Pound to Euro exchange rates have rallied to reach 1.13, the highest levels since June. We have now seen the pound strengthen from 1.06 in mid August, a move of 6.5%.
Sterling exchange rates shave rallied following attempts to block PM Boris Johnson taking the UK out of the European Union on the 31st October. Today we have also seen the beginning of the Supreme Court case against the PM suspending parliament. In its first day the Supreme Court has been told how the Prime Minister sought to suspend parliament to avoid the risk of MP’s “frustrating or damaging” his Brexit plans.
This is a three day hearing with many suggesting the PM will have no choice but to resign if the shutdown is to be found as unlawful.
As the market continues to digest the recent on-goings in parliament the likelihood of a ‘no-deal’ Brexit on the 31st October appears to be reducing.
Following yesterdays no show at the planned press conference with Luxembourg’s prime minister, Xavier Bettel, it has been rumoured that the PM will pursue his case of a solution to the Irish backstop at the United Nations next week. Mr Johnson was said to have been “cautiously optimistic” about reaching a deal. This came following extensive talks with European Commission President Jean-Claude Juncker. This was also in Luxembourg.
This sense of increased optimism for a potential deal has leant further support to the pound. Something that I believe could well continue. I personally don’t believe we will leave without a deal, whether he can get something over the line in time for the 31st October remains to be seen, but the the removal of a ‘no-deal’ can only be good for the pound.
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Monthly Currency Forecast – Good morning. Today, I’ll provide an overview of how some of the major currencies we trade have fared over the last month. The focus will be on GBP, EUR, USD, AUD and CAD.
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The mood towards the Pound saw a sharp improvement as the odds of a no-deal Brexit appeared to fall, lifting GBP exchange rates to fresh monthly highs. With Boris Johnson coming under increasing pressure to request an extension to the current October deadline the risk of the UK crashing out of the EU without a deal was seen to diminish.
This followed on the heels of Scottish judges ruling that the prorogation of parliament was unlawful, even though Downing Street refused to recall MPs ahead of a supreme court appeal later this week.
A better-than-expected gross domestic product reading for July also helped to shore up the Pound against its rivals. If August’s UK consumer price index data shows an easing in inflationary pressure, though, GBP exchange rates look likely to return to a weaker footing. As the chart below shows, GBP/EUR has recovered almost 5% in recent months to a 3 month high.
Although the European Central Bank (ECB) restarted its quantitative easing programme, as widely expected, this was not enough to weigh the Euro down for long. As the accompanying monetary loosening measures proved more limited than initially thought, allowing EUR exchange rates to rebound and recover most of the day’s losses.
While the ECB committed to keeping interest rates at their current lows until inflation picks up investors have their doubts over the effectiveness of further policy action.
With the Eurozone economy continuing to show signs of a manufacturing slowdown support for the single currency remained general weak, though.
Another underwhelming set of Eurozone manufacturing PMIs could weigh heavily on the Euro, as the risk of a potential German recession lingers.
Signs of an easing in US-China trade tensions saw the US Dollar stumble in the face of improved market risk appetite. Support for the safe-haven US Dollar proved limited, even as the rolling back of some tariffs could boost US economic activity.
Evidence of weakening inflationary pressure also put pressure on USD exchange rates, with the Federal Reserve still facing criticism from the White House for not cutting interest rates more aggressively.
Should Fed policymakers signal a greater sense of dovishness at their September policy meeting the US Dollar could see another move lower.
On the other hand, if the Fed delivers its expected interest rate cut with a hawkish bias this may encourage USD exchange rates to rally sharply.
As the Reserve Bank of Australia (RBA) left interest rates on hold, albeit with a cautious caveat that an ‘extended period of low interest rates’ is needed to support the economy, the Australian Dollar strengthened.
With other major central banks taking an increasingly dovish outlook the RBA’s decision to hold steady gave AUD exchange rates a solid boost across the board. Even so, as the second quarter gross domestic product proved disappointing, seeing the annual growth rate ease from 1.7% to 1.4%, this positive outlook soon soured.
An easing in US-China trade tensions still helped to support the risk-sensitive Australian Dollar, though, as improved trade relations could boost the Australian economy. The release of the RBA’s meeting minutes may provoke additional volatility for AUD exchange rates, especially if the tone of policymakers proves less hawkish than previously thought.
The Bank of Canada (BOC) continued to defy the global shift towards dovish monetary policy, maintaining a decided neutral stance at its September meeting. This encouraged the Canadian Dollar to make solid gains across the board as interest rates look set to remain at their current level for some time to come.
A solid increase in August’s employment figures added fuel to the CAD exchange rate uptrend, in spite of a surprise dip in wage growth. Although global trade tensions showed signs of easing, though, the Canadian Dollar fell out of favour as an OPEC report suggested that 2020 will see another oil surplus.
If August’s consumer price index data shows an easing in inflationary pressure, however, this could leave the Canadian Dollar vulnerable to a sell-off as the odds of BOC policy action rise.
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In today’s post I will focus on Pound Vs US Dollar exchange rates. With US/China trade tensions easing, will we see the US dollar weaken further?
Stocks on Wall Street and in Asia have traded higher this week as the US agreed to delay another round of tariffs on Chinese imports by two weeks to October the 15th. There has also been an increase in Chinese importers requesting prices for goods from the US. Does this mean the end of the US/China tensions?
The answer to that is no, but it is a step in the right direction. It has fuelled speculation that the next round of trade talks in October could lead to progress in resolving the trade dispute.
With tensions hopefully easing I would expect a surge in value for currencies that are classified as higher risk. These currencies historically would be those returning a higher yield. Examples being the Australian Dollar, New Zealand Dollar and South African Rand. This week we have seen all of these currencies strengthen in value. We have also seen the safe haven currencies weaken, a clear sign of increased risk appetite. Of course these trends may not last for long, particularly if trade talks to not progress in October, a likely scenario.
We will also begin to see further developments regarding Brexit when Parliament re-convenes on the 15th October. Next month is likely to be a very busy month. With GBP/USD at a near 2 month high and having rallied 3.5% in 10 days, maybe it is a good time to buy US dollars?
If you need to convert a large sum, to purchase overseas for example, then get in touch to see how we can help. We offer a free consultation over the phone to discuss your requirements and explain the various options you can consider. We can also provide you with a free quote for you to compare with your bank or existing broker. Our rates are up to 5% better than available elsewhere, so you could save thousands.
Pound/Euro hits 3 month high – The GBP/EUR rate has risen nicely today, from lows of €1.1140 to around €1.1250. For once, it is not Brexit that has driven the price movement. This time, it was weakness in the single currency that cause the move. As you can see from the chart below, the GBP/EUR rate spiked at 12:45pm:
Weakness in the Euro. At 12:45pm we had the latest European Central Bank (ECB) interest rate decision. I highlighted this earlier in the week as something that could move the GBP/EUR rate higher. This proved to be the case. They left its interest rate on hold as expected. What weakened the Euro was the announcement of a fresh round of Quantitative Easing (QE).
The €20bn per month of stimulus is a response to an economic slowdown in Europe. The ECB stated that the stimulus would go on as long as necessary while interest rates remain at record lows. Germany, the EU’s largest economy, is on the brink of recession. Inflation is low. With interest rates already at zero, there’s not much left to do other than QE.
With Brexit remaining the main mover of GBP/EUR rates, this spike could well be short lived. Any fresh fears of a No Deal exit in the next 6 weeks could easily pull rates lower. If you want to take advantage of this 3 month high, then contact us today to discuss how we can help. We offer the facility to freeze the current rate for up to 12 months, protecting against the rate dropping. This is particularly useful when purchasing property overseas.
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Pound/Euro forecast – Good morning. The Pound has a mixed day yesterday. Initially Sterling did rather well, following some good economic data. GDP numbers came in above forecast at 0.3%, averting recession fears. We forecast that the recent negative reading was probably only a temporary dip, and so it proved to be. We also saw Industrial and Manufacturing numbers beat forecast. These results helped lift the Pound to 6-week highs.
Also helping the Pound were recently political events that make a No Deal brexit less likely. It could still happen, but markets now think the chance of leaving without an agreement on the 31st October is now 35%.
As is often the case, the gains for the Pound proved to be short lived. The speaker John Bercow announced his resignation, and this sent the Pound lower. He’s a controversial figure, as has been accused of bias in supporting efforts to thwart Brexit. In standing down, he has made a No Deal exit a little more likely, hence the fall in Sterling. Ultimately, he jumped before he was pushed, as it had already been announced that the Conservative party would stand a candidate against him in the next election, whenever that may be.
Parliament is now suspended. This means economic data could have more importance in moving exchange rates in the week ahead. Brexit developments will still run in the background however, with efforts to secure a deal on-going.
Below I’ve listed the main data releases that could impact GBP exchange rates. To get a bespoke forecast for the currency pair you are looking for, get in touch today.
At 09:30am this morning we’ll see the latest UK Unemployment data and wage growth figures. We expect earnings to have grown by a healthy 3.8%, and the unemployment rate to remain at record lows. If confirmed this would support the Pound. The only other data of note are some minor US releases that could affect the US Dollar.
There are no UK releases today. It’s quiet everywhere other than some inflation data from the United States.
While there are no UK releases, GBP/EUR could move today on data from the Eurozone. Germany has inflation numbers at 7am. As the largest EU economy the numbers often affect the Euro. We also have EU wide Industrial production data, expected to be poor. We also have an interest rate decision from the European Central Bank. Rates are likely to remain on hold at 0%. Any comments made by the ECB president Mario Draghi could weaken the Euro, pushing GBP/EUR rates a little higher. Elsewhere, the USA has a raft of inflation numbers and jobless claims. Inflation could impact interest rates over in the States. We expect them to cut rates sooner or later, that could weaken the USD and help push GBP/USD rates higher.
Nothing from the UK. EU Trade balance figures are therefore the only likely mover of GBP/EUR. US data today includes Retail Sales and Trade balance figures. Retail Sales are the most important, as they are a good barometer of the economy. A reading above 0.3% will send GBP/USD lower. A reading below, would likely push the rate higher.
We offer a free consultation to anyone that needs to move funds on a bank to bank transfer basis. Both private and corporate clients are welcome to contact us to discuss their requirements over the phone. We can explain your options, discuss the market, and provide you with a quote to compare with your bank or existing provider.