Good morning. The Pound surged through trading yesterday afternoon, rising to a 2.5 month high against the US Dollar, and rising close to an 18 month high above €1.20 against the Euro. This was all due to hopes that Greece will reach a deal with its private creditors this week. The Below charts show how rates moved throughout the day yesterday
~Currency Movements on Monday 30th January 2012~
Pound makes significant gains against Euro
This buoyed sentiment towards the euro and lifted riskier assets and currencies, including sterling. As a result, the Pound gained against both the Euro and US Dollar. This is because the Pound is seen as a risky asset, so the increased confidence strengthened the Pound. However, despite the gains, there is much in the next week or two that could reverse Sterling’s fortunes.
Analysts still predicting Sterling will fall
Despite the jumps in the GBP/EUR and GBP/USD exchange rates, the Pound could come under pressure later this week, with purchasing managers’ surveys on manufacturing, construction and services likely to give further evidence of the fragility of the UK economy.
Indeed, data yesterday highlighted the sharp declines in money supply and consumer credit, however the negative data had little effect on sterling. It does however increase the chance of further Quantitative Easing next week at the BoE’s meeting on Thursday. Many in the market expect the Bank of England will announce another round of quantitative easing under its asset purchasing programme in February in an attempt to boost the economy.
The last time QE was announced Sterling fell across the board. It’s difficult to forecast what effect it may have however. As it is being widely predicted, it will be partly priced in to the market rates already, however I expect further drops for the Pound should the BoE indeed go ahead with further QE.
If you wanted to gamble on rates getting even higher, consider a Stop Loss. This is where you place an order for me to buy currency should it fall below a pre agreed level. In this way you can aim for higher, but have a worst case scenario should rates fall.
It should be noted that this is the 5th time rates have broken €1.20 in the last few years, and each and every time the spike is short lived, to be followed by a correction lower. If it were me needing Euros in the next 6 months, I would fix the rate as soon as possible, considering back in October it was €1.13.
We’ll start down under today – Australia has Building permits, Commodity prices and Trade Balance figures – if good this could push GBP/AUD even lower than it already is. The UK releases its PPI data this morning also.
In the Eurozone there are also inflation figures. In the USA there are some important releases – Jobless Claims, Labour costs and Nonfarm productivity.
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.