Friday 9th September 2011
Good morning. Well, what a difference a day makes! This time yesterday the Pound/Euro rate was €1.1320, with forecasts for it to drop further. Instead, the Euro weakened significantly on the back of the press conference by ECB president Jean Claude Trichet, and this caused GBP/EUR rates to rise by over 1.5% to near €1.15. Today we'll take a look at his comments and what caused the gains. Rates at 08:30am this morning are as follows:
• GBP/EUR 1.1497
• GBP/USD 1.5973
• GBP/AUD 1.5036
• GBP/NZD 1.9125
• GBP/CHF 1.3923
• GBP/CAD 1.5795
• GBP/ZAR 11.475
• GBP/JPY 123.68
• GBP/DKK 8.5610
• GBP/NOK 8.6456
• EUR/USD 1.3891
Pound makes significant gains vs Euro
These charts show the GBP/EUR and GBP/USD rates as they moved throughout the day yesterday. There was a general strengthening of Sterling in the morning as a UK clearer purchased the Pound, creating strength.
Then, we had the BoE decision to hold interest rates, and no mention was made of QE at all. This helped the pound further, although we'll have to wait 2 weeks to see if the minutes show any discussion of QE. Rates then levelled off waiting for the ECB press conference at 13:30pm.
In the press conference, ECB President Jean-Claude Trichet highlighted "downside risks to economic growth" in the euro zone after leaving interest rates on hold. Markets believe future rate hikes are off the table in the EU and the ECB may even need to cut rates by the end of this year. The comments significantly weakened the Euro, which through the day climbed from €1.1320 to nearly €1.15 - this represents a £2000 saving on a €150,000 property purchase in only one day!
So will the Pound continue to go up against the Euro?
Despite sterling's rally, analysts cautioned that signs that the economy is continuing to weaken while the euro zone's debt crisis festers could prompt the BoE to add to asset purchases in the coming months.
"Although the case for more stimulus (QE) has certainly strengthened, the deterioration in the demand outlook was evidently deemed insufficient to warrant an immediate move," analysts at Barclays Capital said in a note. Translated, this means although no QE for now, there probably will be some to come soon, and this will likely limit any further gains in the rate.
So what to do if you need to buy Euros?
You could either fix the rate now while it's very good with a Forward contract; you only lodge 10% of what you want to convert, and we can hold the rate for up to 2 years for you.
If you think the rate may gain further, then you can place a 'Stop Loss' order. This means you can still aim for a higher exchange rate, but should rates fall back away, you can set a lower limit where your currency will be purchased automatically, thus having a safety net should things not go your way.
Whatever you need to do, send us an enquiry now so we can discuss the different options with you. Our exhange rates are up to 5% better than offered by banks, so take the first step to making the most of your currency now and click the link below for a free consultation.
Labels: Euro weakness, European Central Bank, Jean Claude Trichet, Quantitative Easing