Currency Forecasts

Why is the Pound falling? Pound plunges to 2 year low against Euro

Why is the Pound falling? – Sterling has taken a battering today, with the GBP/EUR rate dropping to €1.1020 at the time of writing. This is the lowest the Pound/Euro rate has been for nearly 2 years. the Pound has fallen around 1% just today:

Pound/Euro rate 29th July 2019

The Pound has also fallen against the US Dollar, falling to $1.2258 at the time of writing. This isn’t far away from the lowest it has been since 1983:

Pound/US Dollar rate 29th July 2019

Why is the Pound falling?

Brexit. Boris has signalled that he will only start talking to the EU if they agree to ditch the back stop from the withdrawal agreement. The government have also said that they will be working from the assumption that Brussels would not agree to any further negotiations. No Deal preparations are now in full swing, and the markets seem to be taking notice.

The EU have said the only deal available is the one already agreed by Theresa May. However, given that this has been rejected by the UK 3 times, and led to the resignation of the prime minister, it’s hard to see how they can expect the same deal to be re-heated and served again. The new administration has therefore taken its first shots in its negotiation, by stating they won’t even start talking until the contentious back stop is removed.

We now wait to see who blinks first. If the EU dig in their heels, the legal default is we leave with no deal in October. Markets are starting to realise that there is little if anything that parliament can do to stop it. Unless the EU make concessions, a no deal exit is now likely. Markets had only been pricing in a 20% chance of no deal. However market forces are now correcting the price of Sterling, and it is tumbling against other currencies.

Protect yourself against any further losses

If you are converting Pounds to another currency, you can freeze the current rate for up to 12 months using a ‘Forward Contract’. This protects you from any further decline in the rate.

For clients that have currency to convert to Pounds, then the current levels are extremely attractive. To discuss your currency requirements with an expert, or to get a quote to see what rate we can offer, contact us today.

Pound Sterling forecast. Currency overview.

Pound Sterling

In this mornings post I will have a look at what major data this week could have an impact on pound sterling exchange rates. This includes key data releases and how this could impact exchange rates. Of course on going Brexit developments will be set to dominate the market, however it is also important to keep an eye on data releases. I will focus on GBP, USD and AUD exchange rates.

Key data releases

Monday 29th July

To start the working week we have a relatively quiet start on the data front. Early this morning we had some European releases with inflation figures from Spain, these came out flat at 0.5% have had little impact as a result. This morning in the UK we have money supply data and mortgage approvals, not likely to impact the pounds short term movements.

Tuesday 30th July

Overnight will be the release of building permits in Australia but the focus will be on European and US data sets. This starts with Euro Zone consumer confidence data at 10:00 followed by industrial confidence. Both expected to be poor and could put the Euro on the back foot to start the day. Heading into the afternoon session and focus shifts to the US. The key release also being consumer confidence data at 15:00.

Wednesday 31st July

We have plenty of Australian data overnight. This being inflation data in the form of CPI. Expected to move from 1.5% from 1.3%. If as forecast I would expect the AUD to weaken as it takes the pressure off the RBA to cut interest rates. This morning will see a raft of European data with GDP, inflation figures, and the unemployment rates. Plenty for those with an interest in the Euro to focus on. The afternoon session will be dominated by the US and the Fed. Will they cut interest rates? The Fed decision is scheduled for 19:00 – if they cut I would expect the USD to weaken against GBP, falling from its current 2 1/2 year highs.

Thursday 1st August

Today will be dominated by UK data with the Bank of England interest rate meeting. This is followed by its quarterly inflation report and accompanying speech by governor Mark Carney. Nothing expected from the interest rate meeting but Mark Carney’s speech will be the key. This is scheduled for 12:30. It will be his first speech following PM Boris Johnson entering number 10 and it will be interesting to hear his thoughts.

Friday 2nd August

To finish the week look out for Australian retail sales data, expected to show a slight improvement month on month. Following this will be European retail sales followed by the key US jobs data non-farm payroll at 13:30. This is a key data release and sets the tone for the US economy. Its shows the number of new jobs outside of the farming industry and forecasts are for 170k. These figures are often wildly off the mark and often will see some significant movement for the USD post the release.

Do you need to exchange currency?

If you are worried about the Pound falling, then fixing the rate with a ‘Forward Contract’is an option worth considering. It removes your exposure to the volatility and allows you to budget. This is very useful when purchasing property overseas for example.

Those that are less risk averse and think the rate could rise, can consider a Stop Loss order. This instructs your broker to purchase your funds if the rate drops below a pre-agreed level e.g. €1.09. You then have a worst case scenario while still allowing you to take advantage if the rate of exchange moves in your favour.

To discuss your requirements with a currency expert and get a quote, email michael@currencyforecasts.co.uk

How could a general election affect Sterling?

In today’s post I’ll look at how could a general election affect Sterling. First, a quick look at what’s happened to the Pound since yesterday, as much can change in a day!

Pound/Euro rates fall

In our last post yesterday afternoon, the Pound/Euro rate had surged into the mid €1.12’s. The gains were not to last however, and by the close of play all the gains had been relinquished. In the ECB press conference Mario Draghi played down recession fears, and this lent the single currency some support. We still think they will cut interest rates later this year, but as rates were not cut yesterday, it allowed the Euro to claw back its losses against the Pound, brining the rate back down.

How could a general election affect Sterling?

There is talk that we could see a general election this year. If so, what effect could it have on Sterling? Boris has a very slim majority in the House of Commons. An upcoming byelection next week could reduce this further, as it’s expected that the Conservatives will lose their seat. Due to the renewed popularity of the Tory part, and the swing back to them from the Brexit party, Boris may choose to call an election to try again gain a larger majority. He could be forced to in the event of a vote of no confidence.

There are no guarantees that he would win. An election would mean extending Brexit yet again, and if this happens voters may become disillusioned with the new administration. The uncertainty an election would cause would almost certainly be bad for the Pound. I would expect the GBP/EUR rate to drop below the €1.10 mark if it happens.

You then need to look at the possible result. If he could command a majority, then I think the Pound would rise. It would make it much easier for the Conservatives to push legislation through parliament and help break the current deadlock caused by the slim majority they have now. The political climate in the UK is complex to say the least. Voters who want to remain in the EU can choose between the liberal democrats, or Labour should they commit to a second referendum. This in turn would increase the risk to the 300 year old union, as the SNP would call for a new Scottish referendum.

If Labour won power, in my view the Pound would collapse. Regardless of your political views, the markets would not see this in a favourable light. Corbyn is against free markets, pro re-nationalisation, and their economic proposals would likely to significant harm to the economy. In this scenario, the Pound/Euro rate would likely drop below parity.

Sterling in for a rocky ride

The coming months then, are likely to be significant for what happens to the Pound. Right now it’s stable as markets wait to see what is going to happen. A no deal Brexit is still quite unlikely, but if Boris can’t re-negotiate a better deal with the EU, then Parliament will try to stop no deal. This would lead to the elections scenarios described above, and be catastrophic for Sterling. So if a deal can be done, the Pound will climb. If it cannot, then the various alternative scenarios are all likely to send the Pound lower.

Make the most of your currency

We can help remove your exposure to what are currently very volatile markets. Our brokerage service offers exceptional rates of exchange, coupled with tools to ensure you don’t get caught out by adverse movements in the rates of exchange. To discuss your requirements, get in touch today for a free consultation or email me at alastair@currencyforecasts.co.uk

Pound/Euro rises further as single currency weakens

Pound/Euro rises further

Pound/Euro rises further – The GBP/EUR rate has risen further this afternoon, as the single currency has weakened and become cheaper to purchase. A short while ago the European Central Bank (ECB) left interest rates unchanged. The ECB indicated that the rate will remain low or even lower for as long as needed. They have also said that they will examine the possibility of stimulus in the form of Quantitative Easing.

There was a chance they would cut rates today, but we think they’ll hold off until September. The EU is suffering an economic slowdown, with it’s largest economy Germany at risk of entering recession. It’s manufacturing is in crisis and some of its biggest companies have issued profit warnings. The EU in general also has high unemployment, that for young people is running at a staggering 50% in some southern European countries. For these reasons it’s highly likely we’ll see further Eurozone stimulus soon.

Pound/Euro 25th July 2019

This expectation has caused the Pound/Euro rate to rise today. This week, it has gone up by around 1.5%. As the Euro weakens and becomes cheaper to purchase, it also causes the USD to strengthen. So while GBP/EUR has risen for the second day, GBP/USD rates have not risen by the same margin. The inverse correlation between the Euro and US Dollar means that as investors sell Euros, they buy USD, giving the greenback some strength.

Looking for the best exchange rates?

If you want to discuss which way exchange rates are moving, get in touch with us today. Our brokerage has been trading for over 15 years, and our expert currency brokers can discuss your requirements, explain what is happening to the markets, and help you to decide when to fix a rate. We’ll also provide you with a free quote to demonstrate the savings that are available.

Typically our rates are up to 3% better than banks would offer. When purchasing large volumes, to buy property overseas, the savings usually run into the thousands.

Pound rises as Boris declared new Prime Minister

GBPEUR

Pound rises as Boris declared new Prime Minister – Sterling has risen slightly today, in the run up to the announcement that Boris Johnson will be our new Prime Minister. The news was not a surprise, and had been widely forecast for some time.

Pound rises as Boris declared new Prime Minister

It’s a case of sell the rumour, buy the fact. For some time it’s been almost inevitable that Boris would win the leadership contest. This has been steadily increasing the chances of the UK leaving the EU without a deal. As such, investors have been selling Sterling, causing GBP exchange rates to drop. Now it has happened, investors are buying back Sterling and taking advantage of the fact it’s currently cheap to buy.

What next for Sterling?

The next few weeks will be key for the direction the Pound takes in the medium term. Boris will announce his cabinet, and will then attempt to re-open negotiations with the European Union. I think that despite the bluster and rhetoric from EU negotiators, it is quite likely they may make concessions to try and get a deal agreed. If this happens, the Pound is likely to strengthen by a decent margin, possibly 5% or more.

However, much also depends on UK politics. If MPs attempt to continue to disrupt the process, then this reduces the chance of a deal. Labour are likely to try and bring down the government through a vote of no confidence, in order to trigger an election. This would weaken the Pound significantly due to the uncertainty it would create. Furthermore, while there is political instability and no majority, parliamentary infighting will continue. While it does, the EU will probably not be keen to make any concessions, hopeful that a general election could be called.

So while the Pound is up slightly today, there is a long road ahead, with not much time to navigate to the end. Ultimately, MPs could continue to scupper the negotiations, which ultimately will only increase the chances of leaving without a deal. This would not be good for the Pound. If MPs can come together to try and get a deal agreed before the end of October, then the Pound is in for a significant correction to the upside. Which of these is more likely is currently impossible to foresee.

Do you need to exchange currency?

If you are worried about the Pound falling, then fixing the rate with a ‘Forward Contract’ is an option worth considering. It removes your exposure to the volatility and allows you to budget. This is very useful when purchasing property overseas for example.

Those that are less risk averse and think the rate could rise, can consider a Stop Loss order. This instructs your broker to purchase your funds if the rate drops below a pre-agreed level e.g. €1.09. You then have a worst case scenario while still allowing you to take advantage if the rate of exchange moves in your favour.

To discuss your requirements with a currency expert and get a quote, contact us today.