Wednesday, 4 November 2015

Euro weakens further, pushing rates to €1.4125

Surprisingly, Pound/Euro rates have remained supported above the key €1.40 mark, and the European Central Bank (ECB) president yesterday evening hinted again that further stimulus may be required in the Eurozone to boost the economy, saying that the bank is "willing and able" to ease monetary policy further. This weakened the Euro and rates have now risen even further. Here’s how the Pound/Euro rate has moved since mid-October: 


As you can see, the rise is huge, and in real terms this means that converting £250,000.00 to Euros nets you almost €20,000.00 more than last month which is an extraordinary gain. 

'Super Thursday' is key for where GBP/EUR will go next

Tomorrow will be key for what happens next to Pound/Euro rates, as at 12pm the Bank of England will publish its latest interest rate decision, the minutes of that meeting showing what was discussed and how the voting went, and the quarterly inflation report. For good measure, the BoE Governor Mark Carney will also give a press conference a little later. It is dubbed 'Super Thursday' because previously, all of the above was released bit by bit over a 2 week period, so there is a huge amount for the markets to digest in one go. 

How could it affect exchange rates? 

I don’t expect any change in policy with regards to interest rates, however there are 3 key things that you should look out for. 

  • The minutes to the announcement will show how the 9 member committee voted and what was discussed; if more than one of the members voted for a rate hike, then the Pound could gain further against the Euro. 

  • The inflation report is very important and signals where the BoE sees inflation in the coming years, and this has an impact on when they will raise interest rates due to the lag that any change in monetary policy has on prices. 
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  • Lastly, the language that Carney uses in his press conference will be closely watched. The high GBP/EUR rate is not good for the UK economy as it hurts our exports by making them more expensive, so he may use this opportunity to 'talk the Pound down' by pushing back interest rate expectations, or speaking negatively about the economy. If this happens the current high rate may not last long, and GBP/EUR rates may fall back below €1.40.

What action can you take to protect against adverse exchange rate movements? 

As you can see, because there is such a lot of information for the markets to digest, we could potentially see a very volatile day for exchange rates. With the GBP/EUR rate improving by 6% to a 3 month high in the last few weeks, it’s wise to be aware of the contract types we offer in advance of tomorrow’s announcements. 

For example, if you need to buy Euros then you can place a ‘Limit Order’ to buy your currency if the rate hits a pre-agreed level. This allows you to take advantage of any short term spikes that the data releases may generate. At the same time you can use a ‘Stop Loss’ order to execute your trade if the rate falls below a pre-agreed level. In this way you are protected against a sharp drop if the rate moves against you back to the levels of €1.3350 we saw last month. 

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