Pound/Euro rates climb September 2011 - Why?

Friday 9th September 2011

Good morning. Well, what a difference a day makes! This time yesterday the Pound/Euro rate was €1.1320, with forecasts for it to drop further. Instead, the Euro weakened significantly on the back of the press conference by ECB president Jean Claude Trichet, and this caused GBP/EUR rates to rise by over 1.5% to near €1.15. Today we'll take a look at his comments and what caused the gains. Rates at 08:30am this morning are as follows:

• GBP/EUR 1.1497
• GBP/USD 1.5973
• GBP/AUD 1.5036
• GBP/NZD 1.9125
• GBP/CHF 1.3923
• GBP/CAD 1.5795
• GBP/ZAR 11.475
• GBP/JPY 123.68
• GBP/DKK 8.5610
• GBP/NOK 8.6456
• EUR/USD 1.3891

Pound makes significant gains vs Euro
















These charts show the GBP/EUR and GBP/USD rates as they moved throughout the day yesterday. There was a general strengthening of Sterling in the morning as a UK clearer purchased the Pound, creating strength.

Then, we had the BoE decision to hold interest rates, and no mention was made of QE at all. This helped the pound further, although we'll have to wait 2 weeks to see if the minutes show any discussion of QE. Rates then levelled off waiting for the ECB press conference at 13:30pm.

In the press conference, ECB President Jean-Claude Trichet highlighted "downside risks to economic growth" in the euro zone after leaving interest rates on hold. Markets believe future rate hikes are off the table in the EU and the ECB may even need to cut rates by the end of this year. The comments significantly weakened the Euro, which through the day climbed from €1.1320 to nearly €1.15 - this represents a £2000 saving on a €150,000 property purchase in only one day!

So will the Pound continue to go up against the Euro?


Despite sterling's rally, analysts cautioned that signs that the economy is continuing to weaken while the euro zone's debt crisis festers could prompt the BoE to add to asset purchases in the coming months.

"Although the case for more stimulus (QE) has certainly strengthened, the deterioration in the demand outlook was evidently deemed insufficient to warrant an immediate move," analysts at Barclays Capital said in a note. Translated, this means although no QE for now, there probably will be some to come soon, and this will likely limit any further gains in the rate.


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Sterling falls on rumour of more QE

Thursday 8th September 2011
Good morning. Sterling has fallen to an 8 week low this morning against a basket of currencies, on speculation the Bank of England (BoE) may have to pursue more Quantitative Easing (QE) to try to stimulate growth in the economy. We have interest rate decision from the BoE today, and if they do indeed announce QE then Sterling could drop further. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1326
• GBP/USD 1.5934
• GBP/AUD 1.5040
• GBP/NZD 1.9138
• GBP/CHF 1.3727
• GBP/CAD 1.5705
• GBP/ZAR 11.372
• GBP/JPY 123.22
• GBP/DKK 8.4343
• GBP/NOK 8.5712
• EUR/USD 1.4063

Sterling falls on rumour of further Quantitative Easing

Due to continuing poor data showing growth is slow in the UK, many analysts think that the BoE will have no choice other than to pump more money into the economy through Quantitative Easing. A Reuters poll on their website today shows economists expect there is a 35% chance the BoE will resort to another bout of asset purchases to support the flagging economy.

However, London traders said some in the market were positioning for the possibility the BoE may announce more stimulus on Thursday, given persistent signs of a slowing economy in the past month. More quantitative easing would be negative for the pound as it would flood the market with the currency, reducing demand. If they do announce it today at 12:00pm then expect exchange rates to drop.

Interest Rate decisions today

Both the UK and EU announce interest rates decisions today at 12:00pm and 12:45pm respectively. We expect both zones to leave rates on hold at 0.5% (BoE) and 1.5% (ECB). As mentioned above however, we will watch for any mention of QE that could hurt the pound.

In the EU, while we expect no change in rates, they give a press conference at 13:30pm and often the comments made can significantly influence the value of the Euro.

If you need to buy or sell foreign currency at the best exchange rates, click below now to send us an enquiry for free. Our exhange rates are up to 5% better than offered by banks. Take the first step to making the most of your currency now.

Pound falls against EUR after Swiss National Bank intervene

Wednesday 6th September 2011
Good morning. Sterling fell yesterday after George Osbourne gave a negative speech on UK growth. The Pound hit a 7 week low against the US Dollar, and also fell vs the Euro after the Swiss National Bank put set a floor on the EUR/CHF rate, causing the biggest one day swing in exchange rates I've ever seen. At 08:30am this morning, rates are as follows:

• GBP/EUR 1.1357
• GBP/USD 1.5984
• GBP/AUD 1.5076
• GBP/NZD 1.9304
• GBP/CHF 1.3702
• GBP/CAD 1.5785
• GBP/ZAR 11.346
• GBP/JPY 123.47
• GBP/DKK 8.4578
• GBP/NOK 8.5112
• EUR/USD 1.4067

Swiss National Bank intervene in exchange rate

The euro rose broadly after the SNB said yesterday it would set a minimum exchange rate target of 1.20 francs to the euro and would enforce it by buying foreign currency in unlimited quantities. Immediately after the announcement, Sterling shot up vs the Swiss Franc, as this chart illustrates:

The rate shot up from 1.28 to 1.38 in a matter of minutes, easily the biggest one day swing in exchange rates I have ever seen. Just a few weeks ago the rate was 1.17 so it has improved by a staggering 15%, of which yesterday accounted for nearly 8%.

The Euro gained on the announcement, pushing GBP/EUR rates lower, however the drop was limited by continued fears about EU debt. Against the US Dollar, the Pound also fell, as investors seek out a new safe haven now the CHF is no longer attractive.

UK Economic Outlook gloomy

Two things happened yesterday to cast doubt on the UK recovery. UK service sector data posted its biggest drop in a decade, in another sign the British economy is struggling, keeping the topic of more quantitative easing on the Bank of England's agenda.

Secondly the chancellor George Osbourne admitted the economic recovery hopes had been revised down, following a raft of recent poor UK data.

This compounded the poor retail sales, and has put Sterling on the back foot.

Summary

The Dollar is gaining strength now the Swiss Franc is not as attractive as a safe haven. This is to the detriment of perceived weaker currencies such as the Pound and the Euro. The Euro has also gained due to the intervention of the Swiss National Bank. The net result is lower GBP/EUR and lower GBP/USD rates, and unless we get further developments from the Eurozone regarding sovereign debt, we think these declines may well continue.

If you need to buy currency and want to discuss the options we have to protect you against any adverse exchange rates movements, send me an enquiry for free now, and have a consultation on how you can take control of your currency requirement.

If you need to buy or sell foreign currency, click below now to send us an enquiry for free. Our exhange rates are up to 5% better than offered by banks. Take the first step to making the most of your currency now.

Weekly GBP/EUR and GBP/USD forecast

Tuesday 6th September 2011
Good morning. Today we'll take a detailed look at GBP/EUR and GBP/USD rates over the course of the last weeks trading. In this week’s Report:

• Pound slips away on poor data but rallies at end of week
• UK interest rates to remain on hold for some time
• Round up of the week’s data that may affect rates

(For currencies other then GBP, EUR and USD, contact us for a consultation)

Sterling vs. Euro;

At the start of the week we saw the GBP/EUR rate reduce for two consecutive trading days to 1.1283. Clients were receiving less Euros for their pounds as the Euro gained ground against Sterling. This movement would have seen a difference of nearly 1000 euros on a £200,000 trade over a two day period.

Sterling was vulnerable almost across the board this week. UK net lending and money supply data was poor on Tuesday and consumer confidence data remains at very low levels. The euro was on the back foot.

Euro zone annual inflation was unchanged in August while the number of people without jobs continued to increase. This was confirmed by figures released on Wednesday, adding to expectations that the next ECB (European Central Bank) interest rate move could be a cut rather than a hike. As a result we saw GBP/ EUR trade around the €1.13 level and a dip in the market was looking increasingly likely towards the latter stages of the week as the euro continues to enjoy hefty investment from Asian sovereign buyers.

EU statistics office Eurostat said inflation in the 17 countries using the euro was 2.5 percent year-on-year in August, the same as in July, as expected by economists.
The European Central Bank has indicated they want to keep inflation below, but close to, 2 percent, and economists had been expecting the bank to raise interest rates a third time this year to 1.75 percent from 1.5 percent to stem price pressures.

There was no surprise month-end moves from the British Pound this time, Wednesdays session was a case of sideways trading among the major currencies, though the euro had weakened significantly by Thursday morning.

With regards to the euro exchange rate we note that PMI (Purchasing Managers Index) numbers are due across Europe with slight declines expected in general and risk appetite should respond accordingly.

Friday morning’s whole-of-Eurozone Producer Price Index data showed an acceleration in the increase in input prices for Eurozone producers. Invariably, manufacturers will pass these price rises on to consumers, so the figure suggests that the single economic area may face higher prices as 2011 draws to a close, meaning further interest rate rises by the ECB are increasingly likely.

If you need to buy or sell Euros, send us an enquiry today.

Sterling vs. US Dollar;

The Sterling/Dollar had a bullish day on Monday, as traders continued to sell the USD against many other currencies. As the stock markets rallied, the Pound gained strength against the Greenback.

On Tuesday Pound/Dollar decreased by nearly 170 pips, in converse with the positive Interbank sentiment at nearly +1%, depreciating from 1.6420 to 1.6253, closing the day at 1.6297.

The pound edged higher against the U.S. dollar on Wednesday, as the dollar was weighed by mounting speculation that the Federal Reserve may soon implement fresh stimulus measures to boost U.S. growth.
On Thursday Pound/Dollar decreased with nearly 125 pips, in line with the negative Interbank sentiment at almost -8%, depreciating from 1.6257 to 1.6130, closing the day at 1.6178.

The pound slipped to a three-week low versus the US dollar on Thursday afternoon to $1.6197 after data released showed that manufacturing activity in the UK shrank in August, further signalling that the economic recovery is stalling.

Friday afternoon’s Non-Farm Payroll figure caused massive price action for the Dollar at the time of its release. The figure immediately caused investors to move out of stocks and into defensive bond plays, which saw the US Dollar gain ground as the week’s session drew to a close.

The Pound edged higher against the Greenback on Friday, extending a bounce from a 3-week low struck on Thursday at 1.6130 ahead of the US jobs data. GBP/USD managed to regain the 1.6200 mark during the European session and touched a daily high of 1.6253 in recent trade.

If you need to buy or sell US Dollars, send us an enquiry today.

Weekly Economic Data that may affect exchange rates

Tuesday – Today in Australia we have the RBA interest rate decision and policy statement. In the Eurozone we have GDP figures month on month and year on year.

Wednesday – Wednesday sees industrial production and manufacturing production figures released in the UK, whilst in Canada we have the BoC interest rate decision.

Thursday – An important day for the UK and Eurozone with interest rate decisions for both economies. On the other side of the pond we have jobless claims data.

Friday – We end the week with a busy day in UK but quieter elsewhere with data Producer Price Index in the UK which measures the change in the price of goods manufactured. The UK also releases figures relating to the Trade Balance and Producer Price index.

If you need to buy or sell foreign currency, click below now to send us an enquiry for free. Our exhange rates are up to 5% better than offered by banks. Take the first step to making the most of your currency now.