This week Pound/Euro rates broke through €1.15 to hit the highest levels since June last year. Pound/Dollar broke through $1.43 earlier which is the highest since the EU referendum. This afternoon rates have slipped back slightly. Let’s look at why rates rose, what has caused the drop, and the forecast for where GBP/EUR could go in 2018.
Pound/Euro hits highs of €1.15
Earlier this week I outlined the UK employment data as a key event that could move rates higher. As predicted we saw wage growth come in slightly above forecast, and this was the main catalyst that sent Sterling higher to multi-month highs against the Euro and USD. Average wages came in at +2.4% which was more than the markets had been expected. As I explained in my recent post, a higher number increases the likelihood of an interest rate rise and would probably cause the rate to rise, which it duly did.
The rise in Pound/Euro was halted in it’s tracks however at lunchtime today following the European Central bank policy announcement and comments from the ECB president Mario Draghi. His comments were taken as Euro positive and the single currency fought back, gaining some strength and causing GBP/EUR to retreat back towards €1.14.
Will Pound/Euro go back up to €1.20 again?
It’s worth noting that if you look at the graphs of how GBP/EUR has moved over the last 6 months or so, we’ve seen it reach these levels 5 or 6 times. Each time it’s dropped back away again rather quickly and it looks like this has been the case again. Brexit uncertainty is keeping Sterling in check and I suspect this will continue to be the case.
The UK economy is actually performing very well, with unemployment at record lows, steady growth, and a general uptick in confidence surrounding the economy. These are all reasons the Pound has risen recently. Before we see a continued rise back to €1.20 however, we need further details on what a UK/EU trade agreement will look like. While this is lacking, I think it’s unlikely we’ll see rates back at €1.20 in the short term. Longer term should the UK economy continue to perform well, then it is very likely that we’ll see a recovery, but that is quite a way off.
Tomorrow we have GDP figures (expected at +0.4%) that could provide further direction for the Pound. If you need to move Pounds to Euros, USD or any other currency, then it is worth considering getting a rate fixed while it’s at much higher levels than it has been. We can offer rates that are very close to the actual rates you see on-line. We also offer the facility to freeze the current rate for a future date, so even if you don’t need to transfer your funds for a while but don’t want to miss out on the current levels, we offer a facility to do just that.