean for your currency requirement? 


The currency markets are very volatile, and when converting large sums even a small movement in the rate can end up costing you thousands. The service I provide is twofold. Firstly you can have a free no obligation chat with me about the exchange rate, and I can explain what is moving the rate and discuss which way it could move in the future. In this way you can make an informed choice on when to fix your exchange rate. 

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