Wednesday, 27 November 2013

Pound/Euro & Pound/Dollar exchange rate forecast

Wednesday 27th November 2013
There has been some volatility on the currency markets this week, with the Pound initially losing value causing exchange rates to drop. This trend however was reversed today after some strong UK data has given strength back to Sterling, pushing exchange rates up against other currencies. In today’s report, I’ll take a look at what’s been happening and the forecast for Pound/Euro and Pound/Dollar...

  • Bank of England takes dovish tone on UK economy 
  • UK GDP growth confirmed at 0.8% 
  • Pound/Euro forecast 
  • Pound/Dollar forecast
  • Best Exchange Rates

Bank of England takes dovish tone on UK economy  

On Tuesday the Bank of England Governor Mark Carney delivered his latest Inflation report. It’s important because the BoE control interest rates, which have a big effect on the value of Sterling, and therefore exchange rates. 

The Bank has said it will not consider an interest rate rise until UK unemployment falls below 7%, a rate that many economists now believe could happen sooner rather than later. However Mr Carney poured a little cold water on this yesterday, when he said that the 7% is a "threshold, not a trigger". 

He said: "The exact timing of when that 7% threshold will be achieved is subject to uncertainty. We do our best to give our estimates of that uncertainty... One month's unemployment figures does not have a material change on those likelihoods." 

So while overall he was quite positive about the economy, these comments caused the Pound to fall to €1.19 vs. the Euro and $1.61 against the Dollar. We’ll look at each currency pair in more detail in a moment. 

UK GDP growth confirmed at 0.8% 

Before we look at the rate forecast, let’s review today’s data. This morning figures confirmed that UK growth is at 0.8%, according to figures released by the Office for National Statistics. The figure of 0.8% confirms the economy is growing at the fastest pace for three years. Read more about this on the BBC website here.

As the figure was as forecast, the immediate reaction was that the Pound fell. This was only momentary however, as clearly analysts quickly realised that while the number was as expected, it’s actually a very good number indeed! The UK is the fastest growing western economy at the moment, and so investors started to buy the Pound. 

This caused the Pound to rise, and recover its losses from earlier in the week. As I write this post, Pound/Euro is back at €1.20 and Pound/Dollar is at $1.63. So let’s take a detailed look at each currency pair. 

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Pound/Euro forecast

As you can see from the chart showing this year’s movements, the rate is looking good. 

 

It’s the best it’s been since January, and settled at around the €1.20 level. Over the last few weeks we’ve seen rates reach this level only to drop back away, for reasons I explained in a recent post. 

I expect this trend to continue for the rest of the year, and while it’s impossible to forecast, I don’t expect rates to breach this level this year. They will eventually, when the UK ecostats convince investors and the BoE that interest rates may have to rise. So if you need to buy Euros, consider taking advantage of the current level. Euro sellers may wish to consider a Stop Loss Order and hope the market retracts down. 

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Pound/Dollar forecast

Again the chart clearly illustrates how good the Pound/Dollar rate is at the moment.

 

This is a 1 year chart, but rates haven’t been significantly above this for nearly 3 years! 

So again worth considering taking advantage of the current rates while they’re above $1.60. For Dollar sellers the direction is less clear, as we don’t know if or when the FED will start tapering their QE programme. 

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Best exchange rates

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So if the best exchange rates is something that is of interest, click below to find out more about what I can do for you. 

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Alastair Archbold