Friday 2nd December 2011
Good morning. Rates remained fairly flat yesterday, with no surprise announcements or adverse data, so there were no dramatic swings in rates as we have seen earlier in the week. Today after the rate snapshot we'll have a detailed look at what the next few months may hold for Sterling/Euro. At 08:30am this morning rates are as follows:
• GBP/EUR 1.1650
• GBP/USD 1.5701
• GBP/AUD 1.5312
• GBP/NZD 2.0095
• GBP/CHF 1.4374
• GBP/CAD 1.5899
• GBP/ZAR 12.671
• GBP/JPY 122.07
• GBP/DKK 8.6603
• GBP/NOK 9.0873
• EUR/USD 1.3473
Pound/Euro rates near a 9 month high
Exchange rates for Pounds to Euros are currently very close to their best in 9 months. So why have exchange rates increased, and what is likely to happen in the next 3 months?
The main reason for rates increasing is the EU debt crisis. As I’m sure you will have seen in the news over the last few months, problems in Greece, Italy, Portugal, Ireland and Spain have caused global economic uncertainty, and this has weakened the Euro making it much cheaper to purchase. In the last 3 months, exchange rates have increased by 3.5% which may not sound like much, but when converting £10k this means you achieve over €400 Euros more. There are real fears that the crisis will spread to other countries within the EU, and it is this that is keeping the euro weak.
So will Sterling/Euro rates continue to rise?
It’s impossible to predict exchange rate movements, but it is important to remember there is no fundamental strength in the Pound. The reason it is performing so well against the Euro is the fact it’s perceived as a safer bet, so savers and investors worried about the debt crisis have been buying the Pound, which has supported it against the Euro.
Chancellor George Osborne earlier this week updated MPs on the state of the economy and the government's future plans in his Autumn Statement as the Office for Budget Responsibility (OBR) publishes its latest growth and borrowing forecasts. Despite most news outlets pitching the statement as doom and gloom amid revised growth forecasts for the UK, the markets have taken it positively as reflected in the Pound rising yesterday. He said slower than expected growth meant it would take longer to reduce the budget deficit, meaning tough austerity measures will extend beyond the next election in 2015.
That is likely to underpin the UKs AAA credit rating and encourage more flows into safe-haven UK gilts. That in turn has supported Sterling despite the prospect of more Quantitative Easing (QE) by the BoE and the risk of recession. Analysts say the fact the UK is following an austerity plan and the BOE is proactive in easing monetary policy is a positive for sterling in the coming months.
Also highlighting the volatility in global markets at the moment, was the recent move by some of the world's biggest central banks, when they announced a programme of co-ordinated action designed to support the global financial system.
The US Federal Reserve, the European Central Bank (ECB), the Bank of England and the central banks of Canada, Japan and Switzerland are all involved. They will make it cheaper for banks to buy US dollars, which they hope will ultimately help businesses and households access finance more easily.
As the eurozone debt crisis has deepened, banks have found it harder to access finance. Analysts said the central banks' move would help to relieve some of this strain within the global financial system.
It should be noted however that recent economic figures suggest that the UK will fall back into recession, and with the Bank of England likely to pursue further QE in the coming months, many analysts expect the Pound to fall. QE floods the market with Sterling which reduces demand, weakening the currency and pulling exchange rates down.
If you need to buy currency in the next 3 months, what are your options?
With the UK’s economic future uncertain, there is every chance rates could fall back away as quickly as they have risen. It’s only the EU debt crisis keeping rates where they are, and given GBP/EUR is near a 9 month high, if you need to buy Euros in the next 3 months, consider a Forward contract.
This is where you can fix the current exchange rate, even if you don’t need your currency for up to 2 years. You simply fix your rate with us, and lodge a 10% deposit of the total you need to convert. You settle the remaining 90% when you want your currency to be transferred. In this way you can budget effectively, safe in the knowledge you have secured rates at a high while being protected against any adverse exchange rates movements.
To discuss any of the above further, contact me today by clicking here. We can give you a free consultation on all the options available to you, whatever your currency requirement, helping you to make an informed decision on when to fix your rate, and make the most of your currency.
If you need to buy or sell foreign currency, click below now to send us an enquiry for free. Our exhange rates are up to 5% better than offered by banks. Take the first step to making the most of your currency now.