Tuesday, 30 August 2016

Sterling continues to perform well

Pound/Euros rates peaked at almost €1.18 last week before dropping back away just before the Bank Holiday break. Sterling has been supported recently due to better than expected UK Data including exports and retail sales, along with decent growth and business investment numbers. It did look like GBP/EUR was on course for it's best weekly performance in 6 weeks, however the rally ended towards the end of last week, with rates slipping back into the €1.16's before the weekend.

UK Markets re-opened this morning, and Sterling has started the week well. As you can see from the chart below rates have risen steadily since lunchtime, again testing the peaks of last week.


Why are GBP/EUR rates going up?


The main reason for the Pound making gains is the fact that the economic data we've seen since the EU referendum, has been surprisingly positive. For the moment at least, the forecasts by the 'Remain' camp warning of a recession, huge drops for the stock market & thousands of job losses haven't materialised. Indeed Retail Sales are up, car and retail industries are doing well, and UK consumer confidence is at it's highest levels in 3 years.

The ex-governor of the Bank of England, Mervyn King, has said that 'Brexit' could be good for the economy and that Great Britain will be more successful outside of the EU. The fact is though, nobody knows how he economy will fare. The gloomy predictions of the 'Remain' camp haven't come true, yet, but then it was all pretty speculative anyway.  King went on to say that the UK economy needed re-balancing anyway, and exchange rates need to be near to where they were in mid-2013 in order to balance imports and exports.

Well, the GBP/EUR rate we see now is actually pretty much where it was in mid-2013, and it's certainly having a positive impact on some areas of the economy. Perhaps these levels are actually about right and the Pound has simply found its correct level in the market.

Sterling to continue rising, or drop sharply again?


If you're reading my blog today, it's likely you need to convert Pounds to another currency, or convert a foreign currency back to Pounds, and you're keen to get a feeling on which way exchange rates may move in the coming weeks and months. Ultimately it's impossible for anyone to know which way the Pound may move.

HSBC think the economy will still nosedive and GBP/EUR will drop to parity, great news if you're converting Euros back to Pounds, but not so great if you need to buy Euros. Others like Barclay's think the Pound will rise to €1.30. Again, fantastic if you're buying a property abroad. Not so good if you're converting Euros back to Pounds.

.....but they can't both be right.

One thing is for sure, the currency markets are likely to become increasingly volatile, as the true effect of 'Brexit' starts to reveal itself, and the market starts to see a clearer picture of what the economy will look like in 2017 when EU negotiations start.  This could move the exchange rate in either direction, and by a large margin.

When is the right time to fix an exchange rate?


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