Thursday, 25 September 2014

Pound/Euro hits new 2 year high €1.28+

Thursday 25th September 2014 
The Pound/Euro rate has surged today, smashing through the €1.28 level to a fresh 2 year high. In fact this is now very close to the best Euro buying rates we’ve seen in 6 years. 

Pound/Euro level breaks €1.28, why has this happened? 


There are 2 reasons for the rise, and both involve the heads of Central banks. Early this morning we saw the European Central Bank president Mario Draghi give a speech, in which he said that they were willing to instigate further stimulus measures if necessary. In other words, it’s likely they will pump money into the economy to try and spur it along, and this has weakened the Euro making it much cheaper to buy. 

He said that "We stand ready to use additional unconventional instruments within our mandate, and alter the size or composition of our unconventional interventions should it become necessary to further address risks of a too prolonged period of low inflation". He also forecast only modest growth in the second half of this year, due to "weaker than expected" preliminary economic data over the summer. 

This afternoon, it was the turn of the Bank of England governor Mark Carney. In his speech which you can read in full here, he said that “with many of the conditions for the economy to normalise now met, the point at which interest rates also begin to normalise is getting closer. In recent months the judgement about precisely when to raise rates has become more balanced.” Adding that “While there is always uncertainty about the future, you can expect interest rates to begin to increase.” 

This has really given the Pound a push higher, and you can see the results of these comments from the ECB and BoE in today’s GBP/EUR chart: 

 

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Will rates keep going up? 


Nobody can predict where rates will go, but I think all the good news about the UK economy is now priced into the market, and I personally can’t see much more gains to be had. 2 years ago we were in a similar position, with many thinking the rate would break €1.30, but within 6 months it was down at €1.15. 

I’m not suggesting it will plummet again, but with the future of the rate impossible to forecast, if you needed to buy Euros is it worth risking these amazing levels currently available? I think those that do have much more to lose than to gain. In my view, you are holding out for an inch and risking losing a yard! 

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