If you’re looking for the best time to buy foreign currency in February, we’ve taken into account the political and economic factors likely to impact your exchange. Read on for information impacting the pound, euro, US dollar and Australian dollar for our thoughts on when to transfer currency.
The pound rose sharply in January, as investors appear to believe that there is now less chance of a no-deal Brexit, and that the pound might have been grossly undervalued. February will be a crucial month for Brexit, as final plans are thrashed out ahead of the planned exit date of 29th March.
At the time of writing, the outcome of some key Parliamentary votes is unknown, but it is expected that Theresa Mays bill will be defeated once again. The expectation that Brexit might well be delayed, or the late March exit date postponed, seems to be increasing.
The shape of Brexit hangs firmly in Parliaments hands, and the market will continue to be swayed by any Brexit related news. Clients with a requirement to buy or sell the pound are unlikely to find it easy going, and despite renewed optimism, the pound may well be under pressure if no-deal remains a viable option.
Theresa May is sticking firmly to her guns in stating that its ‘her deal or no-deal, but the chance of some last minute ‘fudge to get her deal through Parliament remains a possibility. The last thing hard Brexiteers within Parliament will want is no Brexit, the last thing and the pro remain sectors want is a no-deal.
If the issue of the Irish backstop can be resolved, then UK Prime Minister Theresa Mays Brexit plans might just be the only option on the table. Sterling could continue its more buoyant mood if the no-deal option has been reduced or has been voted out.
Economic data has been taking a back seat to the political concerns driving the pound, but with Brexit potentially close to being finalised one way or another, markets will be keenly eyeing up UK data.
Thursday 7th February is the first Bank of England (BoE) interest rate decision in 2019, and will attract a lot of attention. Mark Carney is well known for his views on the economic impact of Brexit, and the market will be keen to understand the latest assessments from Threadneedle Street.
The release of the latest Quarterly Inflation Report (QIR) is also due on this date, which contains more detailed forecasts on growth and inflation from the UKs Central Bank. This too will be viewed in the context of the latest developments on Brexit, thereby attracting headlines and likely to influence financial markets and the pound.
The positivity surrounding Brexit we saw in January could remain, but a return to the prolonged uncertainty, which was such a feature of 2018, may see sterling weaken. If we were to see a complete removal of the risk of nodeal, as per the Labour MP Yvette Coopers motion, we could see further gains for the pound.
With 57 days to the Article 50 deadline, time is running out fast, and the pressures are likely to increase. Sterling volatility might well increase further as investors struggle to value the currency according to the continuous developments.
If you have a requirement to buy or sell the pound, due to the potential volatility in the run up to March 29th, it may be a good idea to make extra plans to ensure you are not wrong-footed by the potential sudden changes in sentiment.
The euro weakened in January as the European Central Bank (ECB), was finally forced to acknowledge the recent shifts in the global economy. In the same month that the the International Monetary Fund (IMF), downgraded global growth, citing Germany as a concern. As a result of this euro lost ground.
We could see more of the same for the euro in February, as the market struggles to find the positives for a Eurozone economy, which is caught in the headlights of Brexit and ongoing Trade Wars. Weaker economic growth is a major concern for the single currency bloc following the bold removal of the Quantitative Easing (QE), program in December.
Movements on the euro could be seen in the light of the 2011-2014 debt crisis, which rocked financial markets and lead many to predict the ultimate demise of the euro. Such predictions always looked too bold, but so too was the ECBs assessment of its response to the crisis.
The euro had performed very well in 2018, as increases in economic growth and falling unemployment all supported the argument for the bloc to withdraw the €2.6tn QE program and consider gently raising interest rates.
The warning signs of last Autumns slowdown which has continued into 2019 is a cause for concern. Thursday 14th sees the latest Eurozone Gross Domestic Product (GDP) data released which could further undermine confidence.
February 22nd is the latest Consumer Price Inflation (CPI) data which will also attract attention, although investors will be monitoring all data for signs that the Eurozone economy is slowing.
The European elections in May likely are also likely to alter the shape of European politics. In the run up to an election, a wavering economy isnt ideal as this can lead to greater distrust in the incumbent Government and lend support to more radical ideas.
More ‘populist parties are gathering support across Europe and the integrationist, social democratic principles embodied by Macron and Merkel are likely to receive a strong challenge, thereby putting pressure on the euro.
The pound rose to a 20-month high against the euro in January, underscoring the weakness of the euro and strength of sterling. Investors seem to believe that Brexit will now avoid a potentially harrowing no-deal, or that the exit date will be postponed. This all supported the rise in value for the pound.
At the time of writing, debates within the UK Parliament are ongoing, which might further increase these positive sentiments if they are backed up by fact. However, with a no-deal scenario still an option, the possibility for Sterling to lose ground again remains. As far as Brexit and its wider implications for the UK, Europe and the globe are concerned, there is still much to find out.
Overall February seems unlikely to shift the suspicious sentiments for the euro that were confirmed in January, clients with a euro position may benefit from a review given the changing winds.
The US dollar enters February on the weaker side as investors concerns over the Trade Wars and in particular the US Government Shutdown boiled over. Whilst the shutdown did technically end, Donald Trump is very much threatening another to get his way. I expect global concerns to continue to weigh on the US dollar which will probably see it weaken in February, the currency markets have been very kind to the greenback and Trump in the last two years but patience could be running out.
The month begins with gusto with the US NFPR, Non-Farm Payroll economic data released which is always closely watched and can be a big market mover. The monthly change in those employed in non-agricultural employment is a good indicator of the more immediate health of the US economy and the numbers for January released on February 1st are predicted to show a lower figure. This will fit with the overall viewpoint of the US economy slowing down and reinforce the less positive outlook.
2019 could be a year where we see the US Federal Reserve taking a step back, the 30th January saw the last US Central Bank meeting and expectations for the Fed to hold off raising interest rates whilst they awaited further news on the Trade Wars and the shutdown. There was a previous expectation that the US dollar would rise in 2019 if the Fed agreed to raise interest rates up to 3 times but these plans seem to be very much on the backburner for now.
The shutdown is predicted to have wiped $3bn from the US economy which will never be recovered. Whilst some of the economic activity is predicted to be recuperated in the future, once everything is back up and running, the loss of confidence could prove very troubling for Trump, the US economy and the US dollar ahead.
Pound to US dollar rates are likely to remain over 1.30 so long as we do not see the pound losing value from the expectations of a no-deal weighing it down. The end of January saw debates on key pieces of Brexit legislation, the amendments to which could mean GBPUSD levels are below 1.30 or as high as 1.35, depending on the outcomes from the UK Parliament. The forces are at work to try to remove a no-deal Brexit, whilst others are quite keen to pass Mrs Mays current plan. February should provide some further insight on Brexit but it might well be that we have once again more questions than answers.
Overall GBPUSD levels to me look likely to remain above 1.30 but with the familiar Brexit warnings over sudden unexpected changes in sentiment and no-deal a risk. The ongoing uncertainty over the outlook on the US Government Shutdown and Trade Wars should see the US dollar weaker which looks likely to continue to represent some fresh, favourable levels for US dollar buyers.
The Australian dollar has been largely driven by the economic sentiment relating to the Trade War between China and the US. Concerns over the global economy are currently weighing down the Australian currency. The Australian dollar has always been a good barometer of global growth and with investors selling the currency in anticipation of a weaker Chinese economy, the market has been poised for further sell-offs in 2019.
February is going to be a crucial time for global Trade Wars, with ongoing talks and the deadline of 1st March looming for a hike in the tariffs to 25%. The 1st March date could see some Australian dollar volatility as we approach it, with both sides not appearing too likely to back down. I expect the Australian dollar will lose value if there is little progress being made, February could be another tough month for the Australian dollar.
The start of 2019 was difficult for the Australian dollar, following a flurry of poor economic data from China, prompting the Australian dollar to extend its weakness and raising fears over the outlook. The economic data from Australia has not lent much support to AUD, and we have seen the currency losing ground and remaining on the weaker side. A closely watched business confidence survey in Australia pointed to some of the worst conditions since 2008 and with the Reserve Bank of Australia (RBA) no closer to hiking interest rates in such conditions, the Australian dollar could lose further ground.
The next interest rate decision is due the 5th February and it is likely the RBA will cite the ongoing issues over the Trade Wars as a reason to be wary about hiking interest rates further in the future. As a result of this, the Australian dollar could remain fairly range abound in February, as investors seek the clarity on the trade dispute which is at present so elusive.
The pound to Australian dollar exchange rate could remain in the 1.80s as a stronger pound helps investors to seek a more optimistic outlook from Brexit however uncertainties surrounding Brexit could easily rear their head once again.
GBPAUD levels moved nearly 10 cents from the high to low during December and January, in response to the ever-changing nature of Brexit negotiations and global Trade Wars. These two factors continue to be the biggest driver on the GBPAUD pairing.
If you are considering a currency transfer, buying a property abroad or looking to bring funds back to the UK from overseas, 2019 has a number of potential events which could create some excellent opportunities for well-prepared buyers and sellers.
In any event, our currency experts are on standby to answer any of your questions, so feel free to call our trading floor on 01494 725 353 if you would like to discuss a transfer.
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