Thursday 31st July 2014
As I said may happen in my recent post, the Pound has fallen further against the Euro and Dollar this week. Let’s take a look at what has been happening…
Pound/Euro drops into the €1.25’s
Looking back, the GBP/EUR rate has risen by more than 10% in the last year, however it now looks like the Pound’s year-long rise may have come as far as it can, at least in the short term. On the one hand many remain positive on Britain’s economic prospects however the feeling is growing that Sterling is “overvalued” and this may hamper efforts to re-balance the British economy.
The IMF agree - this, the International Monetary Fund has warned the Chancellor that the pound is 5% to 10% overvalued. Wages are growing very slowly and although output is beginning to pick up, the recovery is still at an early stage and there is still a lot of slack in the economy. Another risk for the Pound is Scotland’s September vote on independence might pose to sterling. Morgan Stanley analysts said that a “yes” vote could cause sterling to slip by up to 10% on a trade-weighted basis, retracing its gains over the past year.
This week, poor UK consumer confidence and better economic figures from the Eurozone have pushed Pound/Euro lower.
It’s impossible to know which way exchange rates will move of course, but if you need to buy or sell Euros, click here to have a free consultation on how I can help you get the best exchange rates, and protect you against the market moving the wrong way.
Pound/Dollar drops into the $1.68’s
We recently saw this currency pair hit a 5 year high well above $1.70. I’ve been expecting it to come down for some time once the US economy starts looking better. This has now happened with this week’s US GDP numbers coming in better than expected, showing their economy is starting to recover. As it does, they will wind up their Quantitative Easing programme, raise interest rates, and this may pull rates lower towards the $1.60’s.
The turmoil in Ukraine isn’t helping GBP/USD rates either. As global economic uncertainty gathers in the markets, international investors move funds to the safety of the US Dollar, and this also pulls rates lower.
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