Pound/Euro and Pound/Dollar rates are both lower today, following the terrorist attacks in Brussels this morning. There are 4 things that move exchange rates: Economic Data, Political Events, Natural Disasters and Acts of War and Terrorism. Usually it’s economic and political data that I focus on here, because those are the only 2 that can be forecast in advance.
This morning’s events have had the effect of causing investors to seek safer investments, as is often the case in times of uncertainty. The result is a strengthening of both USD and EUR, in addition to the Swiss Franc and Japanese Yen. All of these currencies are seen as ‘safe haven’ currencies and generally strengthen when investors are uncertain. You can see the effect of the USD and EUR getting more expensive when markets opened this morning and reacted to the news:
In the UK this morning, the latest inflation numbers were roughly as expected, but a little higher causing the Pound to recover a little.
Today’s events aside, I’m expecting a quiet week for the currency markets due to thin trade and the Bank Holidays. We do have UK Retail Sales on Thursday which is a good barometer of economic health. There are also some US House Prices, GDP and inflation numbers later in the week.
In the last few weeks exchange rates seem to have settled slightly, but the main focus will still be on the EU referendum. As June approaches and opinion polls give an insight into which way the vote may go, expect volatility in the price of Sterling.
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