Monday, 14 July 2014

Pound/Euro, Pound/Dollar, up or down in July 2014?

Monday 14th July 2014 
The Pound has fallen further against both the Euro and the US Dollar today, pulling exchange rates down to €1.2530 and $1.7070 respectively. There has been no economic data of note today to explain the movements, and the reason for the fall is the market positioning itself ahead of Speeches by the heads of the 3 major central banks, the Bank of England (BoE), European Central Bank (ECB) and US Federal Reserve (FED). In today’s post I’ll take a look at why rates have fallen and what these speeches may mean for whether the Pound will go up or down against the Euro. 

Pound/Euro 


The rate had recently hit a 2 year high of €1.2680, however in the last week has slipped back away. This is partly due to a run a worse than expected UK economic data. Today rates fell further ahead of a speech by the ECB president Mario Draghi. The Euro has been weakening recently on speculation that the ECB may pursue some sort of stimulus, perhaps in the form of Quantitative Easing. 

This evening’s speech is therefore very important. The Euro is actually still quite strong against other currencies, and this strength is hurting the EU recovery. So he may well hint at some easing, in which case I would expect Pound/Euro to rebound. 

We will also see a speech by the BoE chief Mark Carney tomorrow. In recent speeches he has given mixed signals on the future of UK interest rates, which has caused the Pound to fluctuate up and down. In short, if he hints at rates going up, the Pound will rise. If he is not forthcoming with any indication of a rate rise, the Pound could fall. 

Pound/Dollar 


This currency pair recently enjoyed trading near 6 year highs, but has dropped off a little recently. The future movements of GBP/USD will partly depend on Mark Carney’s comments tomorrow, as I have explained in the Pound/Euro section. 

Of more importance in my opinion will be Federal Reserve Chair Janet Yellen's congressional testimony tomorrow, in which she may well give clues on the outlook for U.S. monetary policy, and interest rates. If she hints at an interest rate hike on the back of an improvement in U.S. data in the second quarter, Pound/Dollar could fall more. 

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