Currency Forecasts
Pound falls slightly ahead of Brexit meeting
Good morning. Sterling has fallen slightly today ahead of the key EU Brexit meeting that starts today. The reason however was due to old fashioned economic data. UK inflation numbers were released this morning, coming in quite a bit below forecast. We were expecting a reading of +2.8% however the actual result was +2.4%.
The lower inflation reading means there is now less chance of the Bank of England (BoE) raising interest rates. This in turn has weakened the Pound slightly. This is because when interest rates are expected to rise, so does the currency concerned due to the higher return on offer for investors. Conversely when an interest rate rise is less likely, it weakens the currency, which is what has happened this morning.
Elsewhere, EU data came in slightly mixed but their inflation numbers were largely as expected. All eyes are now on the EU summit which runs today and tomorrow. You can read my detailed post from yesterday with regards to what effect this might have on exchange rates. Personally I think the next 24 hours are very important for Sterling exchange rates and those that need to convert currency.
If you want to discuss your requirement with an expert and get a free quote, get in touch today.
UK Jobs data and crucial 48 hours for Brexit agreement
The Pound has remained remarkably resilient to the news over the weekend that a Brexit divorce deal is unlikely to be agreed this week. GBP/EUR remains quite close to €1.14 and GBP/USD around the $1.32 mark. This week however we are likely to see some significant developments that I think will cause some significant volatility for GBP exchange rates. Today we have UK jobs numbers, and the next few days sees some significant developments regarding Brexit that could either cause the Pound to soar, or crash.
In today’s post I’ll take a detailed look at what could happen with the jobs data and Brexit, and also look at ways you can protect yourself against the exchange rate moving against you.
UK Employment data
At 09:30am this morning we’ll see the latest jobs numbers, claimant count, Unemployment and Average earnings numbers. We expect the jobless rate to remain at 4%, average earnings to slip to around 2.8%, and claimant count around 10%. If the numbers are any worse than this then the Pound will weaken. If the numbers are better, the Pound may rise. However I think most focus will be on Brexit….
Brexit: Will an agreement be made, and how could the Pound react?
It was expected that this week, the EU would decide that enough progress would have been made in the negotiations to call a summit in November in which they would sign off the divorce deal. There is now not much chance of that happening unless Theresa May can make an 11th hour plea to EU leaders to make some concessions on the Irish border.
The problem is the Irish border. Assuming the EU and UK can negotiate a trade deal in the next 2 years, it’s not even an issue. However the EU want to place a ‘back stop’ which is basically a safety net so that if a deal can’t be agreed in time, it avoids the need for a hard border. The problem with this, is that if we agree to it, it does 2 things. Firstly it splits the UK which is understandably not acceptable to either the UK government or the DUP. Secondly, it effectively keeps the UK in the customs union indefinitely, which would give the EU no impetus or motivation to negotiate a trade deal, while severely limiting any trade deals the UK could make elsewhere, which is arguably the main benefit of leaving the EU.
If the backstop is rejected tomorrow, then it leaves few options. The UK position is a mess, as rather than support what is best for the UK, political parties are using the uncertainty to score political points and trigger either a general election or another referendum, both of which would simply increase the uncertainty that has been keeping Sterling weak.
This week then, is crucial for what will happen moving forwards, and it will carry the fortunes of the Pound along with it. If a deal is agreed, then I would expect the Pound/Euro rate to rally through the €1.15 mark and potentially higher. If however they kick the can down the road to November, then the Pound is likely to drop back to around the €1.11/€1.12 mark. Either way, by the end of this week rates are likely to be rather different to where they sit now.
How to protect against rates moving against you
If you need to buy currency with Sterling, then any failure to agree a Brexit deal this week is likely to cost you. In this scenario you can consider either a Stop Loss order or Forward contract. A stop loss triggers an order to convert your funds if the rate drops below a pre-agreed level, protecting you against the rate plummeting. A Forward contract allows you to freeze the current rate for up to 12 months, removing your exposure and allowing you to budget. To secure a Forward contract you lodge 10% of the total as a deposit against the trade.
Other clients may be looking to convert Euros or another currency back to Pounds. With so much uncertainty over which way rates will go, again things like Stop and Limit orders can be utilised to help you take control of what the market is doing.
Another popular option at the moment is to hedge your bets, and convert a portion of what you need to convert now, e.g. 60%, and then take a gamble on the rest. This gives you some level of protection regardless what the market does, and removes your exposure to the currency markets.
Get in touch for a free currency consultation
If you would like to discuss your currency requirements with an expert, feel free to get in touch with us today. The authors of this site have been helping Private and Corporate clients navigate the currency markets for over 13 years. We offer a free consultation to any clients that want to discuss what rates are doing, and to learn about the different options available to help get the best rates.
We can also offer you a free quote so you can see how much you could save. Our rates are up to 5% better than your bank or existing broker may be able to offer. We also allow you to see trading rates online, and places trades using our online platform 24/7.
EU Summit; will the Pound go up or down?
Good morning. The Pound has had a fantastic run over the last few weeks, rising to levels against the Euro that have not been seen in 2 or 4 months. The reasons for the gains is renewed optimism that a final withdrawal agreement can soon be reached between the UK and EU. Next week will be very important as to whether the Pound goes up or down against the Euro and other currencies, as we have some important events. Let’s take a look at what to expect next week….
Will the Pound go up or down in October?
This largely depends on two things. The first being a raft of economic data from the UK, details of which I’ll cover shortly. The most important thing however will be the EU summit next week, during which a deal on withdrawal could be agreed. Let’s take a look at what could happen.
How could Sterling react to next week’s EU summit?
Next week the EU have a summit in which a deal on the UK’s withdrawal could be agreed. If so then I would expect the Pound to strengthen significantly against the Euro. If however they kick the can further down the road to November, then it’s likely that much of the recent gains the Pound has seen could evaporate. I think that even if they agree a deal, it’s just going to raise further questions with regards to if it can get through parliament in the UK.
Theresa May is facing significant opposition to her ‘back stop’ deal with regards to the Irish border. The idea of this back stop has been likened to an EU trap, as in effect it would keep the UK tied to Brussels rules indefinitely should a trade deal not be struck in the next few years. This really does mean that the EU would hold all the cards, and it would severely limit the UK’s ability to strike free trade deals with the rest of the world – arguable this would squander the main benefits of leaving the EU. So even if we get progress next week, while it could provide some limited support for Sterling, I would not expect significant gains.
What about economic data?
Economic news is what used to move exchange rates, before Brexit became the main mover of FX rates. It can still have an impact however, and next week there are some significant data releases that could affect the Pound. I’ve outlined some of the main things to watch for. The results of these will already be forecast and priced in to the value of the respective currencies. If the actual release is better than forecast, then the currency concerned with strengthen. Conversely if any release comes in below forecast, then it would weaken the respective currency.
UK – we have the latest unemployment numbers, jobless claims and wage growth data. We’ll also see the latest Retail Sales numbers and inflation figures that can impact interest rates.
EU – There is the EU summit which we’ve already mentioned. In addition we have speeches by ECB members, and inflation numbers
US – Central Bank speeches, Retail Sales, production numbers and inflation figures will all give investors plenty to chew on.
Do you need to exchange currency or make a transfer?
As you can see above, there are lots of things happening at the moment that can affect exchange rates. If you need to move money overseas, to purchase property for example, then you should be speaking to an expert currency broker to understand what effect the above could have on the cost of your currency.
Here at currencyforecasts.co.uk we offer a free consultation to any private or business client that have an exposure to the currency markets. We can help you understand what is moving the rate, which direction it could take, and the options you can consider to protect you against the rate moving against you. We can also offer you a free quote so you can see what rate we could offer; typically our rates are up to 3% better than your bank or existing broker might offer and you could save thousands of Pounds.
Will GBP/EUR exchange rates hit 1.15?
Sterling exchange rates have rallied to reach their highest level against the single currency since June having now moved3.2% since the 18th September. To highlight the impact this can have on a a sizable transfer, a €300k position would have cost £270,270 on the 18th September with the same transfer costing £261,597 this morning.
How do I take advantage?
There are a number of different contract types we can offer, ranging from standard spot contracts with a two day settlement to forward contracts, where for a nominal deposit, your exchange rate can be locked in for up to two years. This is becoming an increasingly popular contract type with clients taking advantage of this recent spike.
Will this spike last?
Recent movements have come about following progress being made with Brexit negotiations. It has been suggested that a deal is close, although Theresa May has been warned of “dire” electoral consequences for the Tories if she persists with her Brexit plan. One sticking point for Mrs May continues to be the Irish border debate. Talks are at a critical stage as the EU and UK seek to resolve their differences over the “backstop”, a fallback plan to avoid a hard border on the island of Ireland in the absence of a solution through trade talks.
Brexit negotiations and the divorce bill is supposed to have been agreed by the 17th October, one week from today so the coming days aer key. Will the bubble burst? The issue is no one knows. If an agreement is made then potentially not, however some are suggesting a “bad deal” is worse than “no deal”. For this reason I think the GBP/EUR bubble could easily burst and if I was buying euros I would seriously consider my options with the recent market movement.
Do you need to buy Euros?
Do you need to transfer money internationally? Do you need help getting the best rate? If so then we can help.
If you would like to discuss our services you can email me michael@currencyforecasts.co.uk to get a quote. Alternatively you can make a free enquiry today by clicking here. Our rates are up to 5% better than your bank could offer. We’ve never had a problem beating rates from other currency specialists.
Italy concerns help support GBP/EUR at 1.14+
Pound/Euro rates remain at €1.14+ today, but this is more to do with Euro weakness than any particular further strength in the value of Sterling. This is because the Euro remains under pressure due to concerns in Italy. There are fears the Italy could become the next Greece and this is weighing on the single currency, reducing it in value and making it cheaper to buy.
What is happening in Italy?
The Italian government has set out a budget that is at odds with the EU. Their spending plans involves huge spending and this has sent Italian shares lower and has also weakened the Euro. Their plans put them at odds with the European Commission. Borrowing and spending is a plan that the EU is not happy with, and right now Italy’s borrowing costs are already at a 5 year high.
There are concerns that if they go ahead with their plans, it will increase Italy’s soaring debt and put it on a path that requires a bail-out from the EU, much as we saw with Greece. This is the main reason for the GBP/EUR rate rising further today, while GBP/USD and other Sterling pairs have actually dropped slightly.
What next for Sterling/Euro exchange rates?
This week the only data of note is the Industrial and Manufacturing production figures due tomorrow morning. Brexit developments will be of more importance. Next week will be an important one as we have the EU summit starting on the 17th of October. There is a lot of pressure to agree a deal by their November meeting, and we could well see compromises made next week that could help smooth the path to a deal. If this proves to be the case, expect the Pound to rise further.
However it’s very important to remember that even if a deal is agreed, it needs to get voted through parliament, and I think that is going to be a big ask. There is much that could still de-rail the recent gains we have seen for the Pound.
Do you need to get the best exchange rates?
In these turbulent times, it’s more important than even to have a good currency broker on your side, that can help monitor the markets and keep you informed of any moves in your favour. We do this in addition to offering exceptional rates of exchange. You could save thousands by getting in touch for a quick chat.
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