Pound falls against Euro after Interest Rate decisions

Friday 13th January 2012

Good morning. Friday the 13th. Unlucky for some, and certainly unlucky for those that did not take advantage of the 16 month high in rates this week, as levels have now dropped back away. In yesterdays post I pointed out that in 3 years, the GBP/EUR rate had gone through €1.20 several times, only to quickly correct downwards, and that a repeat could be on the cards. Indeed, after the Interest Rate decisions yesterday, the Pound fell after positive comments from the ECB president strengthened the Euro. We’ll take a detailed look at what happened after the usual snapshot of where rates moved throughout trading yesterday:

~Currency Movements on Thursday 12th January~

Bank of England leave Interest Rates and QE on hold

UK interest rates have been held at their record low of 0.5% by the Bank of England’s Monetary Policy Committee. Interest rates have now been at their record low since March 2009. The Bank did not announce any increase in its policy of quantitative easing. In October, the Bank said it would pump another £75bn into the economy.

The decisions were widely expected, and come amid concerns over the economy’s strength due to weak consumer spending and the eurozone crisis. It caused no surprises in the currency markets, although we still think further QE will be on the cards in the coming months. If and when they do, expect Sterling weakness. I’ll put my neck out and predict that they will announce an extension to QE in February. We shall see.

European Central Bank leave Interest Rates on hold

Shortly after the Bank of England decision, the ECB also announced no changes to it’s interest rate, as expected. The decision followed two consecutive months of rate cuts, which were aimed at boosting the currency bloc’s growth.

At a news conference, ECB president Mario Draghi said the eurozone economy was still experiencing “high uncertainty and substantial downside risks”. However, he also made reference to balanced deflation risks, amd this may cause some to review their expectations.

Certinaly his comments had the effect of strengthening the Euro, pulling GBP/EUR rates over 1% down from the 16 month high seen earlier in the year. It’s often been the case that his comments cause swings in exchange rates.

Protecting against adverse rate movements

I’ve recently talked about Stop Loss orders. Many clients chose to take advantage of these this week in order not to lose out on the best exchange rates in a long time. This is where when rates are good, but you don’t want to purchase your currency in case things get even better. You place a Stop Loss at a level below the current rate, and if the market drops, your currency is purchased, giving you a safety net and a worst case scenario.

Those that chose this option should be pleased – the market levelled off at a 16 month high on Monday, and hardly moved all week. Following the events of yesterday, the market has dropped, and those with Stop Loss orders in place limited their loss by having their currency bought at a pre-agreed level.

In addition to Stop Loss orders, we can help you with Limit Orders and Forward contracts. Whichever type of contract you choose to place with us, our exchange rates are up to 5% better than you can achieve at the bank, potentially saving you thousands.

If you have a currency requirement, either now or in the future, click here to send me a free enquiry, and take the first step to making the most of your currency.

Using the services of an expert currency broker like ourselves can have benfits other than the obvious one of better exchange rates. We have various market tools, expert market knowledge, and the direct contact and customer service you just can’t get at banks these days. Compare us to your existing broker or bank today.

Today’s Data

Today the UK releases its latest inflation figures. The Eurozone and USA releases Trade Balance numbers, and there is also a US consumer Sentiment measure.

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.

Leave a Reply

Your email address will not be published. Required fields are marked *