Wednesday 31st October 2012
Good afternoon. Sterling rose against most currencies through trading today, but remained fairly flat against the Euro at around the €1.24 level. The reason for the gains is the fact we’ve had some decent and robust UK data releases recently, reducing the chances of further Quantitative Easing in the UK. This afternoon I’ll take a look at the better UK data and what the forecast is for Pound/Euro rates moving forwards.
Better UK data boosts the Pound.
Following last week’s much better than expected UK GDP figures confirming we are no longer in recession, Sterling has performed quite well. In addition, we have also seen much higher than forecast numbers from other releases such as consumer credit, mortgage data and CBI retail sales data, all of which were much better than most had been expected, and mean the outlook for the UK economy is now looking much rosier.
All these better numbers mean there is now much less chance of further monetary easing from the BoE next month. It also means investors are much more confident about investing in the Pound, and that is what has caused Sterling to rise against most other currencies.
Why hasn’t the Pound risen much against the Euro?
It’s mainly due to the fact it’s the end of the month. There was big demand for buying the Euro as global banks wind up their positions for month end, and the European Central bank also had huge demand for Euros today, which has kept the single currency strong and hindered any significant gains for the GBP/EUR cross.
Moving forwards, I believe that the Euro will actually weaken somewhat in the coming weeks. While the UK has returned to growth, in the Eurozone growth is in decline. In particular Germany which is the EU’s largest economy is starting to slow, and this combined with the on-going debt crisis could well cause Euro weakness and help push GBP/EUR rates back up as we head in to November.
Less chance of QE from Bank of England
Due to the better data as highlighted above, many think there is now less chance of Quantitative Easing from the Bank of England next month. This could indeed be the case; however some BoE policymakers have flagged a weaker outlook for growth in the fourth-quarter.
Purchasing Manufacturers' Index data for manufacturing, construction and services are due this week and next week will be watched for an indication of UK economic health into the fourth quarter.
Once these numbers are released, the likelihood of further stimulus or not will become much clearer.
If you need to buy or sell Euros, should you do so now or wait?
This is what everyone wants to know, and of course it is impossible to predict which way rates will go. On the one hand, if the Euro does weaken and UK data continues to impress, rates are likely to recover back towards €1.25. If however the next raft of UK data is not as good as expected and more Quantitative Easing is announced by the BoE, the Pound would likely weaken significantly.
In the current climate, regardless whether you are buying or selling Euros, Stop Loss and Limit Orders are very useful tools. These allow you to place a lower level and if rates drop below this, your currency is automatically secured and your rate fixed. In this way you can continue holding out for any gains, however if the market drops you are not left exposed.
A limit order allows you to place a target level above the current price, and if rates go through this your currency is purchased. This allows you to take advantage of any spikes without having to continually monitor the market.
Get in touch now for a free consultation
I can discuss your currency requirements and the timescales you are working to, and then run over the options that are available to you to help protect you against adverse exchange rate movements.
In this way you can take control of your currency requirement and not simply hope that the market will move in your direction. By employing a strategy and giving yourself a target rate, you can often save significant sums than just leaving things to chance.
I look forward to hearing from you.
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Labels: Bank of England, Best Exchange Rates, Better UK data, November, Pound/Euro forecast, Quantitative Easing, Sterling strength