The following report will look at how GBP exchange rates are currently performing and the affect this may have should you be buying foreign currency. It will look at the following areas:
- UK PMI
- Cost to UK of Eurozone breakup
- GBP/AUD
The below table shows the market movements for a number of currency pairings in the last 30 days:
| Currency Pair | % Change | Difference on £200,000 |
|---|---|---|
| GBPUSD | 3.75% | $11,400 |
| GBPEUR | 1.95% | €4,660 |
| GBPAUD | 2.80% | AUD 8,260 |
UK PMI stronger than expected
Yesterday GBP exchange rates had a mixed day against a basket of major currencies posting losses against the Euro, AUD, NZD and CHF but seeing further strong movements against the Greenback. In fact recent movements against the dollar have been strong with yesterday’s gains bringing levels to a near 3 month high. Since mid-January the gains against the dollar have been nearly 3.75%; this is a difference of $11,400 on a £200k transfer.
Positive movements against the dollar were attributed to better than expected UK PMI (Purchasing Managers Index) data released yesterday morning. Most of the recent UK data, including gross domestic product (GDP) numbers, have so far shown the economy is on the brink of a recession. Because of this it is expected the Bank of England could to step up its asset purchase programme as soon as next week to support the flagging economy, and although January’s manufacturing PMI eased some of these worries, it but did little to change market expectations of more quantitative easing by the Bank of England in the coming weeks/months.
For this reason I see the potential for downward pressure on the pound and expect GBP/USD to trade back towards 1.55 sooner rather than later. For the best rates on the US dollar contact your account manager today.
Financial Cost to UK of Eurozone breakup?
For those with an upcoming Euro transfer, whether buying or selling, I’m sure you will be looking at the market movements and scratching your head wondering what will happen next? Quite honestly I do not feel anyone can confidently predict movements for this pair. For me I still have the opinion that an agreement will be made in Europe and all measures possible implemented to avoid the breakup of the Eurozone. Interestingly a statement for the Institute of Fiscal Studies has urged the government to consider a £20bn fiscal stimulus in the event of a Euro zone breakup, saying a possibly plan B should be outlined in the budget. It warned that “a eurozone crisis would see the UK back into deep recession”, with the economy contracting in both 2012 and 2013.
This highlights the potential cost to the UK should the Eurozone disband, and although you would think a break up of the Euro will cause a fall in the Euro’s value, infact the long term costs to the UK should this scenario occur could be so severe we may actually see the value of Sterling weaken as a result, this is why to me this pair is so hard to predict. However I will outline my thoughts.
Yesterday Belgium fell into recession in the second half of last year. According to the National Bank of Belgium Q4 GDP fell 0.2%, following a 0.1% decline in Q3, this compounded Tuesday’s Euro losses and we have seen GBP/EUR creep back above 1.20. Each time the market has crept above 1.20 in the past few weeks it has quickly fallen back towards 1.19. I feel short term we may head towards 1.21, but would expect to be back towards 1.19 and further as I feel an agreement in Europe will be made and confidence heads back to the market. I also feel a continuation of poor data from the UK will take its toll on the pound and see a move towards 1.15 possible.
To avoid a nasty surprise to the cost of your transfer why not consider the use of a limit or stop/loss contract? Contact your account manager to discuss this further.
Will the AUD continue to strengthen?
As with many other currencies the Australian Dollar has posted strong gains against the pound in recent weeks. However, the difference here is that the dollar is actually only 0.5 cent away from a 27 year high against the pound. In fact the movements are quite staggering with the dollar gaining nearly 8% since the end of November 2011 and showing little sign of slowing down! Again great news for those selling, however anyone with a requirement to buy AUD could do well to take stock of their options as I feel a move back towards 1.50 unlikely, particularly with the problems facing the UK and the potential for the AUD to gain from increased investor confidence should the Eurozone not disband.
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