Pound/Euro forecast: recovers on Greek worries

24th May 2012
Good morning. It’s been yet another volatile week for Sterling/Euro exchange rates. Early in the week the Pound weakened off, falling into the €1.23’s. This was due to concerns by both the Bank of England and IMF on growth, increasing the chance of further Quantitative Easing. The fall in rates was halted yesterday however, when the Euro weakened again significantly over Greek Euro exit fears, pushing rates back close to €1.25.

In today’s post I’ll look at these events in detail and analyse what may cause Pound Euro rates will go up or down in the coming months.

Pound/Euro rates gain on Greek concerns

GBP/EUR rates surged yesterday after a report saying that the Greek government may be making preparations for leaving the euro. Also weakening the single currency was Germany’s central bank saying that the developments in Greece were “highly alarming”.

“Greece is threatening not to implement the agreed reforms and consolidation measures,” the Bundesbank said in its latest monthly report. It said that scenario could create substantial challenges for the Eurozone.

Many analysts think that Greece may abandon the austerity measures and be forced out of the euro. Ms Lagarde from the IMF said that they did not like that prospect, but that it was “prepared for all possible situations”. But she said that the costs of Greece leaving could be so high that other members of the Eurozone might be prepared to pay more to keep Greece in the euro.

The continued worries have pushed rates back up as the chart demonstrates.

Bank of England: More QE on the cards?

Yesterday we saw the latest Bank of England (BoE) minutes on their recent decision to hold off further Quantitative Easing. Policymakers voted by 8-1 this month against pumping more money into the economy, but the decision was “finely balanced” for some members.

One interesting thing the minutes showed was that the crisis in the Eurozone could hit the UK’s economy, which would make the case for extra stimulus more compelling. This is what will likely stop GBP/EUR rates continuing to surge towards €1.30, as any further QE will likely weaken the Pound significantly.

IMF also pushing for more QE

On Tuesday, the International Monetary Fund (IMF) said the UK’s continuing economic weakness meant authorities should consider more QE and even cutting interest rates. The IMF said the BoE should “reassess the efficacy” of cutting rates below 0.5 per cent and called for “further monetary easing”, adding that while monetary stimulus has helped, the economy remained flat.

This again shows that while the EU problems are weakening the Euro, they may also start weakening the Pound which may actually cause rates to fall back away.

The case for Pound Euro rates going up

Looking at the Euro on its own, there is a logical case for rates rising further. The Euro will likely continue to weaken; it’s highly unlikely the Greek problems will be solved any time soon. This continued weakness will likely mean a cheaper single currency which means exchange rates would rise. However we’re not just looking at the Euro on its own, we have to factor in the value of Sterling…..

The case for Pound Euro rates going down

While the EU problems continue, the Bank of England and IMF have warned that it will soon start to affect the UK. 50% of our exports go to the EU, so a strong pound is not attractive to the BoE. For this reason, further EU problems will affect the UK economy, and with more QE now looking very likely, the Pound will weaken off and exchange rates could fall.

How to get the best exchange rates in a volatile market

As outlined above, future rate movements are highly uncertain and there are logical arguments to show both gains and falls in the rate in the coming months. Of course it can’t do both things, so for clients looking to buy or sell Euros, some could lose out significantly if rates move drastically one way.

The best option is to send us an enquiry and have a free consultation on the current market conditions, and to find out what options you have to protect against the market moving the wrong way. When converting a large sum, exchange rate movements can have a huge impact on the cost.

In knowing what options are available to you, and armed with sound market knowledge, you can make an informed decision on what action to take to help you make the most of the market. Don’t just follow the rates hoping it will move in your direction. Contact us now and take control of your currency requirement, rather than letting it control you.

Our exchange rates are much better than you can achieve at the bank, so get in touch now for free and see how much you can save.

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