Pound/Euro exchange rate forecast Feb 2013

Wednesday 6th February 2013
Good afternoon everybody. As usual today I'm posting up a quick mid week update on what has been happening with exchange rates, and the Pound/Euro rate in particular. As regular readers will know, Sterling/Euro has been in sharp decline over the last few weeks, however we have seen things steady a little over the last few days. Read on for more on what the predictions and forecast is for Sterling/Euro exchange rates over the next few weeks. 

Well let's get started then. To kick off, I'm going to take a retrospective look at what has happened this week, before moving on to where rates are headed. 

Pound steadies against Euro

On Friday, we saw rates fall as low as 1.1475, the lowest in around 16 months. this was after a particularly sharp decline in rates on Friday, reminding us all the exchange rates can often move very quickly and without warning. 

On Monday the Pound recovered nearly all its losses and rose back up to around €1.16. There was no particular reason for the rise - indeed we actually had poor inflation data from the UK. I think the main reason was simply a slight correction following the dramatic decline in previous days.

Tuesday saw the downward trend continue yet again, dashing any hopes amongst Euro buyers that a recovery was on the cards. We had cold water poured on the growth forecasts for the UK, this pushed rates down again to around 1.15.

Today, rates are on the up again, demonstrating what a yo-yo the GBP/EUR cross is, meaning it's impossible to predict where it will go - day to day it's fluctuating up and down by 1% or more. We've had some better than expected Retail Sales, and also signs the service sector is improving, which is part of the reason for rates climbing back a little. We're still way off the €1.23 of a month ago, and at the time of writing rates remains steady a little under €1.16.


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So will rates continue to climb, or will they fall?

This of course is what everybody wants to know, but in reality nobody can predict which way rates will move. Instead I will now outline the arguments for both rates climbing and falling, and then you can make your own mind up on what you think will happen. I'll give my opinion after the summary. 

The case for rates continuing to fall
 
UK borrowing is likely to be £64bn higher in 2014-15 than forecast in 2010, according to a closely watched report. The Institute for Fiscal Studies (IFS) says a weak economy will mean the government has to borrow more than it forecast, unless it imposes tax rises and further spending cuts. 

We also have real fears the UK is heading back into recession which in turn means more Quantitative Easing is on the cards along with a downgrading of our credit rating. If the economy continues to disappoint, GBP/EUR could continue to fall towards €1.10.

The case for rates going back up


The weakness in Sterling is partly due to the fears of recession being priced in to the value of the Pound already. 

If figures later this year show growth, it could give the Pound a boost. 

Also the Euro is very strong at the moment, should they decide to 'talk the Euro down' in order to make it's exports cheaper, this would weaken the Euro.

What do I think?


Personally I think there is much more chance of rates continuing to fall than suddenly get back to €1.20. I believe there will be more negative GDP figures, further Quantitative Easing, and all the while most global investors are now much more confident on the Euro, giving it strength. 

In the short to medium term, I think the Pound will continue to struggle against the Euro, but in the latter part of the year would expect to see a modest recovery towards 1.20. 


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What to watch out for in the next few days. 

If you are buying or selling Euros in the coming days, then there is some important events you should watch our for. 

On Thursday at 12:00pm and 12:45pm respectively, we have the latest decision from the Bank of England and European Central bank on interest rates. I don't expect any change in rates from either bank, but there is a small chance of more Quantitative Easing from the Bank of England. Should this be the case, expect the Pound to drop against other currencies by some margin.

Also tomorrow, we have UK Trade Balance and Manufacturing/Industrial production figures. Poor numbers here would really weaken the Pound and could mean a further decline in the rate. 


Also on Thursday at 3pm, we have a GDP estimate, which will include the figure for January. This will give us some idea whether the UK is heading back towards recession, so the currency markets could be very choppy tomorrow. 

Send me an enquiry to find out more about how this data could affect your currency requirement. 

Making the most of your currency

Regardless whether you are buying or selling a foreign currency, having a good broker that can keep you up to date with events in the markets is very important. In addition to my expert market knowledge, the rates I can source are significantly better than available at banks and other financial institutions, sometimes by as much as 5%. 

So if you are worried about which way rates are going, send me a free enquiry now. I can spend 5 minutes discussing your requirements, running over your options, and explain how our service works. I look forward to hearing from you.