Pound drops against Euro; how to protect against falling rates

Wednesday 8th February 2012
Good morning. Sterling fell against the Euro yesterday, and in the absence of any UK data it was developments in the Eurozone affecting rates, with the single currency holding firm even as Greek talks on the terms of a new bailout deal dragged on. The Euro is being supported by comments from Eurogroup President Jean-Claude Juncker who said he had no doubt about Greece’s future in the euro zone provided the country fulfilled its duties towards other euro members. This is what caused rates to dip yesterday, as the chart below shows:

~Currency Movements on Tuesday 7th February 2012~

Sterling falls vs Euro, markets braces for further drops

The GBP/EUR rate has been fairly steady in the last few weeks, but yesterday rates fell slightly as there was more optimism over Greek debt. As stated above, positive comments from the Eurogroup president gave the single currency some strength, and this is what driven rates yesterday.

His comments strengthened the Euro, making it more expensive to purchase and pushing rates back into the €1.19’s. The chart above clearly shows the drop through the afternoon. This also had an inverse effect on the GBP/USD rates – with investors more confident in the Euro, funds were moved from the safe haven US Dollar to the Euro, causing the Dollar to weaken, and pushing rates to a fresh near 3 month high.

Today’s Data is pretty thin on the ground UK wise, and there are some Trade Balance figures for Germany. Markets will be bracing for Thursday’s key Bank of England decision, with many forecasting doom and gloom for the Pound.

Bank of England – more Quantitative Easing on the way?

Better UK PMI data last week eased concerns the UK economy could slip into recession, although market players are still expecting the Bank of England to announce another round of quantitative easing later this week, with the decision happening at 12pm on Thursday.

most forecasts suggest around £50 billion more being pumped into the economy – effectively flooding the market with more pounds which would be likely to weaken demand. The last time QE happened, GBP/EUR rates fell around 3 points in 24 hours.

Do you need to buy Euros?

If you need to buy Euros within the next 3 or 6 months, consider fixing a rate before Thursday to protect you against a possible drop in rates. Even if you don’t need your currency for some time, you can fix the rate with a Forward Contract – you only lodge 10% of the total you want to convert, and you can guarantee the rate on the total. The remaining 90% is only due when you want your Euros to be transferred.

In this way, you can guarantee your rate, protect yourself for a potential drop in rates, and all the while retain the majority of your funds to earn interest on.

Find out more about Forward contracts by clicking here.

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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