23rd September 2010
Good morning. The pound fell in a big way yesterday against the Euro, after the BoE minutes showed that they are considering more Quantitative Easing. We hit a 4 month low against the single currency, and a 2 month low against a basket of major currencies. Rates as at 08:30am this morning are as follows:
- GBP/EUR 1.1697
- GBP/USD 1.5648
- GBP/AUD 1.6397
- GBP/NZD 2.1443
- GBP/CAD 1.6134
- GBP/CHF 1.5452
- GBP/ZAR 10.995
- GBP/JPY 132.37
- GBP/HUF 325.75
- EUR/USD 1.3375
Pound falls on QE Concerns
Minutes of the Monetary Policy Committee’s meeting to hold rates earlier this month showed an 8-1 vote for leaving interest rates on hold at a record low of 0.5 percent, as widely expected.
Most BoE policy board members thought there were risks to the outlook on both sides and stood ready to respond in either direction, but some of them argued the possibility that more easing would be needed to bolster the economy had risen.
It was this discussion of more Quantitative Easing that pushed the pound lower, and we hit the mid €1.16’s at one point, before recovering back to the €1.17 level.
Against the USD, rates didn’t change as much, as there are also fears of QE in the states, and so the dollar weakened in line with Sterling.
The effect on a currency purchase
Buying €200k yesterday would have cost over £7500 more compared to just a few weeks ago. This shocking example shows just how much things can change in a short period of time. We have Stop and Limit orders, along with Forward contracts to help protect against such a decline. See below for more details.
Which way will markets move in the coming weeks?
We are in extremely volatile times for the currency markets. As we saw yesterday, any negative data quickly pushes Sterling exchange rates down. Positive data could easily push rates back up again, however it’s impossible to predict what the data results will be.
As the market is currently very susceptible to market data at the moment, rates could move either way in the coming months.
Stop and Limit Orders, Forward contracts.
These type of orders are useful when the market is volatile. A stop loss places an order to buy should rates fall below a pre-agreed level. A limit order is the opposite; an order to buy if rates climb to a level not currently available. Using these orders, you can aim for a higher rate while protecting against a loss should markets not move your way.
A Forward contract allows you to fix today’s rates with only a 10% deposit of the total. this can be done for up to 2 years, eliminating exposure to adverse exchange rate movements.
Leaving it to chance could easily mean your currency costs significantly more than necessary, so contact us today to discuss your requirements.