Market Snapshot
The table below shows the percentage movement of exchange rates yesterday, along with the extra currency you could have bought if buying with £200,000.
| Currency Pair | % Change | Difference on £200,000 |
|---|---|---|
| GBP/EUR | 0.45% | €1,120 |
| GBP/USD | 0.54% | $1,740 |
| GBP/CHF | 0.44% | CHF 1,320 |
This report will take a look at the cost of buying foreign currency and factors that could affect your currency transfer
Sterling exchange rates overview
This week has seen very little data out for the UK hence why the main driver for the pound has been overseas events in the Euro zone and the US. The one piece of alarming data that did come out was the unemployment rate which worsened in the last three months and had a knock on effect against a range of currencies on Wednesday.
Sterling exchange rates held steady against the USD yesterday and was trading back up at a 4 month high. Against the Euro the pound continued its decline but there was a very narrow trading range of 0.45% from the high to the low by close of trading.
US FED looks to boost the economy
The Dollar fell against other major currencies after the Federal Reserve yesterday stated that it will launch another round of bond purchases known as QE3 to help boost theU.S.economy.
In a highly anticipated announcement the central bank said that it will spend $40 billion a month to buy mortgage-backed securities for as long as it deems necessary and will continue to do so until the US jobs market shows substantial improvement along with stronger economic growth.
The bond purchases are intended to lower long term interest rates to spur borrowing and spending. Critics though are warning that further bond buying raises the risk of higher inflation.
At the time of the announcement global exchange rates were extremely volatile but the USD weakened against the Euro and the pound to levels not seen since May 2012.
What does the FED decision mean for sterling exchange rates?
After the decision we witnessed the pound continue to gain against the USD but we did see sterling weaken further against the Euro. Over the course of the last week the pound has fallen against the Euro from 1.2625 down to 1.2429 due to events in the Euro zone and theUS.
Often we find that events which happen in theUSoften tend to find their way to theUKshores. After all we do say that whenAmericasneezes theUKcatches a cold. This is concerning as the Bank of England may just well look at what the FED have carried out and look at further QE here in the UK.
Yesterday reminded us exactly how much QE can weaken a currency. If the UK looked at further stimulus or a rate cut then the pound may well just continue its decline against the Euro and also see the excellent gains against the USD and southern hemisphere currency reversed.
With the pound at a 4 month high against the USD and with risks of further losses against the Euro now may be an excellent time to look at your options of securing your currency. For a small deposit you may secure your funds on a forward contract to limit your exposure to volatile exchange rate fluctuations. This option will also give you the peace of mind that you know exactly how far your funds will go. I feel that we will see sterling exchange rates drop back down to the 1.50’s before the end of the month so you may wish to act soon if you have an up and coming requirement.
ECB Monthly Report
The ECB monthly report was released yesterday morning stating that they left their interest rates at 0.75% this month due to the fact that Economic growth in the Eurozone should remain anaemic and heightened uncertainty will continue to weigh on market sentiment.
The main story for the Euro this week though has been how Germany’s top court on Wednesday backed the euro zone’s new rescue fund, which helped boost investors’ confidence in the European currency. I have already stated how the Euro has strengthened to a 4 month high against the USD but it is at a 2 month high against the pound.
If the ECB’s plans to buy unlimited bonds continue to boost the Euro sterling could be trading another 2-3% down from where we are currently at. Great news for those of you selling Euros, but for those that require buying Euros I truly believe that the forward contract that I spoke about earlier will give you much more peace of mind. If you would like more information on this tool then contact your account manager or you may open an account by clicking here if you do not currently have one.
Swiss National Bank keeps Euro-Franc Floor
The Swiss National Bank dashed hopes yesterday that it may take advantage of the rise in the Euro and raise the ceiling from 1.20 up to 1.30 to help Swiss exporters.
After the European Central Bank announced its plans to tackle the European debt crisis last week, the euro rose to its highest level against the franc in nearly five months and continues to trade comfortably above the 1.20-franc floor.
Some exporters and traders had hoped the SNB would seize on those gains to raise the floor to 1.30 francs, which would mean intervention to strengthen the euro and weaken the Franc, thereby helping the export trade.
It seems that intervention in the future cannot be ruled out in as their export market is being significantly damaged by the strong Franc. If you have CHF to sell in the near future you may be wise to act sooner rather than later as intervention could weaken the CHF by the end of the year.
