Showing posts from March, 2017

GBP/EUR hits 1 month high of €1.17

Sterling had a very good day yesterday following the invocation of Article 50. We saw GBP/EUR rates touch €1.1700 overnight before dropping back into the mid €1.16's this morning. GBP/USD rose to $1.25. That's a 1 month high for buying Euros, however the rate has already started to drop away.

Why did the Pound rise?
There were no economic releases of note yesterday, so the gains were down to 2 factors. Firstly, analysts think that the Bank of England will tighten monetary policy this year and raise interest rates sooner that thought. This is due to rising inflation, and the prospect if a higher interest rate strengthens a currency due to the higher yield on offer. Secondly, now that the Brexit process has started, it looks like investors have decided that Sterling has been punished enough and had already sold off the Pound significantly over the last few months. Negotiations will not start until later this year, and so there was little reason to continue selling the Pound off…

Pound stable as Brexit begins

After starting the day low against the Euro yesterday, Sterling actually recovered back to the mid €1.15's after Theresa May officially started the Brexit process by triggering article 50. It was a challenge to foresee what would happen to exchange rates yesterday, and it seemed that market reaction was muted due to the fact it was expected and already priced into the market.

Her tone in the letter that she sent to Donald Tusk was also quite positive and conciliatory, which calmed the markets a little and meant the Pound was largely unchanged against the single currency.

Whatever your view, the fact is that we're leaving the EU, not Europe; there will be many positives such as our ability to re-discover our role as a truly global Britain and will soon be able to make our own free trade agreements, rather than being only able to trade freely with the EU based on the fact they're geographically close to us. Of course, there are many negatives to leaving the EU and single ma…

Currency volatility expected as Brexit process begins today

It will come as no surprise to most of our readers that Article 50 will be invoked today. The letter was signed by Theresa May and will be delivered to Donald Tusk at 12:30pm. It won't come as a surprise to the markets either, but that doesn't mean that we won't see any market movement.

On the one hand, it could cause the Pound to fall. Indeed overnight the GBP/EUR rate fell into the €1.14's but has since recovered back to about €1.15 this morning. On the other hand now that the process of leaving the EU has begun, the Pound may well bounce back and end the week higher. There really is no way to know what effect today will have on the markets, but I do expect some volatility.

I think most fluctuations will come from 2 key speeches we'll hear today. Theresa May will make a statement to parliament and if there are any hints here as to the direction negotiations will take, it could affect Sterling. Donald Tusk the president of the European Council will also make a spe…

How could article 50 affect the Pound?

This week Theresa May will formally begin the process of the UK leaving the EU when she invokes article 50 on Wednesday, but how will the currency markets react when it happens?

The Pound is actually performing very well at the moment, following robust retail sales figures and inflation numbers that suggest the Bank of England may have to raise interest rates later this year. The current Pound/Euro exchange rate is the highest it's been since about the 5th of March.

It's very hard to know how the market will react in 2 days time when article 50 is triggered. It's certainly not going to come as a surprise and for the most part, it could already be priced into the value of the Pound, and if that's the case we may not see any movement at all. However last Monday when Theresa May announced the date Art 50 would be triggered, the Pound fell about a cent against the Euro. That wasn't really a surprise either, but the Pound fell anyway. There is certainly a good chance th…

Bumper Retail Sales figures strengthen Sterling

We have just seen the latest UK Retail Sales figures for the UK, and they were significantly better than forecast. Markets expected a +0.4% rise. I thought that it would be lower than this, but the actual figure came in at a staggering +1.4%. This is way above forecast, and the Pound has risen as a result.

Retail Sales are seen as a barometer of the health of the economy and how confident consumers are. The fact that people are still spending is very positive for the UK economy and is reflected in the upward movement we have seen for the Pound this morning.

Risk of Pound falling when Article 50 is triggered
The GBP/EUR rate is now the highest it has been since the beginning of the month. The fact remains however that next Wednesday article 50 will be triggered, heralding the start of the process of the UK leaving the EU. Most analysts agree that this is likely to push the Pound lower in the short term, and so clients should consider their options if they need to buy Euros or another …

Pound steadies ahead of Retail Sales tomorrow

The Pound has slipped a little today but has found it's feet at around the €1.15 level. With Article 50 coming a week today initially Sterling had started to drop away, but has been supported in the last few days by higher than expected inflation figures.

Retail Sales to affect Sterling exchange rates tomorrow
Tomorrow morning at 09:30am will be key to which way the rate goes in the short term, as we have the latest UK Retail Sales figures. These are seen as an overall barometer of the health of the UK economy as it demonstrates how confident consumers feel. Since the referendum vote, the economy has been performing very well indeed, confounding expectations of a recession as many experts had predicted. Retail Sales had also help up pretty well, but that changed in the last few months. Last month for example, the number showed a 0.2% decline.

Analysts expect tomorrow's figures for Feb to show a rise of around 0.4%, and if the actual reading is lower than this, expect an immed…

Sterling jumps on higher inflation figures

UK inflation figures have just been released, showing that the annual CPI reading was 2.3%, a little higher than expected and above the 2% target at which the Bank of England would normally raise interest rates. Following on from last weeks BoE minutes, the markets have taken the news that there is now a much higher chance of interest rates going up later in the year.

Mark Carney to speak at 10:35am
This caused GBP/EUR to jump from €1.1460 to €1.1535, but in reality we're simply back to where we were this time yesterday. In about an hours time at 10:35am the BoE governor Mark Carney will be giving a speech and I think this will be key to the Pound holding on to these gains or not. On the one hand, the BoE have already stated that they will tolerate above target inflation for a period without moving interest rates. If Carney re-iterates this view later this morning, then it's likely the Pound will fall. If however he replicates the view published in the most recent BoE minutes …

Brexit process to start March 29th

Downing Street have said today that Theresa May will begin the process of leaving the EU next Wednesday the 29th March. Negotiations will then begin, which is likely to herald a period of extreme uncertainty that could send the Pound crashing.

As soon as the news was announced the Pound fell by around half a cent against the Euro. I think that next week when it's official, the Pound is at risk of falling further.

Markets hate uncertainty and it's this uncertainty that has pushed the Pound lower since the vote last June. As soon as negotiations begin there will be many issues that start to materialise, but the fact is that until we get a clear picture of what a post EU UK is going to look like, Sterling is likely to remain under pressure.

Protection against the Pound dropping
With only a little over a week to go until negotiations start, now is the time to consider what protection you need if you need to convert Pounds to another currency in the next 12 months. Simply waiting c…

Pound gains on BoE vote

Yesterday was a good example of how quickly the markets can move on unexpected news. We started the day with GBP/EUR just above €1.14 after the Euro gained strength following the Dutch election result, however that all changed at lunchtime when the Bank of England made their announcement on interest rates.

As expected, the base rate was left at its record low of 0.25%. What was not expected was one of their policy makers, Kristin Forbes, voting for a rate increase. The other 8 members all voted to keep rates on hold so no change was made, however the fact that Ms Forbes dissented and voted for a rise in rates was all that was needed to give Sterling a decent shove, rising about 1% against the Euro as illustrated in the graph below:

1 member voting for a hike isn’t enough to explain the Pound’s consolidating it’s gains, especially Forbes, who has voiced her hawkish stance in the past and is due to leave the MPC in June anyway. When you dig a little deeper and read the minutes to the me…

Euro gains strength on Dutch election result

GBP/EUR falls after defeat for Geert Wilders
The Euro has gained strength following the Dutch election result, which saw a comfortable victory for the Prime Minister, with the far right candidate Geert Wilders unable to capitalise on an early lead in the polls. This means that there is now little possibility of the Netherlands leaving the EU and has strengthened the Euro as a result, making it more expensive to buy and causing GBP/EUR to fall.

All eyes will now be on the polls in the upcoming French elections. If this result in Holland carries over and Marine Le Pen loses traction and support in France, then the Euro will get even stronger still and pull Pound/Euro rates even lower.

Putting the current Pound/Euro rate into perspective
Many people think that the current GBP/EUR rate is very low, but actually it has been supported by a fundamentally weak single currency, due to concerns over populist voting in Holland and France. If it were not for this it would be much, much lower.


Sterling recovers slightly but may drop in the coming days

GBP/EUR rates recovered back above €1.15 this morning before dropping back away slightly. The move upwards was partly due to the fact that polls show that if another Scottish referendum were to be held, at the moment even more would vote for Scotland to remain part of the UK than when they voted in 2014.

This has calmed the market somewhat, and also the fact that Article 50 won't be triggered for another few weeks has provided some relief for the Pound.

Earlier this morning UK jobs data was released, showing that unemployment is at its lowest in more than 40 years, which is positive. However Sterling actually fell, and that's due to the wage growth data showing that it's slowing. If wage growth continues to fall and drops below inflation, then consumers will have less money to spend.  The Bank of England won't raise interest rates in this situation, and if interest rates remain at their current low level then Sterling will remain weak.

On the subject of interest rates,…

Pound/Euro forecast: Article 50

GBP/EUR rates have steadied somewhat today, after falling briefly into the €1.13's first thing this morning. The Government have now won the right to trigger article 50 and start negotiations with the EU, however this may not happen as soon as thought.

It will happen this month, but with Dutch elections tomorrow and a European Union meeting later this month, the timing will be key.

The EU meeting is to celebrate the 60th anniversary of the signing of the Treaty of Rome, which led to the establishment of the European Economic Community (EEC) on 1 January 1958. Theresa May will want to get negotiations off to a good start, and clashing with this would not be a good way to do so. Therefore it's likely in my view that it will come at the end of the month. When it does come, then many analysts are predicting the Pound will fall further as a result.

IndyRef 2
In other developments, the Pound has been kept under pressure by news of Nicola Sturgeon's demand for a second Scottis…

Very important week ahead for exchange rates

In my recent post I outlined the reasons that the Pound may fall further, and that proved to be the case. We saw poor UK data on Friday that weakened the Pound, and the Euro gained strength on rumours that they may raise interest rates in the EU later this year.

This pushed GBP/EUR rates into the €1.13's however this morning we've seen a slight recovery to the mid €1.14's. Pound/Dollar rates also fell as strong US jobs data last week mean it's almost a given the US will raise interest rates later this week. (Higher interest rates strengthen a currency due to the higher return on offer, and that's why the Euro and Dollar have become more expensive to buy.)

Important week ahead for exchange rates
The week ahead is going to be a very important one indeed for exchange rates, as there are several key events that could have a very big impact indeed on the currency markets. Let's have a look at what we might have in store.

Article 50 - Today the commons will vote on w…

GBP/EUR and GBP/USD could fall further in the coming days

This morning the Pound has fallen further, dipping in to the €1.14's against the Euro briefly before settling around €1.15. Later today there is important news from Europe that could push the rate even lower however, when the European Central Bank (ECB) will announce their decision on interest rates and their Quantitative Easing (QE) stimulus programme at 12:45pm.

I don't expect any change in interest rates and they will likely keep everything unchanged due to the risky elections coming up in Holland and France.

However, they may announce that they will start to taper their QE programme which could give the Euro some strength and pull GBP/EUR rates lower. The EU economy is actually performing pretty well but I don't think they will tighten monetary policy until the elections are out of the way. The ECB President Mario Draghi will be giving a press conference at 13:30pm and his comments often cause movements in the GBP/EUR rate. If he hints at tapering, expect Pound/Euro to…

Budget provides some respite for weakening Pound

The Pound had been drifting lower today, briefly dipping below the €1.15 mark, however the Chancellors budget has given the Pound a lift due to an upward revision in growth forecasts. Usually we don’t see the budget have much effect on the currency markets, however with politics now the driving force behind exchange rate movements, this budget has bucked the trend.

We have now seen the downward move resume however (view live graphs here), and I still expect a move to the downside when Article 50 is triggered in the coming weeks. Once the Dutch and French elections are out of the way and assuming far right parties don’t win power, GBP/EUR is likely to head lower as the Euros strengthens and Brexit negotiations begin.

Will the Pound continue to fall?
I've been warning for some time that it was likely the Pound would start to fall away as markets get nervous about Brexit, and this is now starting to happen. GBP/EUR in particular has dropped from €1.19 to €1.15 in the last few weeks …

How could French and Dutch elections affect GBP/EUR?

Sterling/Euro rates have fallen to the lowest in nearly 2 months, and the Pound was unable to recover the losses we saw last week following weaker than expected Services data on Friday.

After many weeks with this pair stuck at around the €1.17 level, we’re starting to see movement to the downside due to uncertainty over when Article 50 will be triggered. This was due to a government defeat in the Lords which effectively means Brexit negotiations won’t begin until March 13th at the earliest. The delay has simply increased the uncertainty in a market that was expecting some direction with regards to when negotiations would start.

French and Dutch Elections 
The Pound continued to fall against the USD and other currencies throughout the day yesterday, but GBP/EUR was kept from falling below €1.1530 due to developments in the French elections. On Friday polls showed that Marine Le Pen would probably be knocked out of the second round of polls this week, strengthening the Euro. However Alai…

Sterling continues to fall against Euro and USD

The Pound fell further on Friday, continuing its recent downward trend. The cause was worse than expected Services data. Services form a huge part of the UK economy, and a slowdown in this sector shows that Brexit may be starting to take its toll.

Another reason for the fall is a stronger Euro and US Dollar. The Euro has gained strength as polls show that Emmanuel Macron is now ahead of Marine Le Pen in the French election polls, and this has strengthened the single currency and made it more expensive. Once French and Dutch elections are out of the way and assuming far right candidates do not win power, it's likely that the Euro will get stronger still. Couple that with the fact that Article 50 is on the way, and there is good reason to believe that GBP/EUR will fall further.

Sterling/Dollar has also been dropping of late, and again much of this is down to a stronger US Dollar. It's likely that the Federal Reserve will raise interest rates soon, and this is starting to get pr…

Pound falls as Brexit inches closer

Sterling steadily fell against its counterparts throughout trading yesterday, falling 1 cent to €1.1650 vs the Euro. It started when the manufacturing figures I mentioned in yesterday's post came in below forecast showing this sector is not growing as fast as thought. You can view live interactive currency graphs for the last 3 months for all major Sterling pairs here.

The main reason for the fall in the pound however is simply sentiment. When US markets opened, traders continued to sell the Pound sending it lower and lower throughout the day. Sterling is very sensitive to political concerns at the moment, and as I have mentioned several times in the last few weeks, when Brexit negotiations start in the coming weeks there is a good chance that the Pound will come under further pressure pushing rates lower still.

The only thing I can see that could keep rates supported is political uncertainty in Europe due to upcoming Dutch and French elections. Once these are out of the way, th…

USD strengthens as interest rate hike looms

We were expecting a little more volatility in the markets this morning following President Trumps speech to congress last night, but he didn't really offer any details on his tax plans or stimulus measures as we had expected. Instead he just repeated what he had already said about tax relief without giving any actual details.

USD stronger as interest rate hike looms
Market reaction was muted as a result, however hints from the FED that an interest rate rise is very likely this month has strengthened the USD and pushed GBP/USD rates a little lower.

Pound/Euro has risen a little as the Euro weakened due to it's inverse relationship with the Dollar, pushing GBP/EUR up half a cent to around the €1.1750 mark. We also had some weaker than expected data from Germany and the EU a little earlier weakening the single currency slightly.

What could move exchange rates today?
This morning from the UK we'll see the latest mortgage approval numbers along with manufacturing data. These w…