Thursday, 11 May 2017

Super Thursday keeps lid on Sterling

For several weeks GBP/EUR rates have been fairly range-bound between the €1.18-€1.19 mark and have been unable to move higher. For it to do so, the market needed further information; this morning provided lots of new data however the end result was Sterling moving slightly lower.

Things got off to a bad start when the latest Industrial and Manufacturing production figures came in below forecast, sending the Pound slightly lower against the Euro and US Dollar. Then came the key BoE ‘Super Thursday’ releases. As expected they left interest rates on hold at 0.25%, with Kristin Forbes the only member to vote in favour of a rise in interest rates.

Other members were more cautious as they trimmed their UK growth forecast for 2017, saying that household spending is slowing more quickly than expected, adding that consumers were being squeezed between sluggish wage-growth and rising inflation. While inflation is still expected to remain above their 2% target, they pointed out that this is purely due to the impact of a weak Pound, stating that raising interest rates would not be an effective way of tackling that inflation.

Markets took this as a sign that interest rates were unlikely to rise any time soon and Sterling fell as a result. The prospect of higher interest rates strengthens a currency due to the higher return on offer, and the fact that it’s now likely to be 2019 before we see any tightening of monetary policy is the main reason for yesterday’s drop in exchange rates. When all is said and done though, we’re back to where we were on Monday with GBPEUR still range-bound at a level it seems comfortable in.

Will Pound/Euro rise or fall in the coming months? 


Market movement has been fairly flat of late, but it’s important to remember that GBPEUR is within 1% or so of the best we’ve seen since last summer. In March it was in the €1.13’s, and towards the end of last year it dipped into the €1.09’s, so relatively speaking the current rate is very attractive indeed to anyone that needs to buy Euros. A common question we hear at the moment is whether the rate will go higher or drop back away again.

It’s impossible to predict market movement of course, but by understanding what is affecting the rate you can make an informed choice about what to do. The reason Pound/Euro rates are close to 10 month highs is that since Article 50 was triggered, Sterling has been given some much needed breathing space as everyone knew it would be a few months before talks start in earnest. The UK general election also lifted the Pound higher as it’s almost certain the May will win a huge majority. If so, it will mean a much greater chance of striking a good deal with the EU as she will be able to make the compromises needed to be able to do so. Soon, the time for sound bites will be over and actual negotiations will begin. Ultimately, a deal will be done, a free trade agreement reached, and the Pound will recover, but in the short to medium term while initial proceedings are on-going, market uncertainty will return and I think there is a good chance that Sterling will retreat back to levels seen earlier in 2017.

Need to make a transfer within the next 6 months? 


Those that need to convert one currency to another in the coming months shouldn’t be complacent as there’s ultimately no way to know in which direction rates may move. A risky approach would be to sit back and just hope the rate moves in the direction you want them to. A prudent approach would be to get in touch today for a detailed outline of what may affect your particular currency pair (e.g. GBPEUR, USDGBP, AUDEUR) and to get a full understanding of the ways in which we can protect you against adverse exchange rate movements. We can also provide you a free quote so you can see how much we can save you. Typically our rates are up to 3% better than your bank or existing broker may offer you, which on a purchase of €250,000.00 would save you more than £6000.