Tuesday, 1 December 2015

WIll Pound/Euro go up or down in 2015/2016

Currently we are seeing extremely attractive Sterling/Euro exchange rates, that are only a few cents below the best they have been in over 8 years. Many clients are asking me whether the rate will go higher or lower in the coming months. It is of course impossible to predict this, and if I could I would be a multi-millionaire!

However if we analyse the reasons the rate is where it is, along with expected developments in the UK and EU economies, you can make a clear and informed choice of what you want to do. If you need to convert Sterling to Euros, or move Euros back into Pounds in the next few months, then read on to learn more about the GBP/EUR rate and explore your options. To discuss your particular requirements and get a quote, click here. 

Why is the Sterling/Euro rate near an 8 year high? 


Our starting point today is looking at why the rate is so good. In part this is due to a Strong Pound caused by the fact the UK economy is performing very well, and in contrast to the Eurozone it's very robust indeed. Unemployment is low, and once inflation picks up in 2016 we may see interest rates start to go up.

The main reason the GBP/EUR rate is so good however is due to the single currency being weak. The EU economy has faced many challenges this year, with Greece and other southern European countries on the brink, and the European Central Bank having to conduct a Quantitative Easing (QE) programme in an attempt to spur economic growth. Due to this QE programme the Euro has weakened and become cheaper to purchase.

If you look at the trend since the summer, GBP/EUR keeps getting to around the €1.42/€1.43 mark before dropping back away. Past performance is of course no indicator of future trends, but if I needed to buy Euros at the moment I would seriously consider fixing a rate at these levels. 

Will the ECB increase its stimulus measures this week? 


This Thursday it's widely expected that due to a stagnating economy, the ECB will increase their QE programme and lower the bank deposit rate. As this is widely expected however it is already priced in to the rate, and is the reason the mid-market level is currently around the €1.42/€1.43 mark. It's impossible to know by how much this is already priced into the market however, but I think that even if they do announce further monetary easing, it won't be any surprise at all.

Will this push the GBP/EUR rate up or down?


The currency markets are a fickle thing. On the one hand, you could say that further EU stimulus will weaken the Euro and push GBP/EUR higher. However as I've stated above, the markets have already priced this in so it may not change the rate. Some are of the view that actually, when you look at the positive effect that QE had on the UK and US economies, it could actually be good news for the Eurozone. If that's the case, then as QE measures start to take effect, the single currency may actually gain strength and become more expensive to purchase, meaning the current levels could be the peak.

What action can you take if you need to buy or sell Euros? 


With all this in mind, when to convert your funds is of course your decision, and nobody can predict where rates will go. There are however various tools and options you may not be aware of. Much of it depends how risk-averse you are and your attitude to risk. Here are some examples:

  • If you need to buy Euros and don't want to risk losing out on the current rate, you can fix the rate for up to 2 years into the future with a 'Forward contract' and only lodge 10% of the total to be converted. This protects against adverse rate movements, allows you to budget, but of course you can't take advantage of any subsequent gains in the rate. 
  • Those that are happy to take more of a gamble can use a 'Stop Loss' order. This allows you to continue taking advantage of any gains in the rate, but you have a level set in the market, and if the rate does drop then your currency is secured. This option gives you a 'worst case' scenario, while still watching rates rise. 
  • Others may wish to 'hedge their bets' and fix a rate on only some of what they need to convert. This option gives some levels of protection regardless which way the market moves. 

Get in touch to get a quote and find out more 


The above are just an example of the types of contract types I offer in addition to exceptional exchange rates, that can be up to 5% better than banks or other brokers offer.

If you need to convert any international currency to another, then get in touch with me for a quick chat and to find out the rates I can offer. I have never had an issue beating rates provided by other brokers, and would welcome the opportunity to see if I can do the same for you