Sterling falls against Euro after Central Bank comments

Good Morning. The pound rose through €1.20 yesterday, but the gains were short lived. Later in the day Central banks voiced their support for the Euro, giving the single currency strength and pushing rates back below €1.20. Corporate demand for the pound subsided. As usual, we'll take a detailed look at developments in a moment. First, at 08:30am this morning rates are as follows:

Euro gains strength

As you can see from the chart above, rates plummeted from the high €1.20's to the low €1.19's yesterday. This was mainly due to Euro strength. Following the weakness in the Euro after all the problems with sovereign debt in Spain and Greece, there were fears that central banks would not want to invest in the Euro. However, yesterday some of the worlds largest central banks said they would not stop investing in the single currency. Read more about that in a great article by Reuters.

The comments caused the Euro to regain some of it's recent losses, and the net effect on Sterling exchange rates was a fall in the GBP/EUR cross. The currency is still weak, but for the most part this is now priced into the market and exchange rates.

Sterling weakens

This week the news that the Prudentials bid for AIG was off caused strength for the pound. Why? Well the Pru moved Billions of pounds to US Dollars to fund the deal; now it's off these positions needed to be reversed, creating big demand for the Pound. As with any supply and demand, when there is lots of demand for something, the price rises. The is one of the main effects that pushed the pound through the €1.20 barrier.

Now that this effect has subsided, the pound has fallen back away.

Summary

It's important to remember that there is no new domestic political or economic development to justify the rally of the past few sessions, which is why the spike was short lived as it was only really driven by corporate demand. Analysts do expect the pound to gain much later in the year, with a year end possibility of around €1.25 or so. In the short to medium term however, Sterling is likely to remain under pressure given the weak position of the UK economy.

Euro weakness and the corporate demand has caused rates to rocket to levels not seen for quite some time. Holding out for more gains may of course result in slight better levels; but in our opinion those needing to purchase Euro have more to lose than they have to gain. Just a few weeks ago rates were in the €1.13's.

If you need to purchase currency for a transfer, whether for a property purchase or to pay for business supplies - contact us today to make the first step in achieving commercial exchange rates.

You've made the first step in searching for the best rate by finding this blog. Take the next step to rates that are up to 5% better than the banks - make an enquiry with us today.

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