This report will address the factors that are likely to affect exchange rates today if you are buying abroad or making a currency transfer. The table below shows the difference you would have received when buying £200,000 at the high compared to the low over the last month.
| Currency Pair | % Change | Difference on £200,000 |
|---|---|---|
| GBP EUR | 1.71% | €4,380 |
| GBP USD | 2.24% | $7,140 |
| GBP AUD | 5.58% | AUD 17,440 |
Bond Buying – Long Term Solution or Quick Fix?
GBP/EUR rate dipped slightly yesterday to a low of 1.2580 following the ECB announcement to keep interest rates on hold and continue their bond buying programme. The announcement to keep the interest rate on hold wrong-footed some investors who had been expecting an interest rate cut to try and stimulate growth. Although the Euro did make some gains they were fairly limited as the market had received a lot of leaked information and learned little more in the details announced by Mario Draghi. As anticipated the European Central Bank will take on short 1-3 year bond purchases with no limits on the size.
Some figures still stand opposed to the ECB’s bond buying program. Jens Weidmann, President of Germany’s Bundesbank is worried that Eurozone countries may become dependent on central bank handouts and therefore fail to continue down austerity and reform their economies. Mario Draghi on the other hand stated this program was necessary to address the “severe distortions” in government bond markets based on “unfounded fears”. This was then reiterated after a meeting between German Chancellor Angela Merkel and Spanish Prime Minister Mariano Rajoy where they said “We need to restore confidence in the Euro as a whole”.
It is apparent that major players across Europe are united in their goal to ensure the survival of the Euro. However, whether this actually is a long term solution rather than just another quick fix is yet to be seen. Regardless of how well this united front and bond buying program works, markets are going to remain volatile in the weeks ahead. Do not get caught, speak with your account manager today on 0800 328 5884 and ensure you have the most efficient strategy in place to tackle these difficult times.
*Key Data Watch* 10:00 – Greek GDP Figures Q2 11:00 Portugese GDP Figures Q2
BoE Interest Rate Decision
Sterling exchange rates held their ground yesterday in the run up to the Bank of England’s interest rate decision. They announced they would be keeping interest rates on hold at 0.5% and leave quantitative easing at £375 billion. This decision was widely anticipated in the markets and did not have a big effect as investors turned their attention to Europe and ECB President Mario Draghi’s speech later in the day.
This being said, the OECD (Organisation for Economic Co-operation and Development) did slash their growth forecasts for the UK to -0.7% which is dramatic considering their last forecast in May predicted 0.5% growth. These forecasts could push investors away from the pound, especially if figures start to roll in that back up the forecast.
Today we have multiple UK data releases from PPI data to Industrial and Manufacturing Production figures, all of which could provide some great buying or selling opportunities. Speak with your account manager today on 01494 725 353 or register for one here to ensure you have adequate protection in place ahead of any potential adverse currency movements.
GBP Continues To Hold Against USD
Sterling was close to flat against the US Dollar following Wednesday’s 3½ month high at 1.5940. As outlined above, with so much of a focus on Europe there was little reaction on GBP/USD following the BoE interest rate decision and ECB interest rate decision/bond buying program. Any further gains against the Dollar are likely to come as a result of the success and outlook investors have on the ECB’s plans to ease the debt crisis. As the UK is the Eurozone’s biggest trading partner any further easing of debt is going to be positive for the pound and could see GBP put pressure on the 1.60 area. Equally, if Jens Weidmann’s thoughts on the bond buying program come to fruition further down the line, we could see GBP/USD rates plummet close to multi year lows
Looking forward, today we have US Nonfarm payrolls data and US unemployment data published. These releases almost always cause volatility, especially with Nonfarm payrolls as the estimated figure can be considerably out. We did have US Employment change data released yesterday which came out far better than expected at 201K rather than the expected 140k and does give early indications as to what to expect from Nonfarm payroll. With GBP/USD rates so close to the 3½ month high and the rate historically struggling above the 1.60 mark it may be prudent to take action now and place a limit/stop loss order into the market thereby limiting your exposure to potential losses while also allowing you to target a desired rate. For more information on this and the many other services we can provide, call today on 01494 725 353.
*Key Data Watch* 13:30 Nonfarm Payrolls Data and US Unemployment Rate
AUD and NZD Edge Up Further
As discussed in previous reports, the AUD and NZD are very dependent on global growth and demand for commodities. Following yesterday’s releases with Mario Draghi saying he will support struggling Eurozone members and positive US jobs data, demand for the AUD and NZD increased along with risk appetite. Current levels represent great buying opportunities and with the fragility of confidence in major economies like the Eurozone, losses can be made just as quickly.
Speak to us today on 0800 328 5884 to make sure you are hedging ahead of these rapid currency movements.
