Greek Bailout and effect on exchange rates

Wednesday 22nd February 2012
Good morning. Yesterday exchange rates were driven by reaction to the Greek bailout, and in general the Pound fell against both the Euro and US Dollar. Today I will take a detailed look at how the Greek bailout could affect exchange rates, and the Pound Sterling forecast for other major currencies for the next few weeks and months. The below charts shows how rates moved throughout the day yesterday.

~Currency Movements on Tuesday 21st February 2012~

EU Greek Bailout and what it means for exchange rates

Yesterday markets were reacting to the fresh bailout which has finally been agreed for Greece. In the latest bailout deal, Greece is to receive loans worth more than 130bn euros, and in return it needs to to reduce its debts and accept an “enhanced and permanent” presence of EU monitors to oversee economic management.

It was widely expected that the deal would go through, and initially there was little to no reaction in terms of exchange rates. Indeed, Europe’s financial markets have given a very muted reaction indeed to the announcement of a second bailout deal for Greece.

The Euro did gain a little strength through the day, but not by much. This is because few in the markets think the latest bailout is the final answer, and it’s really only just putting off the inevitable. When we look at the facts, you see that this is the second deal in two years. The baikout equates to €20,000 for every person in Greece, and even that amount will not solved Greece’s problems. All it really does is stop Greece having a very messy and chaotic default in March, but even so there are a lot of steps to go through before then.


Will Pound/Euro go up or down?

For those needing to convert Euros back to Pound, be aware the Euro could start to weaken again if markets think the latest bailout is indeed a delay of the inevitable. For those needing to buy Euros, rates are still close to an 18 month high. Will it go higher? It could of course, however fears the UK is heading back into a recession are pulling rates back down.

A good strategy for Euro buyers would be a Stop Loss order – a worst case scenario – your currency is bought should the rate fall below a preagreed level. In this way you can still take advantage of any gains in the market, while not leaving your position exposed should markets move against you.

Bank of England minutes today

Sterling’s recent moves against the Euro and other currencies have been dominated by developments in Greece, and signs of improved UK data such as better than forecast Retails Sales. This has recently kept GBP/EUR close to an 18 month high. Euro strength following the bailout has pulled rates down as explained above, and today the BoE release the minutes to the recent decision to hold interest rates, and increase Quantitative Easing by £50 billion.

The minutes are released today at 09:30am and will show discussions, differences of view and how the vote was split. Given recent data has been a little better than expected, the minutes could generate some short term strength for the Pound. Any gains however may well be short lived. A recent survey of UK directors show there is real threat of the UK heading back into recession, and this will likely keep the Pound on the Back foot.

Summary; how to get the best out of the market

Regardless of whether you are buying or selling currency, you want to achieve the best exchanger ate possible within your time frame. In order to do this, you firstly need a good broker on your side to achieve better exchange rates than the bank, and also keep up to speed with upcoming developments in the market, so you can make an informed decision on when to fix a rate.

To find out more about our FX service, and discuss the forecasts for the currency you need to buy or sell, send me an enquiry now by clicking here. It’s free to enquire, doesn’t obligate you, and is the first step to making the most of your currency.

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