Wednesday 12th March 2014
The Pound/Euro exchange rate has continued to fall since my post last week, and has fallen below the €1.20 level for the first time this year. Several weeks ago I warned that there was a good chance the rate was about to drop, and that is what we have seen.
In today’s post I will analyse the reasons for the drop, go over what options are available to protect against rates moving against you, and look at what other economic data is due this week that could affect rates.
Pound/Euro drops below €1.20
For the first time this year, GBP/EUR rates have fallen back into the €1.19’s. Only a few weeks ago we were at highs of €1.22+. The rate started to decline last week when the ECB president Mario Draghi gave a very positive press conference about the Eurozone economy, as I outlined in a recent post.
Since then, industrial production figures from the UK and EU have caused the exchange rate to drop further. The UK released its figures yesterday, and as the number was worse than expected Sterling fell in value. This morning the EU released its industrial production figures, and they were better than expected. This caused the Euro to rise in value and become more expensive to buy, and that’s the reason GBP/EUR rates have dipped into the €1.19’s. This is the lowest it has been all year:
Will rates drop further, or bounce back?
It’s impossible to predict of course, but my view is in the medium term we will see rates climb back above €1.20 again within a month or two. For those that need to buy Euros, much depends on how much time you have to play with. If you need to secure your currency soon, it may be wise to fix a rate sooner rather than later to protect against it dropping any further.
If you have some time to play with, then you could gamble on rates recovering, however it is always wise to place a ‘Stop Loss’ order to protect you against rates dropping further. If you need to convert Euros back to Pounds, then the current levels are the best they’ve been all year. I do believe we will see the rate in the mid €1.20’s again later this year, so those with a EUR/GBP requirement may wish to lock in a rate sooner rather than later while we have seen a move in your favour.
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What could affect exchange rates this week?
Pound/Euro – Other than the Industrial Production data I mentioned above, it’s been a very quiet week for data releases so far. Tomorrow (Thursday) should be a little more interesting with a BoE inflation report and House price data for the UK. Strong numbers could push rates above €1.20 again. We also have various inflation figures from the Eurozone tomorrow – if low, then the Euro could weaken off which would also cause rates to rise. Friday see’s UK Trade Balance data, and the latest Employment numbers from the EU.
Pound/US Dollar – In addition to the UK data mentioned above, the US releases Jobless data, Trade Balance numbers and Retail Sales on Thursday, along with inflationary numbers on Friday. These figures could affect the GBP/USD rate.
Pound/Australian Dollar – We will see the latest Australian Employment figures overnight. The GBP/AUD is very attractive at the moment, and if the figures are better than expected, we could see a slight dent in the Pound/Aussie rate.
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