Currency Forecasts
Pound vs Australian Dollar: Will GBP/AUD break through 1.80?
GBP/AUD exchange rates have recently been under considerable pressure with the pound having having fallen 4.5% since the beginning of May. Of course the on-going Brexit saga and the political instability following Theresa May’s resignation has caused a significant sell off for the pound across the board but will this trend continue?
Recently Reserve Bank of Australia governor Philip Lowe has resisted pressure to cut interest rates in line with many other central banks in order to weaken the currency, warning that this would be a “dangerous path”. However many analysts are suggesting he may need to act again at next weeks meeting. Some economists believe he may cut the base rate to 1% citing less than ideal employment figures as a sign a reduction could be necessary.
“We remain short of the unemployment rate associated with full employment, there is significant underemployment and there is further potential for labour force participation to increase when the jobs are there,” he said.
What would another rate cut mean for GBP/AUD?
Should the RBA cut rates next week then ordinarily you would expect the value of the Australian Dollar to weaken as investors seek higher yielding currencies offering greater returns. However in recent times currencies have been known to trend in exactly the oppositi direction of the predicted.
Indeed if you look at the current AUD/USD trend we have seen a big shift back in favour of the Australian Dollar, even with speculation of the RBA cutting rates next week. This is because investors are still wary in the current climate with Brexit and on-going trade war tensions between the US and China. For this reason I still see the Australian Dollar remaining popular and can see a break through 1.80 in the coming weeks. Those looking for GBP/AUD to push back towards 1.85 next week may well be disappointed.
Protect yourself against the Pound falling further
If you need to convert Pounds to Australian Dollars, then one way of avoiding any further weakness in exchange rates is to freeze the rate now with a Forward Contract. We can guarantee today’s rates for up to 2 years, and the rates we would offer you are likely to be considerably higher than your bank or existing broker might offer, by up to 2% or 3%. You could save thousands of Pounds, so for a free no obligation quote, or to discuss our services in more detail please email michael@currencyforecasts.co.uk
Economic data releases for the week ahead
UK political uncertainty continues to be the main driver for GBP exchange rates, with the Pound struggling to make any gains while the future of the Brexit process remains uncertain. Until we see a clear direction from whoever the new Prime Minister will be, we’re unlikely to see Sterling rise in value.
Today, I’ll outline other things that could affect the Pound in the coming week. The economic data releases for the week ahead are outlined below. If you need to exchange currency and would like to discuss the market with an expert and see what rate we can offer you, get in touch by clicking here.
This week’s economic data releases for the week ahead that could affect exchange rates
Monday 24th June – There aren’t any significant releases from the UK today. We have already had some releases from Germany that have strengthened the Euro and pulled GBP/EUR a little lower. Later today we have Trade Balance figures from New Zealand that could move the GBP/NZD rate.
Tuesday 25th June – Another quiet day from the UK side. There are speeches by members of the European Central Bank (ECB) that could weaken the Euro if they hint at further monetery stimulus in the Eurozone. Most data today is from the USA – House prices, consumer confidence, Manufacturing, and speeches by the FED, so it could be a volatile day for Pound/Dollar.
Wednesday 26th June – The first major release from the UK comes today, when we see the latest Bank of England (BoE) inflation report along with a speech by BoE governor Mark Carney. There is also a measure of UK Mortgage approvals at 09:30am. Elsewhere, we have an interest rate decision from New Zealand, and manufacturing numbers from the United States.
Thursday 27th June – From the EU today we will see the latest Industrial Confidence, Consumer Confidence and Services Sentiment figures, all of which could impact the Euro. Hermany also releases inflation figures, and as the EU’s largest economy, this too could affect the single currency. It’s also a busy day in the USA with Jobless claims, GDP numbers, inflation figures, and manufacturing numbers.
Friday 28th June – Today is probably the most important one of the week for Sterling, as we’ll see the latest House Price data, along with the UK’s GDP numbers. We expect a quarterly reading of 0.2% – any higher will strengthen the Pound, while a lower than expected figure would weaken Sterling. Euroland releases it’s inflation numbers, and we round off the week with Canadial GDP numbers.
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Pound falls further as Boris gets closer to number 10
Despite a slight uptick in GBP/EUR rates earlier this week, the downard trend for the Pound has now returned, and we have seen the Pound fall further. Pound/Euro rates have now dipped in to the €1.11’s, while Pound/Dollar rates are more supported at $1.2650.
Why has the Pound fallen further?
There are two reasons. The first is this weeks meeting by the Bank of England. As expected, interest rates were left on hold at the low of 0.75%. The BoE are still saying that they expect rates to gradually rise assuming that the UK avoids a No Deal Brexit, but despite a slight rise for the Pound on Thursday due to these comments, the gains were not to last. Part of this was the fact that they also pointed out UK growth was due to fall as the year goes on, and the lower forecasts in this regard weighed on the Pound.
The other reason for Sterling’s drop is the political situation in the UK. The leadership contest is now down to 2: Boris Johnson and Jeremy Hunt. At the moment it looks like Boris will win the keys to number 10 by some margin, and this is unsettling the currency markets. This is because a Boris government increases the chances of a ‘No Deal’ brexit, and this uncertainty is dragging the Pound lower.
What could happen to the Pound if Boris becomes PM?
Boris will try and re-negotiate the deal with the EU, but it remains to be seen if he will be successful. Right now the EU are sticking to their guns and stating no further negotiation will be entered into. The current deal has no chance of getting through. If nothing changes, then the UK leaves without a deal and this would almost certainly send the Pound crashing lower.
If they will look at the deal again, then perhaps there can be some amendments that will mean MP’s can vote for it. With the top jobs in the EU all changing soon, perhaps this will be the case. However, Labour are hell bent on voting against anything the government will bring, in order to try and force a general election. So all in all, it’s likely to be at least a month until BoJo is confirmed, and then we have only a few months for him to try an get a better deal out of the EU. As things stand, a No Deal scenario becomes closer by the day, and for this reason the Pound is likely to continue falling.
Protect yourself against the Pound falling further
If you need to convert Pounds to Euros, then one way of avoiding any further weakness in exhcange rates is to freeze the rate now with a Forward Contract. We can guarantee today’s rates for up to 2 years, and the rates we would offer you are likely to be considerably higher than your bank or existing broker might offer, by up to 2% or 3%. You could save thousands of Pounds, so for a free no obligation quote, or to discuss our services in more detail, contact us today.
USD exchange rates reach a near two year high
GBP/USD exchange rates have reached their lowest levels since December 2018 and some of the lowest levels since June 2017. We have now seen the US dollar rally 6.25% since the beginning of March caused by Brexit uncertainty and the prospect of an ardent Brexiteer taking the helm at number 10.
To compound this investors have begun pulling out of the Euro and piling into the US dollar following comments made by European Central Bank governor Mario Draghi. Draghi in his press conference this morning said the central bank had “considerable headroom” to launch further expansion of its current quantitative easing (QE) programme.
Will the US dollar remain strong?
Following Draghi’s comments US President Donald Trump suggested that Europe was acting to manipulate its currency.
“Mario Draghi just announced more stimulus could come, which immediately dropped the euro against the dollar, making it unfairly easier for them to compete against the USA,” the US president wrote on Twitter.
In response to these comments from the ECB could we see a retaliation from the Federal Reserve at their meeting tomorrow? With unemployment rising and and global trade wars hitting growth, rumours are gathering pace that the Fed are looking to cut interest rates, a move that President Trump has been actively supporting. It may come too soon for tomorrow but comments from Fed Chair Jerome Powell will be closely scrutinised. Hints at a future rate cut and the US dollar could devalue tomorrow.
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GBP/USD: Will the Fed cut interest rates?
GBP/USD exchange rates have reached a near two year low today sliding to 1.26 bringing the pounds slide to over 4.5% since the beginning of May. Will this trend continue?
Today’s US retail sales figures were poor coming in at 0.5% against a forecast of 0.6% and with a run of recent poor jobless data from the US pressure is rising on the Federal Reserve to cut interest rates at their meeting scheduled for the 19th June. I wouldn’t expect them to act at Wednesdays meeting but the resulting press conference may well hint at a future cut and therefore the GBP/USD exchange rate could be volatile come next week.
Is the Pound vulnerable?
It is widely expected that the Fed will cut interest rates in the coming months and therefore this should be heavily priced into the market. This therefore shows how vulnerable the pound is in my view. We are currently trading close to a two year low against the US dollar – yes we may see some dollar weakness next week but longer term the pound is vulnerable. The current political uncertainty and fight for number 10 is the likely drive for this.
Boris Johnson, an ardent supporter of Brexit is favourite to be the new Prime Minister and this is where the pound could come under further pressure. With Boris at the helm there is a real chance we could leave the EU with no deal come the 31st October. This will keep the pound firmly on its toes.
Avoiding adverse exchange rate movements
Current sterling exchange rates are precariously placed and vulnerable to some significant downside losses, particularly if we leave the European Union without a deal. With this in mind, anyone purchasing property in the Eurozone or elsewhere in the coming months, should take steps to ensure that a sudden movement in the value of the Pound doesn’t increase the cost of your property unnecessarily.
A popular option is to freeze the rate using a Forward Contract. This is usually done when you have paid your deposit, and guarantees the price you will be paying in Pounds. A 10% deposit is required, and your rate is fixed for up to 2 years. Those less risk averse that want to take the chance of rates improving should Brexit be resolved, can use Stop Loss and Limit Orders. These instruct your broker to purchase your currency if it reaches a particular level, or starts to drop. This allows you to take advantage of any gains while not leaving yourself exposed to a sudden drop in the rate. These types of tools, along with exchange rates that are significantly better than your bank may offer, are why many people choose to take advantage of the services we can offer. On large transfers the saving usually run into thousands of Pounds.
To find out more about how we can help you save money on currency transfers, get in touch today.
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