The pound has dropped against most majors this week so many clients are asking will it bounce back? In my view this all depends on which currency pair you are looking at as whilst there are some factors affecting sterling directly, much of the movement can be attributed to factors affecting other currencies, so to this end it is worth considering them separately.
There has actually been very little negative data out to affect the pound of late although the Trade Balance this morning was not particularly pretty viewing. Some of the negative sentiment surrounds MPC Member Charles Bean’s comments about the value of the pound; “Any further appreciation of sterling, which has risen almost 10% in trade-weighted terms since March, would not be particularly helpful in terms of facilitating a rebalancing towards net exports.” Probably just an attempt to talk down the value of the pound rather than a sign the BofE wont be raising rates in 2015, so I suspect as long as UK economic data improves, the pound will be realatively well supported to avoid significant further losses. The recent flooding and resulting damage may have damaged the economy in the short term, but the resulting clear up and construction effort could actually provide a big boost to the building trade and provide an unintentional “Plan B” of sorts.
The Dollar still remains very weak as the pace of the recovery in the US still remains weak so the issue of tapering is still not being fully resolved by a cautious Fed. The debt ceiling and political issues are also hampering any clear forecasts but I still feel that once momentum in the US picks up and we get closer to seeing potential interest rate rises, then I suspect the Dollar will make some small headway against the pound. I think the Dollar will fare much better this year against the Euro but that is another story. If you have a GBP USD transfer and would like assistance then feel free to email me at [email protected] and I would be happy to help, or call me on 01494 787 478.
The Euro has made huge gains against the pound since last Thursday after Mario Draghi and the ECB didn’t do anything regarding interest rates (or any other unusual measures), citing the economic situation was gradually improving. The move took speculators by surprise seeing a surge in confidence for the single currency shooting up 2% against sterling since Thursday. However, whilst inflation may have improved slightly in Europe, it still remains very low, and both growth and unemployment are hugely worrying factors – unemployment rates in Greece rose this week to 27.5%! I feel the pace is too slow and that the ECB may have their hand forced into further action later in the year, and even if it isn’t, the prospect of interest rate rises in Europe still look many years away so it may not be long before investors move away from the Euro looking for better returns. With the UK forecast to raise rate in 2015 and the US not far behind, the Euro could soon become a little isolated. To this end I see current exchange rates as a great time to sell Euros, before it weakens off again in the coming months. If you are buying or selling property in Europe then timing your exchange rate could be the key to getting the best deal on currency transfers so feel free to email Colm at [email protected] if you would like assistance. If you would prefer to call I am available on 01494 787 478.
As forecast the RBNZ raised interest rates this week and the Kiwi strengthened a touch further as a result. I suspect this move will keep the NZD looking pretty robust with investors showing increased risk appetite. To this end I don’t see the pound making much headway against the Kiwi in the short term barring a collapse in Asian Pacific confidence or some form of intervention by the RBNZ should the Kiwi strengthen too much (unlikely any time soon if they have just hiked in my view).
Whilst many people have forecast a drop for AUD I think further falls for the Aussie are unlikely and have been saying this for some time. Jobs figures the other day showed an improvement, the RBA have been very clear that no more imminet action is likely, plus the pound has gained so rapidly in value versus the Aussie last year that at some point it was always going to peak. Global confidence seems to be gradually returning which tends to help the higher yield currencies despite the on-going issue of US tapering, and slight wobbles in China. Rather than holding out for huge gains, I would assess how soon I need the money. I you can afford to wait long term then it may be worth holding off a while and targeting somewhere 1.87+ but in the next few months I would think anything over 1.85 is a good buy rather than being too greedy. If you are selling Aussie Dollars, then a positive spike may not be out the question over the next few weeks with 1.82 my guide. Moving Down Under? Would you like help with the currency? Email Colm at [email protected] or call me on 01494 787 478