Thursday 5th December 2013
In my recent post I outlined the week’s economic data that I thought would affect exchange rates. I had highlighted today (Thursday) as the most important day of the week for Pound/Euro rates, and indeed that has been the case as the recent highs have evaporated and rates are back below €1.20 again. So in today’s report:
- Why have Pound/Euro rates dropped below €1.20
- Will rates go back up or drop further?
- Effect of Budget statement on exchange rates
- Central Bank Decisions from UK and Europe
- US economy grows faster than thought
Why have Pound/Euro rates dropped below €1.20?
Today we saw rates drop from the recent highs of €1.21 down below €1.20 again, and this was due to comments made by the European Central Bank president.
Before I touch on that, let’s look at the decisions from the Central Banks.
The Bank of England has kept interest rates at a record low of 0.5%, despite signs that the UK economy is improving. The European Central Bank (ECB) also has kept its benchmark interest rate at a record low of 0.25%, following its surprise cut from 0.5% in November.
Both these decisions were widely expected, and so had no real effect on exchange rates. What did have an impact however were the comments from the ECB president Mario Draghi in his press conference after the decision.
ECB president Mario Draghi said the decision to keep the rate at its current level reflected the fact that the Eurozone’s economy remained "subdued". There was speculation he may again hint at cutting deposit rates. He seemed to pour cold water on this idea for the time being and as a result the Euro strengthened and become more expensive to purchase.
A rate cut had been partially priced in to the value of the Euro, which was why it was so weak and available at €1.21 recently. You can clearly see from the chart the moment the press conference started and the rate dropping to €1.1940.
Will it go back up? Will it drop back down?
It’s impossible to predict market movements unfortunately so nobody can say.
€1.20 is a key benchmark level however, so I can’t see it getting back through this level until further economic numbers are released that shed light on the relative economies of the UK and the Eurozone.
It could move either way in the coming 6 months, so it’s important not to just watch and wait in the hope it will move in the direction you want it to.
There are tools I provide such as Stop Loss orders, Limit Orders, and Forward contracts. All of these can help you take control of your currency requirement, and help you budget without your currency costing you more than necessary.
How these work depend on whether you are buying currency, or converting it back to Sterling, but there are various options I can explain to you, which will help you make an informed decision on whether to fix a rate, or hang on in the hope things might get better. Send me a free enquiry and I can get in touch to discuss your specific requirements, and explain the options available to you.
Effect of Budget statement on exchange rates
Chancellor George Osborne has updated MPs on the state of the economy and the government's future plans in his Autumn Statement. There were some interesting things I the statement, but nothing that was really a surprise. You can read a full breakdown of the key points here on the BBC website. Today I’ll just run over what I think is important in terms of exchange rates.
In a nutshell without boring you with all the figures (they can be found at the BBC link above) – growth forecasts have been revised up, and government borrowing has been revised down. This, if it proves to be true, should be good for Sterling in the long term. The news wasn’t much of a surprise however so didn’t really affect rates, and was overshadowed today by the ECB press conference was had a big impact on Pound/Euro rates.
US economy grows faster than thought pushing GBP/USD lower
The US economy grew at an annual pace of 3.6% in the third quarter of the year, up from an initial estimate of 2.8%, revised figures have shown. The growth rate was the fastest since the first quarter of 2012. This was much better than expected, and the other US data released today such as the latest unemployment numbers also impressed.
The net result was a strengthening of the US Dollar, which was compounded further due to weakness in the Euro, and this has caused Pound/Dollar rates to drop from the recent 2 year high. Tomorrow’s Non-Farm Payrolls will be the next main data that I think will affect Pound/US Dollar rates.
Are you looking for the best exchange rates?
If you are looking for the best exchange rates, whether it’s buying Euros, converting Euros to Pounds, or indeed exchanging between any of the world’s major currencies, I would certainly suggest getting in touch with me.
I can discuss your requirement, keep you up to date with which way rates are moving, and help you achieve exchange rates up to 5% better than banks can offer. I have helped thousands of personal and business clients with foreign exchange over the last 8 years.
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Labels: Autumn Statement, Bank of England, Best Exchange Rates, European Central Bank, GBP/EUR, George Osbourne, Mario Draghi, Pound/Euro, When to Buy Euros, When to sell Euros