Sterling Euro exchange rate forecast 28 May 2010

Good Morning. The pound gained some strength yesterday after talk of the Prudential taking over AIG may be off the table. The Euro also gained some strength after China talked positively about the Euro. Pound to Euro rates pushed up to the high €1.18’s, but the spike was short lived and dropped a point later in trading. This morning rates stand as follows:

  • GBP/EUR 1.1769
  • GBP/USD 1.4530
  • GBP/AUD 1.7070
  • GBP/NZD 2.1306
  • GBP/CAD 1.5271
  • GBP/CHF 1.6790
  • GBP/ZAR 10.972
  • GBP/JPY 132.73
  • EUR/USD 1.2340

Prudential Talk spurs Sterling

In March, when the takeover was announced, the pound fell massively against the US Dollar as the firm took up USD positions. These positions have now been reversed, and the bug demand for the pound by the firm meant it strengthened and boosted rates.

So, sterling gained on expectations the UK firm would need to unwind previous dollar purchases. As we said earlier in the week, supply and demand is a huge driver for exchange rates, and the demand for GBP has pushed up it’s value.

However, later in the day the firm said it was indeed pushing ahead with the deal – that’s why the pound retreated later in the day dropping 1 point against the Euro later in the day.

China sooths concerns over Euro

China yesterday calmed concern in the markets that it was avoiding Eurozone assets due to the ongoing sovereign debt crisis. a Chinese government official gave assurances that China remains committed to its long-standing goal of diversifying its foreign exchange reserves. The head of China’s $300bn sovereign wealth fund said that the debt crisis will not have an impact on overseas investments.

This helped to calm risk aversion in financial markets and allowed equities to push higher, though analysts said sentiment remained fragile. The pound is seen as a risky asset due to our financial problems, and so both Sterling and the Euro pushed higher on the back of the comments.

There’s a good article about how these Chinese comments have boosted markets on the BBC website here.

Where are exchange rates headed now?
It’s impossible to predict given the uncertainty surrounding the markets at the moment. The market is being driven by sentiment, and by debt problems world wide. The euro zone government debt worries are outweighing concerns about the UK and there is more downside for euro/sterling, at least in the near term.
The EU crisis wont be affecting the markets like this forever, and we think that once Austerity measures are agreed, and the finance chiefs of the EU countries have a robust plan to reduce the debt, focus will probably shift back towards the UK’s poor fiscal position.
So, markets are being driven by risk sentiment as investors move funds back and forth due to perceived safety and risk. This will continue while there is uncertainty, and so markets will remain volatile.
An article on the blog regarding managing risk is worth looking at when markets are volatile like this. It explains different tools such as Stops, Limits, Forwards – and the different approaches you can take to minimise exposure to volatile markets.
Check back on Monday to see a breakdown of next weeks events and the likely effect on the currency markets.
Enjoy your weekend.
If you are looking for the best exchange rates, click the link below to send us an enquiry, and have a free consultation on what’s happening in the currency markets.

Foremost Currency Group

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