Tuesday 30th September 2014
Good afternoon. It’s been a busy day in the currency markets, with Pound/Euro rising to €1.2850 but Pound/Dollar dropping to $1.62. in today’s post I will take a detailed look at both these currency pairs, what is causing the rate to move, and where I think rates could head in the coming months.
As you can see from the chart below, we have seen this exchange rate rise by a point in the last 24 hours. On the one hand the upwardly revised UK growth forecast has given Sterling a slight boost, but it was mostly to do with a weakening Euro.
Eurozone inflation slipped again in September, with prices rising at their slowest rate in nearly five years. It is the lowest level for eurozone inflation since October 2009, adding to fears of a deflationary spiral. Earlier this month, the European Central Bank cut its benchmark interest rate to 0.05%, and introduced new stimulus measures in an attempt to kick-start the eurozone economy.
Due to this poor Eurozone data the Euro has weakened and become cheaper to purchase.
Which way could GBP/EUR head now?
In light of the latest economic data from Europe, I think it’s quite likely they will have to now pursue a Quantitative Easing programme to stimulate the EU economy. If this happens then the Euro will weaken further. Also, as we get closer to UK interest rates going up, this could strengthen the Pound. So looking at these 2 events on their own would suggest Pound/Euro rates will go higher, although I think this will be into 2015.
If you need to buy Euros, you could either fix the rate now while it’s close to a 6 year high. Alternatively if you wanted to gamble on rates going higher due to the reasons above, then you should place a ‘Stop Loss’ order to protect you in case the rates drops back away. This has happened several times this year, and with UK political uncertainty likely to affect the Pound next year, could this limit any gains for the Pound?
This currency pair has fallen by a point today to $1.62. Part of this is due to the weak Euro, and investors dumping the single currency to buy the Dollar, strengthening the greenback. Rates have now dropped from $1.72 to $1.62 in the last few months.
Which was could GBP/USD head now?
The US economy is now performing very well, as is the UK economy. As the US winds up its stimulus programme, the greenback will likely gain further strength, so I wouldn’t be surprised to see it drop below $1.60 in the coming months.
It’s impossible to know which way rates will go, and I think interest rates and when they will go up in the UK will determine whether exchange rates rise or fall in the next few months. Regardless of which currency you need to buy or sell, having a good currency broker that can guide you through the process and secure you very good exchange rates can save you thousands of Pounds.
Click here to send me a free enquiry today. I can provide you a quote, explain the options you have depending on your particular requirement and timeframe, and explain what is moving the currency markets. In this way you can make an informed decision on when to fix your rate, and get a quote to compare with your bank or existing currency broker.