Good morning. Pound Euro rates rose yesterday after the European Central Bank (ECB) meeting. As expected, they announced an end to their Quantitative Easing (QE) Programme at the end of the year. My colleague Michael predicted this, however the effect on exchange rates proved a little harder to foresee! Michael, and the markets in general, thought that an end to QE would be positive for the Euro. This should have strengthened the Euro and pulled Pound Euro rates lower. However, in the Press Conference the ECB president Mario Draghi made some other announcements. This caused the rate to move in the other direction.
Why did Pound Euro rates go up?
Draghi said that interest rates will remain unchanged for at least another 12 months. This did not help the Euro. He also said that they have downgraded growth forecasts to 2.1% (it was previously 2.4%). Again, this is Euro negative. The markets paid much more attention to these two facts than the end of QE. As a result, the Euro was sold off, weakening it against both the Pound and the US Dollar. This goes to show how difficult it can be to predict market movements.
As the single currency weakened it became cheaper to buy. This pushed Pound Euro back into the mid €1.14’s which is actually a pretty favourable buying level. The graph below shows how Pound Euro has moved over the last year. As you can see the rate is pretty close to a 12 month high.
Getting the best exchange rates
Those that need to convert Pounds to Euros should consider their position given where the rate is. If you need to buy Euros to purchase property abroad for example, one option is to freeze the rate now with a ‘Forward contract’ so you can budget effectively. You only have to lodge 10% of what needs to be converted, and we’ll freeze and guarantee today’s rate for up to 12 months.
Alternatively if you are happy to take a gamble on rates improving further, you can use a ‘Stop Loss’ order. This works by placing a lower level in the market, and if the rate drops below this, we buy your currency and freeze your rate. In this way, you can still hold out for a higher rate, but have a ‘worst case scenario’ should the Pound start to fall again.
In addition to tools like Forwards and Stop loss orders, we’re happy to provide a free telephone consultation to anyone that needs to exchange currency. We can provide you with a quote, and discuss how your rate is likely to move in the coming weeks and months.
Have a great weekend.