Why has the pound fallen against the Euro?

As you can see from the 24 hour chart above, Sterling to Euro rates have tumbled overnight from €1.1750 down to €1.1560. Those that took heed of yesterdays report were able to use a Forward contract to lock in rates while they were high. Those clients will be glad of doing so after we correctly predicted rates would not likely last at those levels for very long.

The pound may recover with short term spikes, but looking at where rates have moved this year, it's much more likely that rates will fall than moving up. Those that need to buy Euros have much more to lose than they do to gain, so to discuss how to protect yourself against adverse market movements, contact us today.

The weak Euro is also not helping the pound. All of the euro worries have led to general weakness in risky assets and that's typically not good news for sterling. It's more selling of risk more than anything else - Sterling is seen as a riskier currency, and so when things are uncertain as they are now, it drives investment towards the safe haven US Dollar - that's why the dollar is so strong right now, and the pound and Euro are both very weak.

The minutes from the Bank of England's May meeting showed its Monetary Policy Committee said the pace of UK fiscal consolidation may need to be tougher than implied by the March budget to reassure markets. They voted 9-0 to keep rates on hold, and markets think this will be the case for some time. Low rates mean less return for investors that then seek other currencies with a higher rate. This hurts the pound and lowers exchange rates.

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