Pound makes significant gains against Euro
As the charts above clearly illustrate, Sterling had a great run agains the Euro yesterday, gaining by over 1%. Look at it go! It was due to hopes a deal to help Greece is imminent. Greek Prime Minister Lucas Papademos said negotiators had made significant progress in debt restructuring talks, sparking optimism the country may avoid a chaotic default.
This buoyed sentiment towards the euro and lifted riskier assets and currencies, including sterling. As a result, the Pound gained against both the Euro and US Dollar. This is because the Pound is seen as a risky asset, so the increased confidence strengthened the Pound. However, despite the gains, there is much in the next week or two that could reverse Sterling's fortunes.
Analysts still predicting Sterling will fall
Despite the jumps in the GBP/EUR and GBP/USD exchange rates, the Pound could come under pressure later this week, with purchasing managers' surveys on manufacturing, construction and services likely to give further evidence of the fragility of the UK economy.
Indeed, data yesterday highlighted the sharp declines in money supply and consumer credit, however the negative data had little effect on sterling. It does however increase the chance of further Quantitative Easing next week at the BoE's meeting on Thursday. Many in the market expect the Bank of England will announce another round of quantitative easing under its asset purchasing programme in February in an attempt to boost the economy.
The last time QE was announced Sterling fell across the board. It's difficult to forecast what effect it may have however. As it is being widely predicted, it will be partly priced in to the market rates already, however I expect further drops for the Pound should the BoE indeed go ahead with further QE.
What you should do if you need best Euro exchange rates
With the mid market rate again over the €1.20 mark, it represents the best buying levels for close to 18 months. With the risk of QE pulling the Pound back down, there are a few options you have if you need to buy Euros in the next 6 months.
You could fix the rate now on a Forward contract, so you lock in today's rates for up to 2 years and are protected against a fall in rates. You would need to lodge 10% of the total you want to convert as a deposit, with the remaining 90% due when you want the Euros transferrred. While protecting against downward movements in the rate, it does not allow you to take adcantage of any subsequent gains.
If you wanted to gamble on rates getting even higher, consider a Stop Loss. This is where you place an order for me to buy currency should it fall below a pre agreed level. In this way you can aim for higher, but have a worst case scenario should rates fall.
It should be noted that this is the 5th time rates have broken €1.20 in the last few years, and each and every time the spike is short lived, to be followed by a correction lower. If it were me needing Euros in the next 6 months, I would fix the rate as soon as possible, considering back in October it was €1.13.
If you need to buy Euros and want the best exchange rates, contact me now.
Today's Data
We’ll start down under today – Australia has Building permits, Commodity prices and Trade Balance figures – if good this could push GBP/AUD even lower than it already is. The UK releases its PPI data this morning also.
In the Eurozone there are also inflation figures. In the USA there are some important releases – Jobless Claims, Labour costs and Nonfarm productivity.
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