In my last post at the end of last week I explained that the European Central Bank (ECB) announcement of a Quantitative Easing (QE programme) had weakened the Euro and pushed the GBP/EUR exchange rate to €1.32.
I’ve been away from the trading floor on holiday for a few days, but the currency markets have continued to show volatility, with the Pound/Euro rate climbing and briefly touching an incredible new 7 year high of €1.3500 before dropping back away due to growing uncertainty over what the result of the Greek election means for the EU economy.
Greek election causes Euro to weaken further
At the weekend the Greek Syriza party came to power, and this has caused significant weakness in the Eurozone. You can read a good overview on what’s been happening here on the BBC website.
As far as exchange rates are concerned, the news has caused the Euro to weaken and become cheaper to buy. At one point we briefly saw Sterling/Euro rates hit €1.35 before dropping back to around €1.33 / €1.34.
Effectively the Syriza party have won because they succeeded in selling an illusion that Greece can stop paying the debt, and still stay in the euro. This is impossible. It’s one or the other, and either option will have further implications to the Euro economy. The Greek people don't seem desperately grateful for the €240 billion they have received in bailouts and are trying to renegotiate their debt. Unless compromise is made there is a real chance Greece could leave the Eurozone, and abandon the Euro to return to the drachma. This would cause massive disruption. There will a government default, corporate defaults and bank defaults.
In essence it is the uncertainty over what will happen that is causing Euro weakness, and this has presented great buying opportunities for those that need Euros. Rates have climbed to their best in 7 years. To put the recent gains into perspective, this month alone a €250,000 property in Europe is nearly £9000.00 cheaper due to the rise in exchange rates.
Will rates climb higher or drop back towards 1.30?
It’s impossible to predict exchange rates. However if you need to buy Euros, do consider taking advantage of what are the best rates in 7 years. It may go higher of course, but equally given it has risen by 5 cents already this year alone, it could easily fall back. If you want to hold our for more, then you should have a 'stop loss' in place to cover you should the market go the other way. Get in touch with me today to discuss how these type of contracts work.
I think all the bad news surrounding the Euro has now happened and is therefore reflected in the current rate of exchange. Indeed many in the market believe that a Greek exit from the Eurozone could actually be a good thing for the Euro, so should this become more likely, we may actually see GBP/EUR rates fall.
It’s also worth noting the Pound isn’t particularly strong. Interest rates are now not l expected to go up for some time and this could hold the Pound back. Also, recently figures showed the best annual UK growth for years, however the rate of growth slowed significantly at the end of 2014, so the Pound is actually a little on the back foot. It's only weakness in the Euro that has caused the gains in the rate, and not any particular strength for Sterling.
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