Sterling strengthens after Budget Statement

Wednesday 30th November 2011
Good morning. The Budget statement yesterday reinforced Sterling as a safe haven currency within Europe, pushing exchange rates higher against other currencies, and to a near 9 month high against the Euro as the EU debt crisis deepens. So why has the Pound risen against the Euro? Today we’ll take a look at what strengthened the Pound and the forecast for GBP/EUR rates. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1710
• GBP/USD 1.5535
• GBP/AUD 1.5598
• GBP/NZD 2.0492
• GBP/CHF 1.4355
• GBP/CAD 1.6076
• GBP/ZAR 13.073
• GBP/JPY 121.04
• GBP/DKK 8.7067
• GBP/NOK 9.1185
• EUR/USD 1.3265

UK Budget Statement strengthens Sterling

Chancellor George Osborne yesterday updated MPs on the state of the economy and the government’s future plans in his Autumn Statement as the Office for Budget Responsibility (OBR) publishes its latest growth and borrowing forecasts. You can read a detailed report on what happened here on the BBC site, as here we will only focus on the effect on exchanger rates.

Despite most news outlets pitching the statement as doom and gloom amid revised growth forecasts for the UK, the markets have taken it positively as reflected in the Pound rising yesterday. He said slower than expected growth meant it would take longer to reduce the budget deficit, meaning tough austerity measures will extend beyond the next election in 2015.

That is likely to underpin the UKs AAA credit rating and encourage more flows into safe-haven UK gilts. That in turn has supported Sterling despite the prospect of more QE by the BoE and the risk of recession. Analysts say the fact the UK is following an austerity plan and the BOE is proactive in easing monetary policy is a positive for sterling in the coming months.

In contrast, the euro zone debt crisis keeps getting worse with little policy action to stop the contagion. The debt crisis continues to deepen in the EU, and this has weakened the Euro further yesterday, pushing GBP/EUR rates back above €1.17.

There remains no fundamental reason to buy the pound, however amid the problems in Europe it has become a safe haven currency for savers worries about keeping Euros, and this has supported Sterling and is the reason exchange rates have risen.

So if you need to buy Euros in the next 6 months, what are the options?

  • Buy Forward now – this way you know where you are, but of course can’t take advantage if the rate does get higher.
  • Wait and see – it could go a little higher, but not by a huge amount. The risk here of course is rates falling away.
  • Use Stop Loss/Limit Orders – with these, you can place a ‘Limit order’ to buy at a level that’s not currently available, 1.18 for example. At the same time you can place a ‘Stop Loss’ order to buy should rates fall below a pre-agreed level, for example 1.15. This way you have a ‘worst case scenario’ should rates fall, but if they don’t you can still take advantage of any gains
  • Hedge your bets – Forward buy half what you need now, and take a gamble on the other half. This way you have some level of protection regardless what happens with rates.

To discuss any of the above options further, or to find out more about how much you can save by using us to secure your currency at commercial exchange rates:

Click here to send us an enquiry and have a free consultation on your options.

If you need to buy or sell foreign currency, click below now to send us an enquiry for free. Our exhange rates are up to 5% better than offered by banks. Take the first step to making the most of your currency now.

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