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For a few weeks now the GBP/EUR rate has been rather flat, stuck in a range between €1.11 and €1.12. It's currently at the upper end of that range thanks to some slightly better UK Manufacturing data this morning, coupled with worse than expected EU jobless numbers. In general however, it's been a story of Sterling weakness and Euro strength, which is keeping the pair subdued at around the lowest we've seen in 9 months.
In terms of forecasting which way this pair will move, the main event this week will be the Bank of England's 'Super Thursday' meeting in a few days. They will announce their decision on interest rates, Quantitative Easing, and release the minutes to their discussion to show how many of the 8 member committee voted for a hike in rates. In addition, they will release the quarterly inflation report.
Last time 3 members voted for a rate hike, but there's little chance of 4 or more voting the same way this week due to inflation dropping a little. If the same 3 vote for a hike again then it could help the GBP/EUR pair break above the €1.12 mark. I think the minutes and press conference are the most likely part of Super Thursday that will affect rates though. With other central bank starting to tighten monetary policy, the BoE might want to try and boost the value of Sterling that is very weak against other major currencies. If we do see any gains however, expect them to be limited as the uncertainty about what effect Brexit might have on the economy will weigh on the Pound and keep rates low.
Those that need to buy Euros might want to consider fixing a rate as it's unlikely to gain much in the short to medium term. The main reason the rate is low has more to do with the strength of the Euro than weakness in the Pound. The EU economy has been performing well recently, and if this continues the Euro might gain further on the Pound. I think the ECB will taper their stimulus programme later this year, and that's only going to strengthen the Euro further and push rates lower still.
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It's a different story for GBP/USD rates, with the current level at $1.32, the highest we've seen this pair for almost a year! Sterling has been largely supported due to speculation the BoE will raise interest rates sooner or later. The main reason the rate is looking good however is due to the US Dollar weakening and becoming cheaper to buy. The political situation in the US is not helping the Dollar, and the FED don't seem to be in a hurry to raise their interest rate again soon, and that's helped bump rates above the key $1.30 mark.
It's likely that the pair will stay above $1.30 in the short to medium term, but further gains are unlikely as much of the reason for the gain was month end USD selling by investors.
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Labels: Pound/Dollar Forecast, Pound/Euro forecast