Monday 11th November 2013
Last week saw the Pound surge to levels above €1.20 vs the Euro, and as I mentioned in my report on Thursday, I explained that I did not expect levels to remain at these highs for very long. Indeed that has been the case with rates falling throughout trading today.
Sterling drops back away against other major currencies
As you can see from the chart below, throughout trading today Sterling has lost value against the Euro, steadily falling throughout the morning before settling just above €1.19.
In terms of economic data releases, it's been a very quiet day today. US and some EU markets are closed for veterans day, and there have been no significant data releases. So in the absence of ecostats to drive the market, what has caused the Pound/Euro rate to drop back away?
It is simply market forces that have driven the value of the Pound today. As I explained in my last post, supply and demand drives exchange rates, much like it does in any other market. With rates hitting the highs of €1.20 plus last week, this spurred many people to take advantage of the rate and buy Euros. This demand for Euros then caused it to regain some of it's strength.
It's often the case that when a rate hits a key benchmark level like €1.20, the spike is very short lived indeed, and rates quickly drop back away again. If you look at GBP/EUR rates over the last 5 years, you can see that this has happened several times.
So is it worth waiting for rates to get above €1.20 again?
Of course this is impossible to predict, but I don't believe so. The reason behind my view that I don't believe the market will have a sustained break above €1.20 is the fact it would not be in the UK's economic interest to have an exchange rate that strong.
Consider that 50% of our exports go to the Eurozone, and so a high exchange rate would make these exports more expensive. This in turn would affect our largely export led recovery and so could affect our recovery. Manufacturing and Industrial production have been a key driver behind the recovering economy here in the UK, and the Bank of England would not want to risk that by making our goods more expensive.
So, even if rates had stabilised above this level, I would expect the Bank of England to step in and try to devalue the Pound in order to bring the exchange rate down. In fact we have a key speech by the Bank of England governor late this week - will he follow the previous governors habit of trying to talk the Pound down, or will his speech follow his previous pattern of being very positive and boosting Sterling higher? We will find out on Wednesday.
Do you want to take advantage of the current exchange rate?
When is the best time to buy your currency?
The best time to buy your currency is, of course, at the peak. The problem is that achieving that is more luck than judgement. By its very definition, you can't identify the 'peak' until it has been and gone. So therefore the second best time to buy your currency is just after the peak - this is exactly where we are right now.
So if you need to buy Euros you could consider locking in the rate now while it's so good. In the last few weeks, a £250k transfer to Euros would have differed by up to €10,000, clearly illustrating the decent gains we have seen of late. Even if you don't need your currency for up to 2 years, you can reserve the currency rate by lodging 10% of what you convert, with the remainder to be paid when you want your currency transferred.
Click here to find out more about the exchange rates I offer.
What I think will affect exchange rates this week
I can help you achieve exchange rates that are much better than banks can offer, but that's only part of the service I offer. Exceptional exchange rates is the easy part. The hard part is for you to decide when to exchange your currency.
For example in the last 2 weeks GBP/EUR has moved over 3.5% equating to a difference of nearly €10,000.00 on a £250k transfer.
Economic data releases are the main mover of exchange rates. Today has been very quiet, but the rest of the week does have some key economic releases that I think will have an impact on exchange rates. Let's have a look at what the rest of the week has in store:
Tuesday - Lots of UK inflation data today, that can dictate future interest rate movements, and it's all released at 09:30am. Key will be the consumer price index which is forecast to come in at 2.5%. More than this, expect the Pound to gain, and vice versa.
Wednesday - Another key day for the UK and the Pound. Firstly we have some unemployment numbers at 09:30am which is expected to be 7.7%. Again a bigger number will cause rates to rise, a lower number could cause them to fall. At 10.30am the BoE release it's inflation report, and the governor Mark Carney gives a speech; his comments may well alter the value of the Pound. Of lesser importance will be EU Industrial production figures, but the UK news will probably overshadow this.
Thursday - Quieter in the UK today with Retail Sales the only release of note. the EU releases lots of inflationary measures, and over in the USA we have Trade Balance and Unemployment figures, so I expect GBP/USD to be a little choppy today.
Friday - A quiet end to the week with nothing from the UK, some minor EU trade balance and inflation numbers. I think markets will still be reacting to the UK economic news from earlier in the week.
To discuss how your currency requirement may be affected by data releases, or just to have a chat about the exchange rates that I can offer, make a free no obligation enquiry today.
By taking advantage of having a brief consultation, I can discuss your requirements, explain the options available to you, talk about what is happening in the market, and in doing so help you to make an informed choice on when to fix your exchange rate.
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I look forward to hearing from you.