Good morning. The pound has recovered a little from the drops we saw in the last few days. Investors bought back the currency, taking the view it had been oversold the previous day when a ratings agency highlighted Britain's hefty budget deficit. Rates this morning are as follows:
Pound makes small gains
On Tuesday, a credit agency Fitch warned the UK had a big challenge ahead in terms of cutting the deficit. This hurt the pound and rates fell. Yesterday Sterling clawed back some of it's losses, after analysts said the pound was probably oversold on the news. The pound is likely to remain on the back foot though, with focus starting to shift to the expected cuts that will be announced in the budget.
How will interest rates affect the exchange rate?
Today the Bank of England and European central bank announce their decision on interest rates. We think both central banks will leave rates where they are, and so it's not likely to have much impact at all on exchange rates this month. The ECB however, will have a press conference at lunchtime, and sometimes comments made here can have an affect on the Euro. So, depending what's said, we may see some volatility in GBP/EUR today.
UK Trade Deficit Widens
The trade deficit widened a little last month, figures showed yesterday. However, imports and exports were probably affected by the ash cloud somewhat, and so the markets have reacted little to the news, with no real affect on Sterling.
Spending cuts to affect jobs
A report yesterday showed that the spending cuts expected in the UK will likely push unemployment to the 3 million mark. It's pretty expected though, so again the news has done little to affect Sterling.
Summary
For GBP/EUR rates have risen from the €1.13's to the €1.21's in only a few weeks. As we've covered quite extensively on this blog, it's all to do with weakness in the Eurozone with debt fears in many countries. We seem to have peaked, with rates failing to push higher, It's impossible to predict if rates will continue rising, but we think that in the short to medium term, focus will return back to the pound with the upcoming budget, and this may well trigger bouts of Sterling selling when any bad news is announced. This could weaken the pound and reverse it's recent gains.
Unfortunately we have no crystal ball - in a months time, we could be at €1.15, or we could be up at €1.25; rates are so volatile at the moment it's impossible to predict. If you want to take a risk, then of course this may work out well for you, or you could lose out -it's nothing more than a gamble.
Those that would prefer not to take the risk in what is a volatile market should consider the contracts we offer to protect you from adverse market movements. We offer Forward contracts so you can fix the rate now, and Stops and Limit orders, where you can set pre-agreed levels to buy at. Take chance out of the equation, at use these tools to take advantage of the best possible commercial exchange rates.
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