The following currency report will examine the factors that could affect Sterling exchange rates. This report includes:
- Can the EUR really recover?
- Is GBP still over-valued against the EUR?
- Greenback’s struggles continue
- GBP/NZD forecast
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|
Can the EUR Really Recover?
September was always going to prove to be a defining month for the EU. Market confidence in the euro has eroded over the past 12 months and it was clear that sooner or later something had to change to alter the current landscape but more importantly the public perception surrounding the entire EU region.
Whilst I cannot say with full confidence that this moment has arrived, what is clear is that for the first time in months the euro has some substantial support. ECB President, Mario Draghi, has announced a fresh government bond-buying scheme to help alleviate the debt crises. The markets have reacted very positively to the announcement, with the euro fighting back against all major currencies for the first time in months and gaining over 2 cents against GBP in the past week.
There are still a number of issues to resolve, including the Spanish banking crisis but reports already suggest a full scale bailout will not be required. Greece is also coming under the spotlight once again this month and any decision on an extension to their debt program will have a significant impact on GBP/EUR exchange rates.
We are far from a full scale recovery but there are some positive signs and the most important task now is for EU leaders to work to gain market confidence in the medium to long-term.
Is GBP Still Over-Valued Against the EUR?
In my opinion Sterling could still be considered over-valued against the euro, even allowing for the single currencies recent fight back. The UK economy continues to stagnate with PMI data consistently poor and the Bank of England having cut growth forecasts on a monthly basis. We have seen multiple rounds of Quantitative Easing to try and boost lending but with our banking sector causing more problems than they are solving, on the face of it it seems to have made little difference. Even with the slight reduction in our trade deficit as highlighted (it was the widest since records began), I anticipate the Pound could under increasing pressure over the coming months.
However, despite all of the negatives, we are still not too far away from the four year highs that we experienced only recently on GBP/EUR exchange rates and for this reason I still think current levels represent good buying opportunities and one of our forward contracts will protect you from further negative GBP movement.
Anyone potentially buying euro who anticipated 1.30 may be left disillusioned unless there is a shift in public perception on the UK economy and/or further fallouts in the EU. I feel the EUR will continue to find resistance around 1.25 as we are witnessing, whilst any positive move for GBP may be dependent on the outcome of further reports from Spain and Greece.
Greenback’s Struggles Continue
Despite the negative economic outlook for the UK as highlighted above, we have seen consistent GBP strength against the USD. The USD has been seen as a safe haven during the recent EU crisis but with the forthcoming US election and string of poor economic data, the greenback is not moving towards the 1.55 level many analysts had predicted. It has instead just broken through the 1.60 level, with the threat of further Quantitative Easing in the US potentially weighing on investors mind. Whilst the political uncertainty remains I think the USD could continue to struggle, even with the relatively poor state of the UK economy.
I believe current levels represent excellent buying opportunities and anyone wishing to purchase USD should consider their positions. Personally I feel it is only a matter of time until the USD starts to gain back some of the ground it has lost against GBP and a move towards 1.55 over the coming months is likely.
The NZD has continued to strengthen against both GBP and the USD following the on-going problems both economies are facing, as highlighted above. The NZD tends to be a volatile currency but due to this it can create excellent buying opportunities for risk hungry investors.
In the past 30 days you would have made an additional NZD 14,000 if transferring £200,000 at the high compared to the low and is an example of why it is essential to stay in regular contact with your broker here at FCD plc, so that you do not miss these spikes in the market.
Here at FCD we have various contract types all tailored specifically towards our client’s needs, so for more information please call us today on 0044 1494 725 353 or visit our website currencies.co.uk and sign up to your free, no obligation trading account.