Tuesday, 3 May 2016

Sterling/Euro exchange rate forecast

April was an interesting month for Sterling/Euro exchange rates. In the first part of the month, the recent decline in Sterling/Euro rates continued, and we hit lows in the €1.23’s not seen since 2014. As you can see from the chart below however, things changed mid-month as we saw rates recover back to €1.29. Things now seem to have peaked however, and the rate has started to slip back away. In today’s post, we’ll look back at what has caused the rate to fluctuate so much, and take a look at what could move exchange rates this week.


A retrospective… 


The chart above clearly shows the changing fortunes for Sterling. The first part of the month was dominated by fears over a ‘Brexit’ which weakened the Pound, and global risk aversion which weakened riskier currencies, and caused ‘safe haven’ currencies like USD, JPY, EUR, CHF to strengthen. Mid-way through the month however, risk appetite returned to the market due to optimism surrounding China, one of the world’s largest economies. Signs of stability have started to emerge, and that’s all it took to give a boost to global stock and equity markets. This increased appetite for risk, and weakened the aforementioned ‘safe haven’ currencies making them cheaper to buy.

Then we have the ongoing EU referendum that’s causing a headache for those buying or selling the Pound. In the first half of April, polls were split with some giving a slight lead to the ‘leave’ campaign. However we then had the treasury, and organisations like the Confederation of British Industry (CBI), Organisation for Economic Cooperation and Development (OECD), Bank of England (BoE) and President Obama all warning of the dire consequences of a Brexit. This swung polls back towards the remain campaign, and the Pound recovered as a result. GBP/EUR hit the highest in over a month (€1.29+) however the rally has now run out of steam, with rates slipping back into the €1.27’s as investors covered short positions and took profits ahead of the bank holiday weekend.

What causes exchange rates to move, and what does this week have in store? 


I'm often asked what actually moves exchange rates. Its various things but the main ones are: Acts of terrorism/war, natural disasters, political events, and economic data. Of these 4 things, you can only really plan for the latter 2; economic data and political events, as the former are of course impossible to foresee and usually catch the markets by surprise, such as the recent terror attacks in Paris and Brussels.

A perfect example of political data is the current referendum uncertainty. This has caused large swings in the value of Sterling, and is likely to continue to do so until the vote in June. That leaves us with fundamental economic data. It's forecast in advance what various financial data releases will be, and these are priced into the exchange rate. If however the actual figure is better or worse than expected, then we'll often see exchange rate movements. This is paramount for anyone that needs to convert a large sum of money, as even a fractional change in the rate can make a very big difference. Below I've listed the main financial releases for the week that I think might have an effect on exchange rates. If you have currency to convert, would like to discuss what could move the rate in more detail, or simply get a quote from me to compare with your bank or existing broker, contact us today. 

This week’s data releases 


Tuesday 2rd May – The full working week gets going today, but in terms of economy data it’s relatively quiet. The UK and EU both releases measures of inflation, and the European Commission releases its economic Growth forecasts. These releases could affect Pound/Euro rates.

Wednesday 3rd May – There is nothing of note from the UK today. In Euro, there are further measures of inflation that could affect monetary policy from the ECB. Over in the USA we have a raft of data releases at lunchtime including Inflation, Employment and trade balance data.

Thursday 4th May – The only release of note is an Economic Bulletin from the European Central Bank. It’s 2 weeks since the policy meeting and this release could give hints to action at its next meeting and so could affect the value of the Euro.

Friday 5th May – It’s Jobs day in the USA, so at 13:30pm we’ll see the latest Unemployment numbers and the all-important Non-Farm Payroll numbers. These are important as the actual result often differs significantly from what the market expects, and can therefore cause a significant change for exchange rates.

See how much you could save with a free consultation


If you need to convert currency in the coming months, then it’s important that you’re fully aware of the options available, and the factors that could move exchange rates. Get in touch today for a free telephone consolation. We’ll discuss your currency requirements, and help you put in place a strategy to help you take advantage of our commercial rates of exchange, and ensure you know what contract types are available, how to use them, and help you to decide when may be the best time to fix a rate.