Thursday, 15 October 2015

Sterling/Euro rises from €1.3350 to €1.3550

Thursday 15th October 2015 
Sterling/Euro rates have recovered very well in the last few days, rising from the €1.33’s to €1.3550 today. In today’s post I’ll explain the reasons for the gains, and what action those with Euros to buy or sell can take to help achieve the best exchange rates. First, a quick look at this week’s GBP/EUR graph: 


Why have Sterling/Euro rates risen? 

As you can see from the chart above, early in the week Sterling/Euro fell to €1.3350, the lowest it’s been since February. As I explained in my recent post, the drop was due to very low inflation numbers that weakened the Pound. 

Since, then we’ve seen the rate gain nearly 2 cents to €1.3550, so what’s been going on? Yesterday morning it looked like the Pound would continue to drop, as UK jobs data was released at 09:30am. The Claimant count was pretty dire, and showed that there were nearly 7000 more people claiming benefits than forecast. The Pound fell to €1.3350 on the news, but quickly recovered. 

This is because when you actually look at the figures in more detail, you see that the number in work actually rose by 140,000, bringing the employment rate to 73.6% - the highest rate since records began in 1971. This caused the Pound to gain, and in addition, wage growth has gathered pace much faster than the Bank predicted earlier this year, and this may allow the Bank of England to deliver the first hike in May next year, according to the chief economist at BNP Paribas. 

This morning, European Central Bank policymaker Ewald Nowotny said that it was now "obvious" the bank must do more to stimulate the euro zone economy. This signals further Quantitative Easing may be required in Euro, and the single currency has weakened further this morning pushing rates up to the mid €1.35’s. 

Do you have Euros to buy or sell? 

Many clients that had Euros to sell that read my post on Tuesday decided to fix a rate then, and that was a prudent move given the rebound we’ve seen. If you look back at the movements in GBP/EUR this year, you can see the rate has dropped to €1.35 several times, and every time it’s bounced back. This is what we’ve seen happen again this week. 

In contrast, it’s a difficult time for Euro buyers unsure whether to wait to see if rates will recover, or just get the rate locked in now to protect against a further decline. Nobody can foresee whether rates will recover as they did earlier this year, or if the recent trend of Sterling weakness will continue causing rates to drop back away again. It’s important to remember that past performance is not indicative of future trends, however it’s the most salient data that many with a currency transaction to perform will rely on. 

But simply looking at the trend and hoping things will get better could end up costing you dearly. A more proactive approach would be to ensure you are fully informed of both what is moving the market, and the contract types at your disposal to help you take advantage of any spikes we may see in the exchange rate. 

I would welcome the opportunity to speak to any clients about the currency markets, discuss your requirements, assess your needs, and help you to make an informed decision on when to fix a rate. Click below to get in touch, and I will get in touch personally to explain the mechanics of how our service works.