Foreign Exchange Rate Forecasts: Why has the Pound stopped rising against the Euro?

Good afternoon. Sterling remains a little weak against other major currencies, and is in the low €1.17’s against the Euro. This is mainly due to the single currency gaining strength due to more optimism, and effects of the US government shutdown. So what have I got for you in today’s report?

Bank of England minutes unsurprising

This morning the latest MPC minutes from the Bank of England (BoE) were released. They showed that the MPC voted unanimously to keep interest rates on hold at 0.5%, and the Quantitative Easing (QE) programme unchanged. This was all as expected and so had no real effect on exchange rates.

What was interesting was the positivity we saw from the BoE. They showed that UK unemployment and economic output are improving at a faster pace than expected, and also that bu0siness and consumer confidence have continued to grow. However, policymakers were divided about how fast productivity would pick up, and by extension, how fast unemployment would fall as the economy recovers.

This is important as they have already indicated interest rates may start to rise once unemployment falls below 7%. It’s currently at 7.7%, so if things keep improving we may see interest rates start to rise as soon as 2014. This is a long way off, but when rates start to rise it should give the Pound some strength.

What’s keeping exchange rates below the €1.20 mark however is Euro strength, and also the fact that it’s not in the UK’s interest to have exchange rates much higher than they are, due to the fact it would make our exports more expensive, so should rates start to rise again, I would not be surprised to see the BoE try to devalue the Pound to keep things in check.

Euro gains strength pushing GBP/EUR rates lower

Another reason for the Pound/Euro rate not forecast to go that much higher is renewed optimism surrounding the EU economy. Things are looking up in the Eurozone, and as a result the Euro has gained strength and become more expensive to buy.

For example, Spain'seconomy has emerged from recession after growing for the first time in more than two years, according to estimates from the Bank of Spain. Spain's economy has been struggling ever since the credit crisis struck in 2008, and has been one of the worst hit by the fallout from the credit crisis. It burst the country's housing bubble, and has needed bailouts to survive after being left holding hundreds of billions of euros in bad debts. Its unemployment rate of more than 26% is one of the highest in Europe.

Also giving the Euro strength is events in the USA. Now that the US debtceiling has been raised, investors that were holding US Dollars due to its safe haven status, have been selling Dollars and moving in to Euros. This has weakened the Pound a little and strengthened the single currency, keeping GBP/EUR rates in check.

Click here if you are looking for the best exchange rates.

On the 3 month chart below, you can see how the rate has leveled off in recent weeks.

The types of FX contract I offer

I write this blog to keep people up to speed with what is happening to exchange rates. You can make a free enquiry with me here to find out more about the service I offer.

In a nutshell, I can source exchange rates that are up to 5% better than banks can offer, so if you need to buy or sell foreign currency you could save thousands. Click here to make a free enquiry. Below outlines the type of contracts I offer:

The most common and popular contract. Fix a rate on the phone, settle your currency to use within 2 working days, and we then forward your currency to the account it needs to go to. All at fantastic commercial exchange rates with 0% commission.

Forward Contract

The Forward Contract can help you take advantage of current exchange rates. You can fix the price now for up to 2 years. Within 2 days of fixing your rate, you lodge 10% of the total value of your transaction. You can then pay the remainder, in part or in full, by the end of the contract. This guarantees your rate, protects you against rates dropping, and allows you to budget. Very useful if you are buying overseas and have some time between paying your deposit and settling the balance.

Aiming for a rate higher than the current level? This is for you. With a Limit Order you specify the exchange rate you are hoping to achieve, and your currency will automatically be purchased if the market exceeds this level and you'll get the rate you wanted. This type of contract is particularly useful when the markets are moving in a positive direction for you.

This is the opposite of a Limit Order. You would instruct me to buy if the currency goes down to a pre-determined level. When combined with a Limit Order you can hold out for a better exchange rate and still protect yourself from a sudden fall in the market. This gives you a worst case scenario and a safety net should the market move against you.

Want to find out more?

When you get in touch, ask for Alastair Archbold and quote ref AJA. I can then have a brief chat regarding your requirements, explain the different options you have, and give you a quote so you can see how good our exchange rates are.