25th November 2010
Good morning. Yesterday there was a sigh of relief as Ireland announced austerity measures that appeased the markets. GBP/EUR rates fell through most of the day. In fact the bail-out has done nothing to calm the markets. If anything, it has made the situation in Europe worse.
It has highlighted the problems of having to shore up bad debts and the risk of other countries needing a huge helping hand. As a result, later in the afternoon the Euro weakened again and rates pushed back through the €1.18 barrier. At 08:30am this morning rates stand as follows:
- GBP/EUR 1.1824
- GBP/USD 1.5788
- GBP/AUD 1.6054
- GBP/NZD 2.0688
- GBP/CAD 1.5914
- GBP/CHF 1.5752
- GBP/ZAR 11.095
- GBP/NOK 9.6141
- GBP/JPY 131.69
- EUR/USD 1.3348
Irish austerity measures
Dublin on Wednesday unveiled a strict, four-year austerity plan after securing a debt bailout from the EU and the IMF this week but this did little to allay concerns that other periphery euro zone countries may also be in trouble. With concerns growing about the fiscal health of Portugal and Spain, analysts said the euro would remain under broad selling pressure and that sterling would rise as a result.
Problems for other EU countries?
The PIIGS – Portugal, Ireland, Italy, Greece and Spain – have been causing concern for months. Nobody has ever experienced a financial crisis where multiple countries are in danger of defaulting on their debt. Fears that Spain and Italy could also need help have increased. Spain is a particular problem because it is a much larger economy that either Ireland or Greece.
If there is indeed a domino effect, then this would cause further problems in the EU and the Euro could weaken further.
So will GBP/EUR rates continue to rise?
This is a difficult one. Of course further problems in the EU could indeed make the Euro cheaper to purchase. The issue is with the pound; Sterling won’t necessarily be seen as a safer currency because we’re not out of the woods yet with our own economic difficulties.
But at least we are a separate currency able to manoeuvre to our own benefit without having to kowtow to the ECB. Due to this we should be viewed as a healthier choice than the euro amongst investors.
Pound to Euro forecast for coming weeks
So just looking at the Euro side, and you could say that until there is more certainty with the EU countries facing problems with debt, the Euro will remain weak. Once focus shifts from the EU back to the wider global economy, Britain’s own problems that haven’t gone away will likely re-surface. We think therefore that this rise, while it may push slightly higher, is probably going to be short lived.
If you need to buy Euros, a good tool in this climate is a Stop Loss order. This is where you can place a limit with us to buy should rates fall below a pre-agreed level. You can then hope there are more EU problems that push rates higher, but if rates drop – and they will sooner or later – you have a safety net and aren’t going to pay more than necessary for your currency.