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 |
|---|---|---|
| GBPEUR | 2.21% | €5,380 |
| GBPUSD | 3.21% | $10,120 |
| GBPAUD | 3.48% | AUD 10,580 |
Sterling Exchange Rates – What to expect this month?
January has seen some great Euro buying opportunities for Sterling sellers with the market hitting a high of 1.2161 in early January. However, since then, Sterling has come under increasing pressure following the expectation of another round of quantitative easing (QE) and a weakening UK economy heading for recession. Current trading levels on GBP/EUR are 1.1952 which I feel still represents a good buying opportunity considering the state of the current UK economy.
The next round
of Sterling pressure is likely to come when PMI data for January is released on Wednesday and this is likely to highlight the bleak outlook for the UK and may prompt another round of QE in February. Although we are expecting another round of QE soon, it may not be as soon as most expect as last week David Miles, a Bank of England policy maker was quoted saying “it is presumptuous to assume [further quantitative easing] is a done deal”.
All of this conflicting data shows us that we are shaping up for a turbulent time in February and really highlights why it is so important to stay in close contact with your account manager to ensure we can hedge your currency ahead of any adverse currency movements. Alternatively if you have a regular payment to make but want to ensure you are receiving a competitive rate of exchange, please feel free to register for our regular payments plan.
EU Summit and the effects on your exposure
Once again EU leaders are meeting in Brussels for a summit focused on “growth” and “smart” budget discipline. They are expected to sign a deal that will introduce a permanent bailout fund for the Eurozone, but I feel it will be overshadowed by talks in Greece regarding private investors taking a 50% loss on Greek bonds in a complex bond swap.
These talks are all an attempt to lower Greece’s debt to GDP ratio and the EU and IMF have agreed to a further €130bn bailout. However, these funds will not be released until Greece implements strict austerity measures. If a deal is not made soon, Greece will not receive these funds and will default which could cause contagion to spread across other debt-ridden Eurozone nations.
In my opinion, Greece will conclude the negotiations with a positive outcome. Closer fiscal union will be agreed in Brussels and the general outlook for Europe should start to pick up. This in turn will result in the media focusing back on the flagging UK economy and in the coming months I expect to see GBP/EUR rates nearer 1.15. If you need to buy Euros and want to take advantage of this great buying opportunity please register for an account via this link, or call us on Freephone 0800 328 5884. Alternatively if you do not have all of the funds available but want to ensure you catch this opportunity, call us on 01494 725 353 to discuss the forward contract option.
The gains GBP made on EUR yesterday was due to Portuguese 10 year bond yields hit 16.27% following increased anxiety over the long term outlook for Portugal. While Portugal’s existing bailout package will keep them funded until the end of 2012, weak growth may mean they have to seek a further bailout before then.
Where are GBP/USD exchange rates heading?
The USD has strengthened significantly from the Eurozone crisis as investors seek to keep their money safe with lows in 2012 of 1.5234 on GBP/USD. This trend continued on Monday following fears that Portugal may be heading towards a second bailout. This coupled with increasing pressure on Greece to complete negotiations of a private sector debt write off has halted investors’ risk appetite. Although there was a bit of USD strength yesterday, trading levels closed at 1.5688 and considering 1.5740 is the GBP/USD high of 2012, I would still see this as a great buying opportunity.
If your requirement is not urgent but you want to make the most from your trade, you could go for a limit order. Placing a limit order means that when the market hits the rate you have agreed previously, we will automatically buy it for you, even if the market only hits it for a second. To discuss if this option is worthwhile for you, please call on 01494 725 353.
AUD Exchange Rates
The on-going Eurozone crisis has continued to affect the AUD exchange rates with investors’ risk appetite being thrown from one extreme to another. As outlined previously I do feel it is only a matter of time before the eurozone crisis resolves itself and investors’ risk appetite picks up. In the coming months I would expect more pressure on the key 1.4686 support level.
To avoid disappointment on your currency transfer call today on Freephone 0800 328 5884 to find out what data is coming up in the short term that could affect your exposure.
Key Upcoming Data
Today – 08:30 – GFK Consumer Confidence – The release of UK consumer confidence is a key indicator of how confident the general public feel about the stability of their income and therefore can determine consumer spending.
Today – 10:00 – European Unemployment Rate – The release of unemployment data is a key indicator of the potential growth of an economy. With over 23 million unemployed in the EU, many people will be looking for signs of a recovery.
Wednesday – 10:00 – European Consumer Price Index (CPI) – CPI is one of 2 key measures of inflation.
Wednesday – 9:30 – UK Purchasing Managers Index (PMI) – PMI captures business conditions in the manufacturing sector. As this sector accounts for a large part of GDP it is a key indicator into the overall economic condition of the UK.
