Pound Euro rates to rise due to Portugese debt?
Good morning. The pound stayed close to a 4 month high against a struggling euro yesterday as sovereign debt worries plagued the Euro and the increasing prospect of higher interest rates in the UK supported the pound. Rates at 08:30am this morning are as follows:
- GBP/EUR 1.2023
- GBP/USD 1.5651
- GBP/AUD 1.5786
- GBP/NZD 2.0539
- GBP/CAD 1.5445
- GBP/CHF 1.5241
- GBP/ZAR 10.673
- GBP/JPY 129.90
- GBP/HUF 332.72
- EUR/USD 1.3014
Pound vs Euro; Portugal bailout to cause more weakness?
The euro remained on the back foot with the focus on whether Portugal will be able to raise funds in the debt market today, or be forced to turn to the European Union and IMF for financial aid. Bond auctions in Spain and Italy will also be closely scrutinised this week.
The bond auction will try to raise the funds necessary, as currently they pay 7% interest on their debts. It was just after Greece and Ireland reached this figures that they had to be bailed out.
Most analysts now think it's a question of when, rather than if, they will have to be supported by the richer nations such as Germany. Other EU countries facing problems will face bond auctions this week, and the market will be watching with keen interest.
If they are indeed bailed out, then it may well weaken the Euro further pushing GBP/EUR rates higher. However, because markets are already expecting Portugal to need support, this may have already been priced into the market.
So will GBP/EUR rates rise?
We think there could be further Euro weakness and this could cause rates to rise. This depends of course on UK figures. If there are better UK economic figures then this could also help push rates up in addition to the Euro weakness expected.
If however we get poor or worse than expected figures, the pound could weaken cancelling out any gain due to EU debt.
If you need to buy Euros, then a Stop Loss order is useful in this situation.
Stop Loss Orders
A Stop Loss order allows you to place a lower limit with your broker, and your currency will be automatically secured should rates fall below this level. Example: You place a Stop Loss order to buy €120k should rates fall below €1.18. This order stays in place until it is filled, or until you cancel it.
If the market continues to rise, then you can increase your Stop Level in line with any increase. In this way you can continue to take advantage of any gains, without the risk of losing out significantly should rates decline.
This also gives you a ‘worst case scenario’ allowing you to budget effectively, knowing the maximum cost of your property in Sterling. This strategy gives you much more control and can alleviate the stress fluctuating exchange rates can sometimes cause.
The alternative is leaving things to chance and simply hoping rates will move your way; hope is not a reliable economic tool and so Stop Loss orders allow you to budget effectively and take control of the cost of your home overseas.
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Bond Auctions for Portugal is the main thing to watch today. We also have UK Trade Balance Figures, and EU Industrial Production. Expect some volatility for Sterling to Euro exchange rates.