Since the beginning of January the pound has slipped against a basket of currencies with the most noticeable movement being the near 7 cent slide against the Euro. The recent poor GDP figures and Cameron’s speech on Europe have been partly to blame on the one hand, and Mario Draghi’s announcement that the fear of a collapse of the Euro being over has boosted the single currency on the other.
I think it will come as no surprise that the UK will likely head into a “triple dip” recession and in truth it actually feels like one long recession to most people since 2008. However I am not convinced that the situation in the UK and some European states is really comparable as our unemployment rate is a lot lower than that of Greece and Spain, and the recession periods much shorter and shallower.
The movement has been so severe that it looks to have left the pound undervalued against the Euro, given that sterling has dropped in a much smaller range against everything else. I would not be surprised to see speculators step in and take profits soon by re-buying a cheap pound.
To this end I think that once the markets have digested the GDP scare and Cameron’s speech fades sterling will rally back towards the 1.20 mark. If you are looking to make a money transfer to France (or anywhere else for that matter) then visit one of our dedicated pages by clicking here.
Following Mario Draghi’s comments that the crisis is over the Euro has hit the highest levels against the pound and touched near 1.36 against the USD compared to 1.26 in December. Bond yields for the PIIGS have come down under the renewed confidence he has created but I am not convinced the exchange rates are sustainable. For one thing, interest rates in Europe are now much closer to the miserly ones on offer in the UK and US as opposed to 2010 and 2011 when the higher rates on offer by the ECB made the Euro more attractive.
Secondly, the UK and the US are well into the pain of trying to rebuild their respective economies, and whilst there may still be a long way to go it still feels like Europe still has a lot worse to come. The recent confidence around the “saving of the Euro” could be easily shattered by another member state having to request a bailout. Whilst I think the Euro will end the year with all member states intact, I suspect it will have once again come under pressure somewhere just over 1.20 with GBP and around 1.27 versus the greenback. If you want to learn more about how to sell Euros at the best rate then click here.
Cable rates still favour the Dollar slightly but much of the political and economic debate in the US at the moment is on jobs. Todays jobs data will be scrutinised once again, and any major fall in the numbers will likely harm the Dollar but more importantly damage some of the “high yield, high risk” currencies like the Kiwi and Aussie Dollar, and South African Rand.
Global confidence may be rising at the moment as reflected in stock markets, but I still think there are more troubles to come through 2013, so whatever happens with the US economy itslef I feel the Dollar will reamin strong against the pound, gradually edging towards 1.55, and will regain lost ground against the Euro in the not too distant future.
The Yen continued to slip as Japan wrestles with markets to make it easier to export its goods by making them cheaper for other countries to import. Again this may result in investors looking for other options, and on the surface the pound has been tarnished recently but I still think longer term both the pound and the Swiss Franc will benefit from this against what will be a once again struggling Euro.
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