The following currency report will examine the factors that could affect Sterling exchange rates. This report includes:
- World leaders still alarmed over eurozone crisis, despite Greek election results
- UK inflation rate drops in May
- US Dollar could benefit from global economic uncertainty
- Australian Dollar could see further gains
The table below shows the difference in currency you could have achieved trading at the high over the last 30 trading days, compared to the low, on a £200,000 currency transfer.
| Currency Pair | % Change | Difference on £200,000 |
|---|---|---|
| GBPEUR | 2.3% | €,760 |
| GBPUSD | 3.7% | $12,020 |
| GBPAUD | 3.8% | AUD 12,120 |
World Leaders Claim Eurozone Crisis is ‘Still the Single Biggest Risk for the World Economy’
Following the results of Sunday’s Greek elections, where the New Democracy and pro-bailout party have gained power, some early and much needed confidence in the single currency has returned. It’s too early to suggest this confidence has filtered to other parts of the region but the positive sentiment certainly has to start somewhere!
Yesterday we witnessed the euro gain over half a cent on GBP, with levels moving down below 1.24 towards the close of afternoon trading. The uncertainty surrounding Greece and its political future has been weighing heavily on investor’s minds and whilst I do not anticipate that this is the end of the ‘Greek Tragedy’, we may well see it take a back seat to the escalating problems in Spain, Italy and now Cyprus over the coming weeks. This is of course assuming a majority government is formed as is anticipated, potentially even by this afternoon.
However for all those expecting a complete turnaround in fortunes for the single currency, beware the thoughts of world leaders at this week’s G20 summit in Mexico, which is now taking centre stage and much of the media spotlight. National figureheads were quick to dampen expectation in Europe, as they stated that regardless of the Greek election results, the eurozone debt crisis is ‘still the single biggest risk for the world economy’. To me this proves what many continue to think and that is Europe has a long rocky road ahead, as it struggles to cope with the balance between austerity and growth across the region.
Personally I feel GBP/EUR levels will continue to hold between 1.2250-1.2450, until we hear further reports of the economic conditions in Spain and other troubled countries in the region.
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Falling Inflations Rates in the UK, Suggests Further Quantitative Easing is on the Way
UK inflation figures were released yesterday and showed an unexpected fall in May, to a two-and-a-half year low at 2.8%. This drop has come about due to a fall in fuel and food prices and has fuelled speculation that as a result, we will now see at least one further round of Quantitative Easing in the coming months.
The last round of QE was issued by the Bank’s Monetary Policy Committee in February and the current total of injections to try and stimulate growth stands at 325bn. This figure could now increase by at least 50bn and would more than likely lead to sterling weakness, as the markets would see it as a sign of our economy faltering.
With tensions now easing in the markets following the Greek elections, any further significant moves on GBP/EUR will be determined by the long-term solutions and strategies put in place in both in Europe and the UK.
US Dollar May Benefit From European Crisis
The USD’s ability to hold its value even in times of crisis, mean that it will strengthen whilst the underlying issues in Europe persist. Investors will continue to buy Dollars in times of global economic uncertainty, although following the apparent resolutions in Greece we did see the Dollar weaken off slightly yesterday afternoon. Longer term I still think a move towards 1.50 is likely, as the issues in Europe will continue to dominate the headlines for months to come.
Australian Dollar Overview
The Australian dollar is continuing to perform well against GBP, moving well away from the terrific buying opportunities we had been experiencing at over 1.60 only a few weeks ago.
This continued strength, which see’s GBP/AUD rates touching on 1.54, has been aided by the release of the recent RBA minutes, which suggested they were very close to not cutting interest rates at their last meeting. This could mean rates will stay on hold at 3.5% for the foreseeable future, which will be seen as a huge positive for investors.
The potential formation of a new government in Greece will also be seen as a positive step towards global economic safety and if followed through with positive actions, we may well see investors move away from the ‘safe haven’ currencies and take a risk on currencies like the AUD, which can provide the opportunity for larger gains, due to higher fluctuations.
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