Tuesday, 17 November 2015

Currency Markets remain focused on Central Bank Policy

The currency markets have seen limited reaction to the shocking terrorist attacks in Paris, and focus remains on central bank policy. Sterling/Euro rates still remain supported around the 8 year high, and at the time of writing sits at €1.4250. Against the US Dollar, it still looks like we'll drop below the $1.50 mark sooner or later, however at the moment GBP/USD sits at $1.52:

GBP/EUR so far this week:

 GBP/USD so far this week:

Limited currency market reaction to Paris attacks

Following the terrible attacks in Paris last Friday, the financial markets initially saw a flight to safety, with the Euro weakening as investors moved funds to other assets such as the US Dollar. Despite a little bit of risk aversion,  the fact there was a whole weekend to digest events before markets opened on Monday meant that the reaction was more muted than would have been the case had the terrorists attacked on a weekday. Analyst's see limited economic impact from the attacks other than tourism, and focus has returned to Central Bank Policy.

It now looks very likely indeed that the USA will raise interest rates next month. Conversely, the European Central Bank are also now very likely to move in the opposite direction and increase their stimulus measures, along with a potential cut to interest rates. This illustrates the contrasting fortunes of the two economies. 

For currencies, this means a strong Dollar and a weak Euro. This is reflected in exchange rates with the Euro weakening and becoming cheaper to buy, and this is why GBP/EUR is around the best in 8 years. GBP/USD however is dropping and is likely to continue to do so, and I expect rates of < $1.50 within the next month.

Do you need to buy or sell currency at the best rates?

Looking at Sterling/Euro as an example, in the last month we've seen rates between €1.3350 and €1.4250. This means that a conversion of €250,000.00 has differed in cost by a staggering £12,000.00. This really does show how quickly things can change, and how your costs can significantly change in a very short amount of time. There are various ways I can help protect you against such wild swings in the markets, such as Stop Loss orders (automatically buy your currency if it drops below a pre-agreed level) or Limit Orders (Automatically buy your currency if it hits a level above the current market) and Forward Contracts (Fix today's rates for up to 2 years, to remove your exposure to a volatile market). 

Simply watching and hoping the rate will remain high, or move in your favour, is not recommended, and as the figures above demonstrate, this approach can cost you dearly. If you need to convert any international currency to another, then get in touch to discuss your requirements and discuss your options. I can help you make an informed choice on when to fix your rate, and provide you a quote to compare with your bank or existing broker. I have never had an issue beating any rates provided elsewhere, so you have nothing to lose. Send me a free enquiry now by following the link below.

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