Wednesday 20th August 2014
The Pound has recovered slightly this morning after 2 members of the Bank of England’s Monetary Policy Committee (MPC) voted to raise interest rates in August, the first time in three years that policymakers have done so. In today’s post I’ll explain why this caused Pound/Euro rates to rise, and why I think any gains will be limited and that Euro buyers should consider fixing rates sooner rather than later. I’ll also give my views on the Pound/Dollar forecast.
Bank of England Split on interest rates
This morning’s data showing 2 of the 9 members voted for a rate hike shows division within the BoE. It is the first time there has been a split in over 3 years. (Interest rates have been unchanged since March 2009.) It also suggested an early interest rate rise was desirable as a way of anticipating inflationary pressures from wage rises.
Despite the split vote, it doesn’t really change all that much because yesterday’s inflation figures showed the Bank remained under no immediate pressure to raise interest rates. With inflation well below target and wage growth stagnating, any increase in interest rates at the moment would be premature. It’s for this reason that I think that the GBP/EUR rate will now be settled at around 1.25 or so for the moment and is unlikely we’ll see any more gains. Sterling has actually been in decline of late so this is likely a temporary spike upwards.
Therefore if you need to buy Euros in the next 3 to 6 months, consider fixing the rate sooner rather than later while it’s still within a few cents of a 2 year high. You can do this by simply lodging 10% of the total you want to convert, and guarantee today’s rates for up to 2 years.
Sterling /US Dollar
We saw this rate increase too today, but gains were limited and short lived. The current rate sits a little above $1.66. Later this after we have the US version of today’s UK BoE release – the FED minutes. Any indications that they discussed easing policy or raising rates would cause the USD to strengthen and become more expensive to buy.
Exchange rates to buy Dollars were at a 5 year high recently, but has since dropped from $1.72 to $1.66. I personally expect this currency pair to keep dropping as the US economy recovers. Rates closer to $1.60 are likely in 2015.
Other data this week that might affect exchange rates.
The remaining data this week is thin on the ground. We have UK Retail Sales tomorrow morning which are a good indicator of economic activity. I expect a rise of 0.4% and as usual if the number is lower than this, Sterling will likely drop in value.
We have US Jobless numbers tomorrow, along with some EU inflation numbers. Friday is very quiet, and markets are closed on Monday for Bank Holiday.
What does this mean for your currency requirement?
The currency markets are very volatile, and when converting large sums even a small movement in the rate can end up costing you thousands. The service I provide is twofold. Firstly you can have a free no obligation chat with me about the exchange rate, and I can explain what is moving the rate and discuss which way it could move in the future. In this way you can make an informed choice on when to fix your exchange rate.
When the time comes to fix a rate, I can provide commercial exchange rates that are significantly better than banks offer, by as much as 5%. This means that I can save you thousands of Pounds when converting one currency to another.
If you need to convert funds and would like to discuss what is happening with rates, and obtain a quote to compare with your bank to see how much you can save, click below to send me a free no obligation enquiry today. It is free to make an enquiry and does not obligate you in any way.