Will the pound keep rising against the Euro?

Good Morning. We’ll look today if the pound will keep rising against the Euro, and why it’s been doing so. We’ll also take a detailed look at GBP/USD rates. First a quick look at where rates stand at 08:30am this morning:

  • GBP/EUR 1.1661
  • GBP/USD 1.4292
  • GBP/AUD 1.7604
  • GBP/NZD 2.1596
  • GBP/CAD 1.5374
  • GBP/CHF 1.6605
  • GBP/JPY 128.06
  • GBP/ZAR 11.414
  • EUR/USD 1.2249

So, will the pound keep rising against the Euro?
Sterling rallied over 1 % against the Euro yesterday but lagged a broadly firmer U.S. dollar, which was supported on risk-aversion stemming from the single currency’s weakness. Because the Euro is so weak, other currencies such as the pound are benefiting, despite the weakness surrounding Sterling.

In a nutshell, it’s unlikely that this will continue for very long. The reason rates are still buoyant is due to weakness in the Euro and nothing to do with any strength in the pound. Fears over the sovereign debt crisis has weakened the Euro; this has the effect of making it cheaper to purchase, cancelling out the weakness in the pound.

A weak single currency also drives investment towards other currencies, like the US Dollar and the pound. The negative impact on the economy from tighter fiscal policy is likely to keep monetary policy loose for longer, keeping the Pound’s upside limited, analysts say.

So to summarise, the Euro is weak, the pound is weak – effectively cancelling each other out and keeping rates high. The US Dollar is very strong, and as soon as the Eurozone crisis stabilises, it’s likely that rates will drop back away as investment goes back towards the EU and starts to strengthen the currency.

Pound to US Dollar
GBP/USD hit a 14 month low last week as a result of further safe haven demand for the dollar. Recent weeks have seen a lack of investor confidence causing a fall in demand for riskier assets and a sharp increase in demand for perhaps the world’s safest asset, the Dollar.

This was partly the result of a fall in prices across the commodities market sparking a sell off of the so called ‘commodity currencies’ such as the Australian, New Zealand and Canadian Dollar. Further Dollar gains were made on Thursday when news from the continually troubled Eurozone filtered through that German Chancellor Angela Merkel had announced unilateral ban on naked short selling. This helped fuel further concerns for the state of Euro Zone economy and led to a sell off of Euro investments.

In the UK CPI (Consumer Prices Index) and RPI (Retail Prices Index) were up, however Sterling failed to make any gains as concerns for its fiscal position (government debt) continued to worry the market. Additionally the BOE (Bank of England) announced its unanimous decision to keep interest rates at hold and to continue to put a pause to Quantitative Easing as expected.

Finally, Friday gave the UK it’s only major piece of positive data release when Mortgage Approvals recorded a positive reading. However the rate remained in the dollar’s favour, failing to reward anyone looking to purchase dollars and suggesting that the market may continue to fall.

Looking forward to the rest of this week we have both UK and US GDP along with a series of data releases from both sides of the Atlantic. Although it is likely that these could effect Cable (GBP/USD) there is a stronger likelihood that the global economic climate will take a greater effect.

Those looking to sell dollars can take advantage of today’s rate should speak to us about Forward Contracts. This will allow you to lock in to today’s rate for up to two years in advance and allow you to make the most of your currency exchange.

Click the link below to contact us today, and find out more about our commercial rates.

Foremost Currency Group

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