Where Next for GBP/EUR Exchange Rates? (Matthew Vassallo)

Pound to Dollar Rate Shrugs Off UK’s Economic Woes

 “I believe the dramatic fall in Sterling exchange rates can be attributed to a loss of market confidence in the UK economy, rather than any real belief in the recovery of the eurozone”

When a majorly traded currency loses approximately 7 cents in 3 weeks it is understandable that a state of confusion and even panic can set in. It is not an easy situation to manage and to all those who are feeling the pinch following Sterling’s recent slide, it is worth remembering that only 15 months ago GBP/EUR rates were floating around 1.10 and looked as if they would fall further. At that point it was only a matter of time until the currency pair reached parity but fast forward to the summer of 2012 and the same analysts were insisting it was not if but when we would see the pair breaks through 1.30. Now we find ourselves in a position where no one quite knows but I remain firm in my belief that whilst we continue to trade below 1.20 on GBP/EUR, EUR sellers are probably doing better than they should be.

The point I’m making is that exchange rates will always move and at points aggressively and without warning. This is the nature of the currency markets and there is nothing we can do to stop it. Here at Foreign Currency Direct plc we can protect you against any future volatility in the market, so to find out more please feel free to contact me directly at [email protected].

A closer look at the markets will tell us that Sterling has in fact started to claw back some of the ground it lost against the EUR, with a spike of over a cent back towards 1.16. Further movement this week is likely and key economic data to keep an eye on includes the release of this morning’s UK PMI data for the Market Services sector. Expectation is an improvement on the previous figure but it is likely to remain under 50, which signifies an economy is contracting rather than expanding and could fuel further stories of a triple dip recession. Personally I expect GBP/EUR rates to be range-bound between 1.15-1.18, until we receive confirmation of whether the UK economy indeed will enter another quarter of official recession.

 

With problems in the eurozone still abundant I believe the recent movement on GBP/EUR exchange rates can be attributed much more to the lose of market confidence in the UK economy, rather than belief amongst major investors that the eurozone is truly on the road to recovery. With Greece desperately struggling to keep its house in order and Spain battling further political unrest, it won’t be long before the spotlight is back on these struggling economies and the euro is likely to suffer because of it.   

It was only a matter of time until the greenback made its move against Sterling and I would be surprised to see rates go back above 1.60 anytime soon, despite the US’s recent poor Gross Domestic Product data. With Sterling coming under increased pressure I believe a move back towards 1.55 is likely by the end of Q1.

The CAD has performed well against Sterling recently as the Canadian economy grew by 0.3%. This coupled with the well documented economic problems in the UK, have pushed levels down below 1.60. Personally I feel the CAD will continue to hold firm below 1.58, whilst fears of a triple dip recession in the UK continue to weigh heavily on investor’s minds.

Key data this week include Wednesday’s Purchasing Managers Index and Fridays Unemployment rate. Previous PMI data was poor (43.1), so Canadian officials will be hoping for a reading much closer to 50 and an unemployment rate that is an improvement on the previous figures of 7.1%. Any improvement could see levels move back towards 1.56 by the weekends trading.

Here at Foreign Currency Direct plc we have a team of specialist currency brokers experienced in ensuring client’s currency exchanges are handled in the most appropriate fashion. If you would like to find out the type of rates we can offer, or need to be kept up to date with all the latest market movements then please feel free to contact me at [email protected] or call us on 0044 1494 725 353.