Friday, 22 April 2016

Pound/Euro rates hit €1.28, despite poor economic data

It's been a very good week for the Pound, rising against the Euro to hit levels not seen all month, peaking at €1.28 today:


There haven't been any particular economic figures causing the rise. Indeed this week we've seen poor Retail Sales, worse than expected Jobs figures, The BoE governor Mark Carney warning about the economic impact of a Brexit, and a plethora of influential political figures warning that the UK economy faces huge risks should the UK vote to leave the EU. All of this would usually mean the Pound dropping against the Euro. I'm as surprised as most that Sterling has continued to march upwards in light of the poor economic figures. I expected the spike earlier in the week to be short lived, however that has not been the case. This illustrates that it's impossible to predict and second guess where exchange rates will move.

So why has the GBP/EUR rate continued to climb?


There are 2 reasons for the gains for the Pound. Firstly, risk sentiment has increased. Global investors this week have become more confident about the global economy, and have shunned safe haven currencies in favour of riskier bets. This has weakened currencies like the Euro and strengthened others like the Pound. Secondly, the latest polls on the EU referendum seem to suggest a swing towards remaining in the EU. In recent weeks uncertainty had been priced into the market, weakening GBP/EUR to the lowest levels since late 2014. More confidence in the market and an increased likelihood of the UK remaining in the EU has reversed the downward trend, for the time being.

Markets always fluctuate however, and given we've seen the rate gain all week suggest to me the rally may now be running out of steam. While it's impossible to predict market movements, I wouldn't be surprised to see rates correct downwards next week, given we now seem to be hitting a barrier at €1.28. A 5 cent gain in just a few weeks is unusual, and consideration should be given to protecting yourself against a reversal of these gains.

Do you need to convert Pounds to Euros?


If you need to buy Euros, then this week has been very good for you. You don't want to miss out on the 5 cent rise in the GBP/EUR rate, so one option you can consider is a 'Stop Loss' order. This works by placing an order to buy your Euros should the rate drop below a pre-agreed level, €1.25 for example. In this way, should the rate continue going up, then you can take advantage of any further gains. However should the rate correct back to where it was a few weeks go, then you have a 'worst case' scenario and safety net should the recent uptick prove to be short lived.

Alternatively, if you don't want to take any risks, you can fix the rate now with a 'Forward contract' which allows you to fix today's rate for up to 2 years, and lodge 10% of the total to be converted. The remaining 90% is paid when you want your Euros to be transferred. This is a great budgeting tool when purchasing property in the Eurozone.

Get the best exchange rates


If you would like to get a quote, or discuss the contract types like those I've outlined above, then why not get in touch. You can make an enquiry for free, get a quote and find out more about the contract types available. I provide rates very close to the 'mid-market' rates, and these are up to 5% better than your bank or existing broker may offer.