Tuesday 13th December 2011
Good morning. The Pound surged against the Euro during trading yesterday afternoon, hitting a fresh 9 month high - the best exchange rates to buy Euros since March this year. Why did the Pound go up against the Euro? It's due to the single currency being sold off. As there was no real progress made at the summit last week, the Euro has weakened and become cheaper to purchase.
This also caused investors to flock to the safe haven US Dollar yet again, pushing Pound/Dollar rates lower. Below you can see how GBP/EUR & GBP/USD rates fluctuated during trading yesterday (Monday).
~Currency movements yesterday (12/12/11)~
Lack of progress in Europe weakens Euro; GBP/EUR up
European Union leaders last week struck a historic agreement for a new treaty for deeper integration within the euro zone. However, analysts and policymakers have remained very sceptical indeed that a solution will be found to the crisis. This was reflected in the currency markets yesterday, with a mass sell off of Euros by investors, significantly weakening the Euro and making it cheaper to buy. This pushed the Sterling/Euro exchange rate to a 9 month high; the best it's been in 9 months, much to the delight of clients requiring Euros.
Peter Kinsella, a currency strategist at Commerzbank said yesterday that "We still don't have an effective implementation regime in the EU, so nothing has changed on a fundamental basis,". So as markets don't see that anything has changed, worries about the EU resurfaced yesterday and this was the reason for the jump in rates into the €1.18's.
Given that in October the rate was €1.13, this is a significant increase. To put this in to real terms, buying €150,000 now compared to just a month or two ago is over £5500.00 cheaper.
If you want to take advantage of the current rate, even if you don't need your Euros for up to 2 years, you can lock the rate with a Forward contract. You only lodge 10% of what you want to convert, and the remaining 90% when you want your currency. In this way you can fix your rate at the high and be protected against any potential fall.
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Sterling falls against US Dollar
Despite the surge in rates against the Euro yesterday, the Pound didn't fare so well against the US Dollar. Due to the EU debt crisis having no solution, as I've outlined above investors have sold the Euro for the 'safe haven' US Dollar, and this strengthened the US currency making it more expensive to purchase.
This is reflected in the charts above, where you can see the steady gain in GBP/EUR rates but the choppy trade against the USD that saw us end the day down.
Today we have the first UK data of the week: House Price Data, Retail Price Index, and Consumer Price Index. In the Eurozone we will see German economic sentiment measures. Stateside there are Retail Sales numbers, Economic Sentiment measures and an interest rate decision where we expect the FED to leave rates unchanged at 0.25%.
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