Friday 13th May 2016
Since the beginning of May, the GBP/EUR currency pair has been stuck in a range between 1.26 and 1.27, as you can see from the chart below. Yesterday however, comments from the BoE governor Mark Carney pushed the Pound higher, breaking just above this range, albeit briefly and not by very much.
Bank of England’s ‘Super Thursday’
Yesterday the BoE released a triple whammy of data, in the shape of a decision on interest rates, Quantitative Easing (QE) and the Quarterly Inflation report. There was also a press conference in which Governor Mark Carney made comments about the EU referendum.
There were no surprises with either QE or interest rates, with all members voting to keep everything ‘as is’. The inflation report predicted that economic growth would slow in the second quarter of the year, but pick up in the second half. It also cut the growth outlook for the next three years.
The comments Carney made in the press conference were interesting however, and this was the reason the Pound rallied yesterday, from a low of 1.2625 to a high of 1.2725. He gave his starkest warning yet over the effect a ‘Brexit’ would have on the UK economy. He stated that the Pound would fall, unemployment would rise, and the UK risked another recession. While the BoE are supposed to remain neutral, they stated that they have to highlight the risks to the economy.
If his comments were all doom and gloom, why did the Pound rise?
The reason the Pound rose was the fact that his comments are likely to give a boost to the EU referendum ‘Remain’ campaign, and with it, less uncertainty and thus a boost for Sterling. Chancellor George Osborne said that the UK now had a clear warning from the BoE about the risks of the UK leaving. Lord Lamont, former chancellor and vote leave spokesman warned the governor should be careful and that a more prudent approach would have been to simply state they were ‘prepared for all eventualities’.
The comments clearly show that the ‘remain’ campaign feel that the comments support the case to remain within the EU, and the markets seem to agree, with Sterling rising over a cent against the Euro across the course of the day.
What does this mean for those that need to buy or sell Euros?
It illustrates that the value of Sterling is inexorably linked to sentiment towards the EU referendum. The ‘Brexit’ issue has huge potential to move the currency markets, and anything that supports the ‘Remain’ campaign is supporting the Pound, and vice versa. It doesn’t matter what my views or your view are, the fact is that the markets see a ‘Brexit’ as Sterling negative. This volatility is likely to continue and indeed intensify in the coming weeks. This is incredibly important for anyone with a GBPEUR or EURGBP requirement in the coming weeks.
There are several strategies you could employ, such as removing some of your exposure to the market by securing a portion of your requirement, 50% for example. You could also employ Stop Loss and Limit Orders to protect against adverse movements, and target brief spikes in the buying levels.
Whatever your requirement, a prudent approach would be to contact us to have a detailed discussion, learn about the options available, and make an informed choice on what action to take. Simply watching the rates and hoping things will move in your favour is unwise. Hope is not a reliable economic tool. Our rates are service are exceptional, so get in touch to find out how we can help you achieve the best exchange rates.
Have a great weekend.