Wednesday 2nd April 2014
We have seen Sterling rise against the Euro today, getting pretty close to the €1.21 level. We’re unchanged against the US Dollar which remains just above $1.66.
I think that tomorrow is going to be a key day for Pound/Euro exchange rates, due to the ECB meeting that will give investors an idea whether they are going to take action to combat deflation. Today I will explain what tomorrow’s meeting means for those that need to buy or sell Euros at the best exchange rates.
It will be a very important day for those of you that need to buy or sell Euros in the coming months. Read on to find out how tomorrow could affect currency exchange rates, and if you would like to discuss your requirement with me in detail, get in touch with me today.
I can help you achieve exchange rates up to 5% better than banks or other brokers, so get in touch for a quote. It costs you nothing, and you could be very surprised how much you could save by using my services.
European Central Bank (ECB) meeting may affect GBP/EUR
The ECB really do hold the key to which way the Pound/Euro rate will move in the coming weeks and months, and it’s all to do with interest rates and inflation. First, a bit of context. In the UK our interest rate is 0.5%, and as the economy recovers the Bank of England (BoE) will start to raise rates, probably around this time next year. That’s what has been keeping the Pound strong, because higher interest rates strengthen a currency due to the higher return.
In contrast, the Eurozone inflation levels keep dropping, and many analysts have been calling for them to cut interest rates. This is also helping GBP/EUR stay high, as lower interest rates are keeping the Euro weak, and a weaker currency is cheaper to buy.
So, on to the meeting tomorrow. At 12:45pm they will announce interest rates. I don’t expect any change to their rate. At 13:30pm the president Mario Draghi gives a press conference, and it’s what he says here that we’re interested in.
What could Mario Draghi say that could affect Sterling/Euro exchange rates?
There are 2 scenarios, each of which is likely to affect the exchange rate you get. Firstly, he may say that due to deflation worries, they may have to take some easing measures in the future such as cutting interest rates, or doing a Quantitative Easing style programme similar to what we saw in the UK. If he hints at either of these things, the Euro will weaken and Pound/Euro rates could rise nicely.
Alternatively, he repeat what he’s said in recent meetings, which was that deflation will sort itself out on its own, and therefore no action is necessary. In this scenario, Pound/Euro rates could plummet well below the €1.20 level again.
What do I think will happen?
I think they will hint at some sort of easing. The market thinks this too, and that’s why GBP/EUR has risen today as this gets priced into the market. I will of course update the blog tomorrow with a full outline of what happens and how it affects exchange rates.
What should you do if you need to buy or sell Euros?
I would therefore hedge my bets by converting half of my funds before tomorrow’s announcement, and then wait and see what the market does before converting the rest.
This removes 50% of your exposure and give you some protection against adverse exchange rate movements.
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