Tag Archives: Mario Draghi
Sterling at a three month high against the Euro, Aussie and US dollar (Mike Vaughan)
As expected the European Central Bank cut its base rate to a record low of 0.5% from 0.75% earlier today pushing GBP/EUR close to 1.19 for the first time in nearly three months, as Mario Dragji (head of the ECB) indicated he would consider cutting rates further and could not rule out negative interest rates. The move for sterling has been a welcome relief for many and showing little sign of slowing, in fact the pound has now gained 4.3% against the single currency since its low in mid March and a very similar trend has been experienced against a number of major currencies.
Moves against the greenback and Aussie have been even more substantial seeing a shift of 4.5% since mid March against the US dollar and 5.2% against the Australian Dollar in the last month. This makes a significant difference on your money exchange and may represent a strong buy opportunity for some, however I guess the question for many is will this last?
For me I believe this could be the start of a correction for the pound, certainly against the Euro and Australian Dollar but I feel the US dollar is less clear and will remain range bound between 1.53-1.55. Those buying Euros and AUD may get more from the market and I would look for levels to head towards 1.20 for GBP/EUR and possibly 1.55 for GBP/AUD. AUD buyers should watch out for the next RBA meeting (Reserve Bank of Australia) scheduled for Tuesday next week, should the RBA Australia cut interest rates (as some analysts are predicting) we could see a further shift for GBP/AUD, I feel the RBA may also be considering further rate cuts later this year and would expect to see more value for AUD buyers in the coming weeks, particularly should China show further signs of an economic slowdown.
For those looking to buy the US dollar I would certainly consider 1.55 to be viewed as good value and feel this has the potential to move back towards 1.50, although data of late from the US has been weaker than many expected which has pushed cable close to 1.56. Tomorrow watch out of US non-farm payroll figures that are expected to show a strong increase from last month, something again that could lend support to the dollar in tomorrows afternoon session. Much of the dollars moves will come down to perceived appetite for risk and I think with the market still so jittery losses for the dollar will slow and would expect levels to shift back in the dollars favour, I would expect US dollar sellers to get more value in the coming weeks.
Should you have an upcoming trade to arrange and you would like to discuss the market in more detail and how we can help you achieve a competitive commercial rate of exchange then please get in touch. We are here to help. Please email with your particular currency requirement and I will happily get in contact to discuss your options to help you maximise your trade. Email mgv@currencies.co.uk
GBPEUR down again but how can the Euro survive so strong? “EURO IS DOOMED” (Steve Eakins)
Saxo Bank CEO says that the “Euro is Doomed”. In an interesting inverview over the weekend by the CEO of the SAXO bank some intersting commentry was made. He went on to say that the recent rally is a illusion and that the euro will fail because there is still no fiscal union. Right now we’re in one of those fake solutions where people think that the problem is contained or being addressed, which it isn’t at all.” AS regular readers will know the euro has gained nearly 6% against sterling since the beginning of the year. You can understand some of his arguments. As the Eurozone contacted 0.3% this year and the European Central bank Mario Draghi said only a week again that its strength risks growth and inflation.
So how does this work?
How can the euro gain when the economies of Germany, France and Italy all shrank more than estimated in the 4th quarter. They have recently been trying to finalise a bailout for Cyprus and Greece while in the back grown there is political scandal in Spain and an election contest in Italy. France may be the biggest worry as investments are dropping, unemployment climbs and pressure from elsewhere in Europe asking for
money to bulk up other economies. The economy Eurozone is on the brink of the 3rd recession in 4 years. The simply answer is the preserved strength of the economy compared to its position last year when many were worrying that Europe would fold.
So what next for exchange rates?
Well today (Monday) has been a quiet day as the US is closed. AS we are nearing the end of the month data releases are thin however don’t think that the market will be quite as a result. Wednesday and Thursday are the busiest days with releases on UK unemployment, Bank of England minutes, US Production Price Index and European Manufacturing data. Along with that we also have news on EU public sector debt, this has been climbing at a HUGE rate. In 2008 it was at 40% of GDP and its updated forecasts are thought to have climbed up to 97.1% I worrying story for the long distant but probably not a huge mover this week on currency exchange rates.
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Sterling hits a 33 month high against a basket of currencies on a trade weighted basis, but Euro buyers be wary of the ECB interest rate decision at 12.45
Sterling has continued its recent resurgence hitting a 33 month high against a basket of currencies on a trade weighted basis. This has included a notable high against majors such as the Euro (a 22 month high), US dollar (7 month high), AUD and NZD (year highs). To me these must represent some fantastic buy opportunities and may well come as a welcome relief to many. For those with an upcoming requirement involving Sterling watch out for UK PMI for the services sector at 09:30. The PMI service released by both the Chartered Institute of Purchasing & Supply and the Markit Economics is an indicator of the economic situation in the UK services sector and captures an overview of the condition of sales and employment. Figures above 50 show expansion and below contraction, we are expected a release of 54.2 showing expansion but these would be down on April’s figure of 55.3 so may cause the pound to weaken a touch. We have also seen Nationwide house price data released overnight with figures falling from 0.5 to -0.2% – possibly why the pound is down against most currencies this morning.
ECB Interest Rate Decision
For anyone with an interest in the Euro keep an eye on the European Central Bank and their respective interest rate decision at 12.45BST. Expectations are for a rate hold at 1% but the press conference held by President Mario Draghi at 13:30BST should be viewed with caution. I am sure the situation in Spain will be high on the agenda and clues may be given as to future monetary policy and as to what the ECB projects for the coming weeks and months. Should Draghi take a positive (bullish) tone watch for Euro strength in the afternoon session. Subsequently any negative sentiment and expect the reverse. The period before and after the Presidents speech is a notoriously volatile time, anyone risk averse may well look to avoid this contact Mike at mgv@currencies.co.uk to discuss your transfer and the potential outcomes.
As a specialist currency broker myself and a number of my colleagues regularly post on this blog to assist and help individuals and business’s a like make an informed decision as to when is best to exchange. Through years of market experience we get a feeling as to what data sets affect the market and can help pass this market knowledge on to prospective clients. Ultimately the decision is always yours but should you have an upcoming requirement and would like to run through the data that might affect your exchange in the coming weeks then please do not hesitate to contact me. As well as taking time to write and post on this blog I also work for one of the UK’s largest independent brokers www.currencies.co.uk offering a number of contracts tailored to each individuals requirements. I would be more than happy to discuss these contracts with you and can be reached on 01494 787 478 or email Mike at mgv@currencies.co.uk
