Tuesday 15th April 2014
Sterling is holding firm above €1.21 against the Euro, and has risen to $1.6740 vs the US Dollar. The Pound has however remainder relatively range-bound this week without pushing much higher than that. Its 2 things keeping the rate supported: firstly we had the ECB president over the weekend say that if the Euro strengthens, they will look at stimulus. Today, UK inflation numbers were as expected, increasing the chance of an interest rate hike in the UK next year.
In today’s post I’ll take a look at these 2 things that are keeping rates supported, and explain how you can take advantage of the current rates which are around a 16 month high.
ECB warns of stimulus if Euro strengthens further
ECB President Mario Draghi said in Washington on Saturday that "further strengthening of the exchange rate would require further stimulus."
So what does this actually mean?
If the Euro were to strengthen, it would become more expensive to buy and Sterling/Euro rates would fall. His comments effectively say that if the Euro were indeed to strengthen, they may pursue a Quantitative Easing programme to stop it doing so. This has kept GBP/EUR rates at the €1.21 level.
So if this is the case, could rates go higher? I don’t think so, unless they actually decide to go ahead and pursue a QE programme. At the moment it’s just rhetoric, so while it’s keeping rates from falling, it’s unlikely they will rise in the short term.
For those of you that need to sell Euros, this means rates are likely to remain range-bound so you may wish to consider fixing a rate sooner rather than later. It’s the same story for Euro buyers, as rates have failed to go higher than these levels recently.
UK Inflation numbers also keep the Pound supported
Inflation numbers came in as expected at 1.6% this morning. Some in the market thought the number would be a little lower, which would have meant less chance of an interest rate hike in the UK in 2015.
Higher interest rates mean a higher return for investors, so speculation it will happen sooner rather than later is good for the Pound. As the number was as expected, it remains the case we think rates will rise in 2015, so this gave Sterling a little boost this morning.
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Labels: Best Euro rates, ECB, forecasts, GBPEUR, Predictions, Quantitative Easing, Sterling/Dollar, Sterling/Euro