Friday, 7 January 2011

Pound to Euro forecast; 3 month high

7th January 2011
Good morning. Growing worries about sovereign debt problems spreading to the wider euro zone yesterday significantly weakened the single currency. This pushed Sterling Euro rates to nearly €1.19. Rates at 08:30am this morning are as follows:

  • GBP/EUR 1.1897
  • GBP/USD 1.5440
  • GBP/AUD 1.5570
  • GBP/NZD 2.0396
  • GBP/CAD 1.5432
  • GBP/CHF 1.4882
  • GBP/ZAR 10.502
  • GBP/JPY 128.98
  • GBP/NOK 9.2105
  • GBP/HKD 11.998
  • EUR/USD 1.2960

Pound rises against Euro

The service sector in the UK suffered poor results yesterday, but the figures didn't actually weaken Sterling that much. Due to the snow causing problems for Retail Sales.

"There was an initial sell-off in the pound but overall the market has taken the data with a pinch of salt," said Jane Foley, senior currency strategist at Rabobank.

"Weather-related components make it difficult to read much into the data and the market will be waiting to see if there's a bounce in the next month's reading," she said.

The reason for the increase in rates is a weaker Euro. Renewed concerns over the euro zone periphery weighed on the single currency, with the market seeing Spanish debt issuance next week as a key risk after Portugal was forced to pay higher yields in a Treasury bill auction on Wednesday.

It's important to remember that the pound isn't particularly strong, and without the Euro debt problems GBP/EUR rates would be much lower. Sterling won't recover well until interest rates start to go up.

The Bank of England has probably put its asset purchase to bed for good thanks to high inflation, but it is likely to wait until at least October before raising interest rates from record lows.

Sterling/Euro forecast Summary


For those that need to buy Euros, as the chart above illustrates that rates are now almost the best for over 3 months. You can see the big upswing in recent days as focus returns to Eurozone debt.

At some point there will be a consensus on how to tackle these problems, and then focus may shift back to the tentative UK recovery. There is every chance that rates could plummet back to the €1.12 levels we saw a few months ago. Buying €150,000 at the current rate compared to in October saves you a staggering £8000.

Even if you don't need your Euros for some time, by paying a 10% deposit we can lock in today's rates for up to 2 years into the future, protecting you from a decline.

To take advantage of our commercial exchange rates, open an account with us today.