Interest Rates and the effect on exchnage rates
Yesterday Bank of England policy maker Andrew Sentance said that the spending cuts and tax rises outlined in the budget would not remove the need to raise interest rates in the UK. Higher interest rates mean a better return for investors, and so the comments drove investment into the pound which strengthened the currency, helping to push exchange rates to new 19 month highs against the Euro, and 7 week highs against the US Dollar.
Eurozone fears weakening Euro
The debt problems in EU countries such as Greece, Portugal, Italy, Ireland and Spain have caused big weakens in the single currency over the last 6 weeks. As their economy is in a much worse state than the UK's the pound has become stronger, and rates this morning have broken through €1.23 for the first time in over a year and a half.
Analysts say that the drastic rally in Sterling may have gone too far and expect a retraction in the second part of 2010. Other analysts say that as long as the problems remain in the Eurozone, the high exchange rate will remain.
At some point there is going to be a clear plan to sort out these debt problems. As long as the EU is dogged by bad news, rates will likely remain supported. Once there is a plan that is in place to sort out the deficit problems in these EU countries, confidence will return to the Eurozone and the Euro will likely strengthen.
How to get the best exchange rate
If you need to buy Euros or another foreign currency, rates are now the best for a long time. of course, you may want to see if rates continue to rise. How can you do this without leaving yourself open to a loss should rates swing back the other way?
The key tool is a Stop Loss order. You could for example place a stop loss order at €1.20. Should rates fall back that far, your currency is automatically purchased and you are protected. Remember, rates were down at €1.13 last month.
This allows you to then continue aiming for a better rate, without the risk of going back to €1.13. Click the links below to make an enquiry with us today, and find out about these types of contract and take advantage of our commercial exchange rates.
Labels: GBP/EUR, Interest Rates, Pound 19 month high