Pound vs Euro forecast outlook

10th December 2010
Good morning. The pound rose again very slightly against the Euro and US Dollar yesterday, following the decision from the Bank of England to hold off on any further Quantitative Easing and left rates on hold. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1938
• GBP/USD 1.5800
• GBP/AUD 1.6021
• GBP/NZD 2.1034
• GBP/CAD 1.5941
• GBP/CHF1.5498
• GBP/ZAR 10.878
• GBP/HKD 12.283
• GBP/NOK 9.5109
• GBP/HUF 331.00
• GBP/JPY 132.17
• EUR/USD 1.3233

Bank of England leave rates on hold

The Bank of England's Monetary Policy Committee (MPC) has kept UK interest rates on hold at 0.5%, and unveiled no new quantitative easing (QE) measures. Both decisions were expected, but it will not be clear whether they were unanimous until the minutes of the meeting are released.

At the MPC's November and October meetings, there was a three-way split among its nine members. In those meetings, one member voted for a rate rise, another for more QE. So in reality we will have to wait 2 weeks for the important part of the decision - who voted for what. This will show if there is consensus and direction within the MPC.

It was the 21st month in a row rates were left unchanged at 0.5%.

US Trade Deficit widens

The UK's trade deficit in goods and services widened in October, the latest official figures from the Office for National Statistics (ONS) have shown. The deficit - the difference between what the UK exports and imports - grew to £3.9bn from £3.8bn in September.

Alan Clarke, an analyst at BNP Paribas, said the figures did not immediately make good reading. The news didn't really affect Sterling as focus on the Eurozone is the biggest driver in GBP/EUR rates.

Pound vs Euro Summary

Rates to buy Euros have recovered back to the 2 month high we saw last week. It doesn't seem to be able to push higher however, as markets are still cautious on whether the UK economic recover will continue.

It's also important to remember that without the problems in the EU, GBP/EUR rates would be around 6% lower at 1.12/1.13. Now the Irish have been bailed out, if there are no further bailouts required for the other EU countries with debts, then the Euro could regain strength and cause rates to fall again. While the problems remain however, so do the best buying opportunities in over 2 months.

Sterling will be strongest major currency in 2011?

Sterling will be the best performing major currency next year, Barclays has forecast in an article in the telegraph today, which you can read here.

The prediction will be welcome for many clients waiting for better rates, but it may take well into the year for this to materialise. Most analysts expect the pound to rise when interest rates start to go up. They've been at 0.5% for nearly 2 years, and once it looks like inflation is rising and the economy is growing strongly, the BoE will start to raise rates again.

This will probably be in Q2 / Q3 next year, so if you can wait that long, great. If not, then you should consider the possibility that things may get worse before they get better, especially if the BoE decide to opt for further QE in the meantime.

To find out what may happen in the markets, and see how our commercial rates compare with your bank, click below to send us an enquiry today, and take advantage of a free consultation on your requirements.

Enjoy your weekend.

Pound gains vs Euro, BoE and Trade balance today

9h December 2010
Good morning. After a very flat start to the week, yesterday the pound gained against the Euro and US Dollar, following a surge in industrial orders which was a further indication that UK economic recovery is gaining momentum. Rates at 08:30am are as follows:

• GBP/EUR 1.1900
• GBP/USD 1.5814
• GBP/AUD 1.6010
• GBP/NZD 2.1107
• GBP/CAD 1.5947
• GBP/CHF 1.5535
• GBP/ZAR 10.892
• GBP/DKK 8.8690
• GBP/JPY 132.48
• GBP/HUF 328.79
• EUR/USD 1.3287

Industrial orders boost Sterling

Industrial orders rose to their highest since June 2008 yesterday surprising the markets. The news follows Tuesdays better than expected Manufacturing data, and this has increased the value of Sterling.

"The decent numbers out of the UK, plus the peripheral concerns in Europe, have tended to push sterling up," said Adrian Schmidt, currency strategist at Lloyds. Yesterday rates vs the Euro broke through €1.19 again, touching a 10 week high.

While the problems in the Eurozone remain, the Euro is also weak which is also the reason GBP/EUR rates have risen again. Rates didn't last long above €1.19 though and have already dropped back this morning following a fall in house prices according to data from the Halifax. Markets are also waiting ahead of the Bank of England interest rate decision later today.

Bank of England decision today

At 12:00 today we will have the latest Bank of England decision on Interest rates. We expect rates to remain on hold at 0.5%. What is interesting is that the members of the Bank of England's Monetary Policy Committee (MPC) seem have a lack of consensus on how to move forwards. Most vote for no change, but in recent months some have voted for an increase and others pushing for another round of Quantitative Easing.

This indecision is unhelpful for the pound and is causing some volatility. We will have to wait 2 weeks for the minutes of today's meeting to see who voted for what. There is a very small outside chance more QE will be announced today. The markets don't expect it though, so if it were to happen expect the pound to fall sharply.

Other important data today

The European Central Bank publishes a monthly report that contains a detailed analysis of the prevailing economic situation and the risks to price stability. It also provides articles on a wide range of topics related to the tasks of the ECB. The Euro is volatile at the moment so markets will look for any comments designed to calm sentiment towards the single currency. If so then the Euro could strengthen and GBP/EUR rates could drop.

From the UK, we have Trade balance figures.This is a balance between exports and imports of goods. A positive value shows trade surplus, while a negative value shows trade deficit. It is an event that generates some volatility for the Sterling. If a steady demand in exchange for UK exports is seen, that would turn into a positive growth in the trade balance, and that should be positive for the GBP. If demand is low then the pound may fall.

Take the next step towards the best exchange rates

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