Draghi’s Speech Set to Be Today’s Focal Point

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.

Euro Confidence Drops

GBP/EUR rose yesterday to a 2 week high of 1.2570 following a weak German sentiment survey and more fears surrounding Greece and Spain. As Germany is the Eurozone’s biggest economy any releases showing that they may be struggling can be key to the future of GBP/EUR rates. This combined with the fact that Greece has yet to agree a deal on an austerity package from its international lenders and the Spanish economy minister Luis de Guindos saying on Saturday that they will not rush to seek external aid, has put a negative tone on the Euro. The Euro had been propped up recently following Mario Draghi’s pledge to ease the regions debt by buying infinite volumes of short 1-3 year bonds.  However, this cannot happen until a country requests aid.  In turn Luis de Guindos’ comments have put investors in a precarious position as it is unknown when, how much and if they will ask for assistance.

While I have no doubts that politicians and policymakers across Europe are united in their front to save the Eurozone at all costs, it does seem that every time they come up with a solution, it only provides a short term break before another crack emerges and the volatility continues.  This recent period of volatility had ended with GBP failing to break the key 1.30 barrier and as such a period of consolidation is likely over the coming weeks. I would expect GBP/EUR to trade in fairly tight parameters of the 1.25 level with any rallies or dips from month end and quarter end flows being contained by the 1.23 and 1.28 areas.

Concerns over the UK economy have remained in the background as the latest borrowing data suggests the country may miss George Osborne’s deficit reduction targets. I do, however, feel in the short term, it is more likely that rates will sway towards the 1.26 area as GBP is boosted by an EU farm subsidy payment that is thought to be in the region of €3 billion.

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*Key Data Watch* 14:00 – ECB President Mario Draghi’s speech – Any changes in policy could completely change GBP/EUR outlook

GBP Climbs Against The USD

Sterling was fairly steady yesterday against the US Dollar hitting a high of 1.6243 before closing at 1.6201. The pound did hit a 13 month high of 1.6310 last week but struggled to make any further gains before falling back. This 1.63 level will now become a key resistance mark and unless it can make a clear breach soon, it could be the first sign of a well overdue correction.  I expect as we enter Q4 of this year that GBP/USD rates will head back through the 1.60 level and therefore would advocate that USD buyers continue to over-hedge their on-going exposure ahead of this negative move.

With very little UK or US data of note, at the beginning of this week, all eyes will now be focused on the UK and US GDP data which is due on Thursday 27^th at 09:30 and 13:30 respectively. UK GDP data is expected to remain at -0.5% though any change from the expected results will cause volatility.

Call your account manager today, ahead of this important data release, to discuss how these releases and others like it can affect the cost of your currency transfer 01494 725 353.

NZD Continues To Edge Up

GBP has continued its run on the New Zealand Dollar hitting a high of 1.9789 following continued concerns over global growth. The US, China and Japan have all released weaker than expected trade figures this month, which has hinted towards a global growth slowdown. Any further negative data releases from either the US, China or Japan are likely to push investors to the safe haven of the USD and be detrimental to the likes of the NZD, which is very dependent on global growth. Equally the US’s additional QE programme could provide the global economy with the boost it was looking for.

Considering that at the beginning of August 2012 GBP/NZD rates were below 1.90, I feel current levels still represent a great buying opportunity.  This being said, however, with the risk of a global slowdown these rates could be seen as the last selling opportunity before a more sustained move higher. It may be prudent to utilise our stop loss / limit orders to protect your position in the market and limit your exposure to potential losses. Contact your account manager today to discuss how best to utilise these facilities.

*Key Data Watch* 23:45 – NZD Trade Balance Figures