Exchange rates in February 2016

Welcome back to my regular readers, as it’s been a week since my last update while I was overseas. While I was away, GBP/EUR exchange rates were relatively stable, after a very volatile start to the year. The pair traded within 1 cent of €1.3150 all week, and today has also remained relatively range-bound, however has climbed this afternoon to around €1.32:

The pair now seems to have settled in the low €1.30’s, however with a plethora of data from both the UK and Eurozone this week, I think we could see volatility return to the markets this week.

Thursday will be of particular importance as we have ‘Super Thursday’ in the United Kingdom. 

What is Super Thursday? 

It’s the day when the markets have a huge amount of data to digest for the UK economy. At 12pm the Bank of England announce its latest interest rate decision, and release the minutes to what was discussed and how they voted. We also have the latest BoE UK Inflation report. 45 minutes after all of this, the BoE Governor Mark Carney gives a speech with his views for the UK economic outlook.

Until last year, all this data was released at different times, however it is now all made public in one go, and due to this it can have a big impact on Sterling exchange rates. The press have since dubbed the day ‘Super Thursday’ and it happens once every 3 months.

What affect could Super Thursday have on exchange rates? 

It’s all to do with interest rates. Last year many though interest rates would be going up in the UK, and this caused the Pound to rise due to the potential higher return on offer. The latest figures however suggest that due to a global slowdown, rates are to be left on hold in the UK until 2017. This is part of the reason the Pound has fallen so much in recent months. A combination of low inflation and a global economic slowdown has resulted in only 1 of the 9 member Monetary Policy Committee voting for rates to go up.

This week, we could well see a continuing dovish outlook for UK inflation, and if this is the case I would expect the Pound to fall further. Carney’s comments could push Sterling either way, but I think we will have a volatile week and by Friday, the GBP/EUR rate could be significantly higher or lower, depending on the inflation numbers and Mark Carney’s comments.

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