What a week for Sterling! Just a few days ago on Wednesday morning, GBP/EUR rates were in the €1.10’s. A little more than 48 hours later, and GBP/EUR is at 1.1660. That’s a rise of 5%, and an encouraging and welcome rally for Sterling. The chart below shows the remarkable rise of Pound/Euro rates over the last 48 hours:
Why has the Pound gone up so much in such a short period of time?
The catalyst for Sterling’s rise was the US election result on Wednesday. Markets expected the Dollar to weaken and the Euro to strengthen which should have caused GBP/EUR to drop, but that’s not what we’ve seen. Investors have been reversing short positions against the Pound, on the view that in light of Trump winning the election and the UK voting to leave the EU, there are fears that there could also be populist votes in the EU in their upcoming elections & referendums. Perhaps then the UK currency has been unfairly punished in recent months.
With Germany and France holding elections next year, and a referendum in Italy next month, there is now an increased chance of populist votes here too, and for that reason investors are dumping the Euro and putting their funds back in to the Pound, which has caused the rate to rise so much in such a short period of time. It’s also likely that UK interest rates may now need to rise due to rising inflation, and the prospect of higher interest rates also strengthens a currency.
Purchasing €300,000.00 today to buy a property overseas costs costs £13,000 less now than early on Wednesday morning, which clearly illustrates how exchange rates can affect you.
Will the rate keep rising?
What this week shows is how unpredictable the currency markets can be. It’s impossible to know if the Pound will keep rising, but in my experience when we see such a large price adjustment, we often see a correction before long. If I needed to buy Euros, then I would consider at least securing some of what I needed now at the favourable rates. Alternatively you can place a ‘Stop Loss’ order to lock in a rate if it suddenly starts dropping, while still allowing you to take advantage of the gains should the Pound continue marching higher.
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Have a great weekend.