The following currency report will examine the factors that could affect Sterling exchange rates
It’s been a volatile week for GBP/EUR exchange rates, following a raft of key data for both the UK and Eurozone economies. The EUR had made gains against GBP earlier this week, moving back through 1.20 and putting pressure on the 1.19 resistance level, before a realignment for Sterling has pushed rates back up towards 1.20 during yesterday’s trading.
Wednesday was always likely to be a key day for the currency pair, with UK unemployment and the BoE minutes, along with the latest budget. The budget took centre stage but had very little influence over the FX markets and with UK unemployment coming out at the expected at 7.2% and no votes for further Quantitative Easing, the Pound struggled to make any inroads against its EUR counterpart. There was also positive Construction data out for the Eurozone on Wednesday, which helped to boost market confidence in the EUR.
Anyone with an interest in GBP/EUR rates should keep a close eye on next week’s economic data releases, which include UK PMI data and more importantly the latest UK GDP figures.
Those looking at buying Dollars continue to find of some the best rates on offer of the past four years but whether these rates will be around for long is certainly debatable. Cable exchange rates have been trading above 1.60 for a sustained period and despite the on-going concerns over the US economy, many would have expected a move back towards that level by now.
Following FED Governor Janet Yellen’s first press conference yesterday, this move seems much closer to materialising. Yellen spoke bullishly regarding growth forecasts for the US over the next two quarters but it was her announcement that the FED were likely to raise their base interest rate sooner rather than later, possible within the next six months, that was seen as key. This news immediately boosted market confidence in the USD and GBP/USD rates moved back below 1.65 at the low.
Due to this latest announcement and subsequent market reaction, I would be very tempted to consider my position around the current level if I was looking to buy USD. I still feel it is only a matter of time until the USD makes another decisive move against GBP and when it does it is likely to put pressure back on 1.60.
The AUD made further gains against GBP this week, with pressure now being put back on the 1.83 level. The AUD has gained enough market support over recent weeks to move away from the near four year lows we witnessed and this support is now likely to keep GBP levels at bay over the coming weeks.
This positive move for the AUD comes despite comments made by the Reserve Bank of Australia (RBA) that they were happy for the AUD to weaken further; in the hope this would boost exports in the medium to long-term. However, they also continued to reaffirm their view that there would be no further interest rate cuts to try and push the AUD’s value down. This seems to have buoyed investor confidence in the AUD as it was concern over further cuts and a slowdown in China’s demand for Australia’s raw materials, which were seen as two of the main catalysts for the major AUD loses witnessed over the past twelve months.
I still anticipate that GBP will find resistance around the current levels and we will need to see another shift in market sentiment if GBP/AUD rates are going to breach 1.80 on the exchange.
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