Wednesday, 12 February 2014

GBP/EUR rises to €1.22 after BoE Inflation report

Wednesday 12th February 2014 
Sterling has gained significant strength today following the Bank of England’s inflation report, and the press conference by Governor Mark Carney that followed. In today’s post I will look at exactly what he said, the effect it had on Sterling exchange rates, and what may happen to currency rates in the coming weeks. 

Pound gains strength on Mark Carney’s BoE speech. 

This morning at 10.30am the Bank of England published its quarterly inflation report, and this was followed by a speech from the BoE governor Mark Carney. You can read a full report on his comments here on the BBC website.

In effect the speech caused the Pound to rise against other currencies by around 1%, pushing GBP/EUR rates to €1.22 and GBP/USD up to $1.6550 – excellent buying levels for both currencies. 

The main reason for the gain was an increase in the UK’s growth forecasts. The Bank revised up its projection for UK growth to 3.4% this year, from a previous projection of 2.8%. This gave Sterling a nice boost and caused exchange rates to rise. You can see from the chart below the effect it has had so far on Sterling/Euro:


So is the Pound likely to go up or down in the coming weeks? 

The Pound will likely remain strong at current levels, so the direction of exchange rates, GBP/EUR in particular, will now rest on what happens in the Eurozone. European growth is quite poor, and there is the chance they may have to cut rates. This could cause the rate to rise further. 

This afternoon at 15:30pm there will be a speech by the ECB president Mario Draghi. If he hints at a rate cut, Pound/Euro may rise higher still. If however he hints rates will remain low for the time being, we could see the spike today retract back to the €1.20’s. 

There is also the persistent strength of sterling which adds to the BoE’s challenges. If the Pound gets much stronger and the Eurozone continues to face problems, it’s going to affect our exports which means any further gains could be limited as the BoE moves to keep in check any significant rise in the Pound. 

Carney also said that interest rates in the UK will remain low for some time to come, adding that while he wouldn’t be a pessimist about the ability to return to (normal) rates, it is well beyond the forecast horizon of the Bank of England. 

What can you do if you need to buy or sell Euros? 

Euro buyers should look at today’s gains and consider that we are less than 1 cent away from a 13 month high. We’ve got to these levels several times in the last few months, and each and every time the rate drops back away within several days. You may wish to fix a rate now to take advantage of the gains. You can do so even if you don’t need your Euros for up to 2 years, by lodging 10% of the total you want to convert, and I can guarantee your rate on the full amount. 

If you are selling Euros and moving them back to Sterling, then today’s events have pushed rates the wrong way for you. I don’t expect the mid-market level to drop below €1.20, and bad news for the Eurozone would cause rates to move further against you. A stop loss order is a good strategy to employ in the current conditions. 

Get in touch to discuss your options. 

How to go about getting the best rates, at the best time 

The first step is to get in touch with me to take advantage of a free consultation over the telephone. I can discuss your particular requirements and timescales, and then let you know the different options you can consider, such as Stop Loss Orders and Forward contracts. You can then make an informed decision on when to fix a rate. 

When you decide to do so, I can provide you a quote to compare with your bank. The rates I can source are up to 5% better than banks usually offer, so you can save a considerable sum by taking advantage of my services. 

Click here to send me a free no obligation enquiry now. 

Alastair Archbold.