Thursday 12th July 2012
Good morning. Today I’ll give you all a quick mid-week update on what has been happening with exchange rates. We have seen the Euro continue to weaken off, with rates briefly breaking through the €1.27 level – the best in nearly 4 years! In today’s post I will look at why rates have gone up, what events could make rates continue to rise, and other scenarios that may result in rates dropping back away.
Nobody can predict which way rates will go, but hopefully you will find my outlook useful. What I aim to do is explain in simply terms why the rate has moved where it has, and what could happen to push rates up or down in the coming weeks and months. With my insight and knowledge, you can gain a better understanding of the currency forecast to help you decide when to fix your exchange rate.
Pound/Euro rates hit €1.27, best in nearly 4 years
The Pound rose yesterday to the best in nearly 4 years against the Euro. The reasons for the gains were continuing doubts about the currency bloc’s ability to activate bailout funds help bailout countries struggling to repay its debts. Investors worldwide have been dumping the single currency in favour of safer havens such as the US Dollar.
The reason people are shunning the Euro is due to the lack of progress towards solving the bloc’s debt crisis. Adding to the overall bearish mood towards the euro, Italian Prime Minister Mario Monti said on Tuesday his country could be interested in tapping the euro zone’s rescue fund for bond support. This came after Spain announced a further round of austerity measures following their €30bn bailout earlier in the week.
All of this has weakened the Euro even further, pushing rates to €1.27 which is the best in nearly 4 years. For those that need to buy Euros, this is good news and serious consideration should be given to a Forward contract, to lock in the rate now to protect against a fall.
The case for rates dropping away
The deepening crisis in the euro zone is a huge risk to the UK economy because the region is Britain’s largest trading partner. Bank of England governor Mervyn King on Tuesday warned the British economy was showing few signs of recovery and analysts predicted output would prove to have remained sluggish in June due to a double holiday.
The Government and Bank of England don’t want a high GBP/EUR rate – it’s hurting our exports and stalling our recovery. There is a good chance of an interest rate cut to try to pull the rate down to make the Pound more attractive.
Indeed we have seen several times in the last few years the BoE talking the Pound back down, and if this happens the rate may fall away.
The case for rates climbing further
Many forecasts do suggest rates may climb, however we have seen such forecasts before only to see a drop. If you do think we will see more gains, then don’t leave yourself exposed.
What you can do is place a ‘Stop Loss’ order where should rates fall back away, your currency is purchased at a preagreed level. In this way you can take advantage of any gains, but not leave yourself exposed to a substantial loss should the market move against you.
I need to buy/sell Euros; what should I do?!
There is real cause for concern regardless whether you are buying or selling Euros right now, as outlined above there is a strong case supporting rates moving in either direction. What you shouldn’t do is simply sit on the fence hoping rates will move in your favour.
The first step should be a free consultation with us so we can discuss your particular requirements, timescales, and let you know the different options you have. There are ways to protect against adverse rate movements, and in the current climate you should take the time to speak to us.
Click here to send me a free enquiry now, and I will call you the same day to let you know all the options you have available. You can then make an informed choice on what to do. I look forward to hearing from you.
Don’t just hope things will move your way; hope is not a reliable economic tool.