Friday 13th June 2014
Good morning. Friday the 13th, unlucky for some, but not those that need to move Pounds to Euros. Sterling has surged higher following a speech by the governor of the Bank of England Mark Carney, in which he has signalled that interest rates may rise this year. I’ll go into a little more detail in a moment, but in a nutshell this has caused Sterling to rise higher, hitting a 20 month high of €1.25 against the Euro, and testing a 5 year high of $1.70 against the US Dollar:
Mark Carney hints at interest rate rise
Last night in a keynote speech, Mr Carney said a rate rise “could happen sooner than markets currently expect”. He acknowledged there was “already great speculation about the exact timing of the first rate hike” from their record low of 0.5%, adding that the decision was “becoming more balanced”.
The news immediately caused the Pound to gain, as the rumour of higher interest rates attracts investment into the Pound, giving it strength and causing exchange rates to rise.
Will the Pound go up or down against the Euro?
Nobody knows which way the exchange rate will go, but in general the markets move more on rumour than fact. This means that the rumour of higher rates is now getting priced into the market, hence the current excellent buying level for Euros.
In my view, from what we know right now it’s likely the Pound will remain strong, and the Euro will remain weak, so we could well see rates go higher. However there are situations that could cause it to fall back away, so you should be aware of these if you need to buy Euros and are holding out for a higher rate.
In his speech he also described the perils ahead for the economy. He said he would look to his ‘trusty canoe’ to ‘navigate the most rapid and treacherous waters’. These include:
- A housing market which could ‘overheat’
- High levels of household debt and a record current account deficit.
- He warned the UK economy is ‘currently unbalanced internally and externally’, adding this had to be addressed to turn the recovery into a ‘durable expansion’.
- Carney also pointed to ‘old imbalances persisting and new ones emerging.’
So there are lots of warnings that the economic recovery is not guaranteed to continue, and so there is the risk the Pound could drop back away. We also have the Eurozone that is taking significant steps to bolster their economy, and if these measures work the Euro could gain strength pulling rates back down.
What should you do if you need to buy or sell foreign currency at the best rates?
Your first step should be a free consultation, which I can provide over the phone with no obligation. I can discuss your particular requirements, explain the various tools you can use to protect against the market moving against you, and provide you a quote to compare with your bank or existing broker.
I can provide rates up to 5% better than available elsewhere, on up to 25 different international currencies, and the savings can be considerable.