The last week was an interesting one for the Pound, with exchange rates falling against other currencies. Against the Euro, the recent highs of €1.40+ now seem a distant memory, with the pair falling throughout the week, and the decline has continued this morning with rates dropping into the €1.36’s:
Why has the Pound fallen against the Euro, and will it go back up?
There were two main reasons for last weeks continued drop in GBP/EUR rates. The first issue was a UK unemployment release. In the press it was hailed as good news, and indeed unemployment has fallen again. However what was important was that average earnings were actually quite a bit below forecast. This caused investors to sell the Pound and it duly weakened against other currencies.
The other issue is the Bank of England’s chief economist warning that interest rates might have to be cut to combat low inflation. This is a far cry from this time last year, when the Pound was gaining due to speculation interest rates were going to rise. Things can change quickly in the currency markets, and further talk of cutting rates could bring the Pound lower.
Bank of England warn against Strong Pound
In fact the strong Pound was discussed in the Bank of England's recent MPC meeting. This should be a worry for anyone hoping the exchange rate may recover back to €1.40. If the BoE are worried about a strong pound, they may take steps to weaken it to avoid it continuing to affect the low inflation numbers.There is also the UK election that’s likely to weigh heavily on the Pound in the coming weeks.
All in all I think those holding out for a return to €1.40 should think whether that's actually likely to happen within their time-frame. In the short to medium term securing something while the rate is still around 10 cents higher than back in January is probably a prudent move. Those selling Euros should use a ‘Stop Loss’ order to allow for further gains in their favour without being exposed to a downturn in the rate.
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What could affect exchange rates this week?
Below I’ve listed the scheduled releases for the coming week that I think may affect exchange rates. Remember that other things such as election uncertainty could also change rates at any time without warning. To discuss your currency requirement in more detail, or have a chat about which direction the exchange rate may go, click here to send a free enquiry today.
Monday 23rd March 2015 – The only data of note today is a speech by European Central Bank (ECB) president Mario Draghi at 2pm this afternoon. Given they have just started their Quantitative Easing programme, markets will be watching his words closely. Anything deemed as positive could strengthen the Euro and pull GBP/EUR rates lower, and vice versa. We also have EU consumer confidence figures at 3pm this afternoon.
Tuesday 24th March 2015 – Today is a busy one for UK data, with a rate of inflation numbers being released at 09:30am. I think there is a good chance the numbers will be quite low, which could weaken the Pound against other currencies. We also have Manufacturing numbers from Euro, and Inflation figures from the United States today.
Wednesday 25th March 2015 – The only UK data today that might affect the Pound is Mortgage Approval numbers at 11am. The USA releases mortgage numbers too today, so GBP/USD could be affected.
Thursday 26th March 2015 – UK Retail Sales are released at 09:30am, and are a good barometer of overall economic activity and so often affect the Pound. Elsewhere, the USA released Jobless numbers, Germany has a consumer confidence survey, and the Bank of Canada’s governor gives a speech.
Friday 27th March 2015 – Today’s UK release is consumer confidence. Other data today is from the USA – a FED member gives a speech, the latest GDP numbers are released, inflation numbers are released and a consumer sentiment survey is out at 3pm, so lots that could affect Pound/Dollar rates.
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