Today we’ll have a detailed look at the pound to euro exchange rate, what’s caused it to climb this year, why it’s fallen recently, and what the rest of the year may have in store.
Sterling fell against the Euro on Thursday, with analysts citing the Spanish bonds news as strengthening the Euro, making it more expensive to purchase. A weaker dollar also helped GBP/USD rates push to the highest in several months, as markets worried about the strength of U.S. economic recovery.
Where GBP/EUR rates have moved through 2010
Here we see the GBP/EUR rate for the last 3 months. As you can clearly see, rates steadily increased but have since fallen. The reasons for the steadily increasing rate are two fold. Firstly, the pound has recovered significantly since the budget was announced by the new coalition government.
The robust measures announced to raise taxes and cut spending in order to reduce the deficit were well received by the markets, allaying concerns investors had about the economic recovery. As confidence rose, demand for Sterling rose helping to push exchange rates higher.
The second reason is due to a weaker Euro. The ongoing debt problems of Greece & Spain along with fears about debt levels in other EU countries have all contributed to a weaker Euro. The subsequent downgrading of the credit ratings of several Spanish banks compounded the problem, and investors remained wary of investing in the single currency.
These events combined to push the GBP/EUR rate close to €1.24, the best for 20 months. It was not to last however. Spikes in the market are often short lived, and so it proved to be the case. There has been an easing of concerns in the EU after Germany agreed on a four-year, 80 billion euro austerity plan, committing the country to cutting its budget deficit. The news signals an improving global economic outlook that is supporting the Euro.
The Euro has become stronger again as investors return, and this is illustrated in the reversal of the upward trend in exchange rates as seen in the chart above.
So what is the outlook for the remainder of the year?
It’s likely that both the Euro and the Pound will gather strength as the year goes on. Speculation of interest rate hikes in the UK is boosting the pound, as higher rates mean a higher return thus spurring investment into the UK. However the Euro is rising too following a renewed confidence in the single currency; however ongoing problems in the EU may resurface longer term.
There is a contrast in short-term confidence and medium-term concern when it comes to the health of the euro. Nonetheless, given the considerable selling pressure the shared currency was under through the first half of this year, investors remain blissfully ignorant of troubles further down the line as the speculative effort to retrace previous losses plays out.
Longer term we expect rates to recover further, however short to medium term the renewed confidence in the Euro could cause rates to remain fairly volatile over the coming months.
When should you buy your currency?
Nobody can accurately predict exchange rate movements, however a good currency broker can explain the reasons rates are moving, and the tools at your disposal to ensure you don’t suffer unnecessary losses, such as Stops, Limits and Forward contracts. Armed with this information you can then make an informed choice of what type of contract to purchase, and when to fix your rate.
Circumstances may differ depending on your timeframe and currency required. If you are looking for the best exchange rates, click the link below to send us an enquiry, and have a free consultation.