Wednesday 16th April 2014
The Pound has surged higher today, after the latest UK unemployment figures were released. These showed that the jobless rate has dipped below 7%, the first time we’ve seen that for 5 years. As a result, Sterling has surged higher, finally breaking above the €1.21 mark as you can see from today’s chart below:
UK Unemployment causes Pound to rise
As the chart clearly shows, as soon as the numbers were released, Sterling/Euro rates rose to €1.2150 before settling off. Sterling/Dollar also rose, hitting resistance at $1.68 to the Pound. You can read a full report on the Unemployment figures here on the BBC website , and the ONS result can be found here.
So why has this caused the Pound to gain?
It’s to do with interest rates again. The Bank said last August that it would not begin to think about raising rates until unemployment fell below 7pc. At the time, it believed this would not occur until 2016. Higher interest rates, or the possibility of higher rates in the future, generally strengthens a currency due to the increased return potential, and that’s what we’ve seen happen today.
As the level started to drop below this, they revised their guidance saying that when the rate falls below this, it won’t trigger a rate hike, but it does mean the Bank of England will move away from its focus on a single threshold to decide when to raise interest rates. It will now look at a broad range of “key judgements” including business investment, exports and productivity, which it outlined in February.
Will the Pound go higher or drop back away?
That’s the question everybody wants the answer to, but is impossible to predict. I think that much will now depend what the Bank of England say. They could as I’ve stated above, introduce new judgements before raising rates. This will probably be inflation falling to the 2% target – until we hear the reaction from the BoE the market probably won’t go much higher.
Those that need to buy Euros should be aware rates were actually even higher than this earlier in the year, but then fell back away. For the last few months the GBP/EUR rate has hovered between €1.19 and €1.21. Today’s events have broken above that barrier. If I needed Euros, then I would consider the risk of the Bank of England moving to weaken the Pound off, which they have already said they would look to do if the exchange rate rose too much. That’s now happened, so we could see it drop back towards €1.20 again in the coming weeks. Don’t take the risk – place a Stop Loss order to protect against the market moving against you.
Those selling Euros will not be pleased with today’s news. I don’t think that the rate will drop below €1.20 any time soon, and is likely to remain roughly where it is until we hear what the BoE have to say about today’s news.
Take control of your currency requirement
I can provide various tools however to protect against the market going the wrong way, ways to fix your rate well in advance of when you need to convert your currency, and explain the different scenarios that could happen in the coming weeks and months.
In this way you can take control of your currency requirement and make an informed decision on what to do and when to do it.
I look forward to hearing from you.