Thursday, 7 April 2011

How Interest Rate decisions may affect Exchange Rates

7th April 2011
Good morning. Portugal is going to be bailed out, following Greece and Ireland. The markets have reacted little, as of course today is interest rate day, and we expect a rate hike from the EU and that's what is driving rates. We'll look at this in a moment after the usual snapshot of rates as at 08:30am:
  • GBP/EUR 1.1418
  • GBP/USD 1.6316
  • GBP/AUD 1.5566
  • GBP/NZD 2.1000
  • GBP/CAD 1.5686
  • GBP/CHF 1.4962
  • GBP/ZAR 10.875
  • GBP/JPY 138.96
  • GBP/HUF 301.21
  • GBP/NOK 8.9353
  • EUR/USD 1.4285
Sterling falls on Industrial Output data

The pound fell yesterday as data showing a surprise fall in UK industrial output cast a shadow over the economy's growth prospects and reduced the chances for a near-term rise in UK interest rates.

Portugal faces Bail out

Portugal's has requested a bail out from the EU, and this is expected to be discussed when EU finance ministers meet later in Budapest. European Central Bank head Jean-Claude Trichet is also likely to mention Portugal at his news conference after the latest eurozone rate decision.

It hasn't really affected the markets as yet, due to the fact Portugal is a small economy within the EU, and the interest rate decision is taking centre stage. Going forwards, if the problems spill into Spain, then due to the size of the Spanish economy then this could cause problems for the Euro.

Interest Rate decisions today

Both the UK and EU announce their interest rate decisions today at 12:00pm and 12:45pm respectively. It's widely expected that the UK will leave rates on hold yet again, however there is a very high chance the EU will raise rates from 1.0% to 1.25%.

This has been expected for several weeks and the Euro is strong as a result. If rates are indeed pushed up, we could see GBP/EUR fall further. If however they confound expectations and choose to leave rates on hold, we expect Pound to Euro rates to soar due to the fact a rate hike is mostly priced in to rates.

If you are buying or selling Euros....

Today is a very important day and it's likely rates will move significantly one way or the other. If you need to buy or sell Euros you should consider placing a Stop Loss order. this is where you place a lower level and if rates should fall below this your currency is secured automatically.

This ensures you have some protection with today's interest rate decisions. If they push rates up then GBP/EUR will probably fall slightly. If they don't, it could rise. either way there will be some movement today, so contact us today to discuss our commercial exchange rates and the mechanics of how you can trade with us.

We can help whether you are buying property abroad, have bills to pay or simply need to top up your account overseas. Also clients looking to move EUros back to Sterling can benefit from our services.

Contact us today by clicking the banner below.