What will happen with the Euro during and after the interest rate decision tomorrow

One of the most frequent currencies that our clients trade is the Euro and on a daily basis I get clients asking me what is the outlook for the GBP/EUR and when should I be buying my Euros.

With the uncertainty over whether or not the latest Euro bail out will work and who may be next to need a handout it is a tricky time to gauge when is the best time to exchange your funds. I often get clients asking that if things continue to deteriorate in the Euro zone should we wait to see if the Euro really collapses?

On one hand I am inclined to say yes we should wait but on the other we have to look realistically at the state of the UK economy and why the Euro has remained so strong against the pound. 

With all the debt concerns surrounding the PIIGS of Europe the main factor that has kept the Euro strong is the recent interest rate hikes by the ECB. As a rule of thumb an interest rate increase tends to make a currency more attractive to investors and therefore it increases in value due to greater demand. 

We have another big day fast approaching tomorrow when the Bank of England and the European Central Bank will both announce their rate decisions for the month of August. Now we expect both central banks to keep the base rates on hold. Straight after the decision the president of the ECB will give a speech and any hints of a rate rise in the future could strengthen the Euro quite quickly despite all the debt concerns and I would forecast a drop of a cent or two.

With current rates for the pound against the Euro at fairly attractive levels compared to where we had been trading just 2-3 weeks ago you may be wise to secure any Euros on a forward contract before the decision tomorrow lunch time.

I have had clients who are not so risk averse take up this option as it takes away the stress and worry of exchange rate fluctuations. It gives you the peace of mind aspect that you know to the penny how much your overseas property will cost or if you have invoices for a business you can work out your costings or profit and loss accordingly.

If you would like information on these contracts or would just like to have a chat regarding any future currency requirements I will be happy to explain all the options that are available to you. Please feel free to call me directly on 01494 787 474 and ask for Ben or Quote ‘Pound Sterling Forecast’.