Pound vs Euro forecast outlook

10th December 2010
Good morning. The pound rose again very slightly against the Euro and US Dollar yesterday, following the decision from the Bank of England to hold off on any further Quantitative Easing and left rates on hold. At 08:30am this morning rates are as follows:

Bank of England leave rates on hold

The Bank of England's Monetary Policy Committee (MPC) has kept UK interest rates on hold at 0.5%, and unveiled no new quantitative easing (QE) measures. Both decisions were expected, but it will not be clear whether they were unanimous until the minutes of the meeting are released.

At the MPC's November and October meetings, there was a three-way split among its nine members. In those meetings, one member voted for a rate rise, another for more QE. So in reality we will have to wait 2 weeks for the important part of the decision - who voted for what. This will show if there is consensus and direction within the MPC.

It was the 21st month in a row rates were left unchanged at 0.5%.

US Trade Deficit widens

The UK's trade deficit in goods and services widened in October, the latest official figures from the Office for National Statistics (ONS) have shown. The deficit - the difference between what the UK exports and imports - grew to £3.9bn from £3.8bn in September.

Alan Clarke, an analyst at BNP Paribas, said the figures did not immediately make good reading. The news didn't really affect Sterling as focus on the Eurozone is the biggest driver in GBP/EUR rates.

Pound vs Euro Summary

Rates to buy Euros have recovered back to the 2 month high we saw last week. It doesn't seem to be able to push higher however, as markets are still cautious on whether the UK economic recover will continue.

It's also important to remember that without the problems in the EU, GBP/EUR rates would be around 6% lower at 1.12/1.13. Now the Irish have been bailed out, if there are no further bailouts required for the other EU countries with debts, then the Euro could regain strength and cause rates to fall again. While the problems remain however, so do the best buying opportunities in over 2 months.

Sterling will be strongest major currency in 2011?

Sterling will be the best performing major currency next year, Barclays has forecast in an article in the telegraph today, which you can read here.

The prediction will be welcome for many clients waiting for better rates, but it may take well into the year for this to materialise. Most analysts expect the pound to rise when interest rates start to go up. They've been at 0.5% for nearly 2 years, and once it looks like inflation is rising and the economy is growing strongly, the BoE will start to raise rates again.

This will probably be in Q2 / Q3 next year, so if you can wait that long, great. If not, then you should consider the possibility that things may get worse before they get better, especially if the BoE decide to opt for further QE in the meantime.

To find out what may happen in the markets, and see how our commercial rates compare with your bank, click below to send us an enquiry today, and take advantage of a free consultation on your requirements.

Enjoy your weekend.

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