Last year we saw GBPEUR rates climb their way up to the peak levels of 1.44, however since the latter end of 2015 and now into 2016 those rates have been sliding down the other side as quickly as an avalanche. Trading levels plateaued and found some support in the early 1.30 levels, though that support has now given way and rates have dropped into the 1.29s.
Yesterday saw key data releases for both the UK and the Eurozone in the form of inflation figures. UK inflation came out at a higher than expected 0.2% for the year to December and is the first time since January 2015 that the figure has been above 0.1%. Whilst this was slightly positive news and we saw GBPEUR rates climb a little on the back of it, the figure is still very low historically and significantly below the Bank of England’s 2% target.
These low levels of inflation are a large stumbling block in the way of any interest rate rises by the BOE in the near future. This was confirmed yesterday by the governor of the BOE Mark Carney saying “now is not yet the time to raise interest rates”, and as a result we saw the gains and support that GBPEUR rates had found fall to the wayside.
With the governor also stating his belief that the UK economy is vulnerable to current global economic weaknesses, I believe GBPEUR rates are in for a rocky ride in the near future, and any spikes in current trading levels should be taken advantage of by those with Euros to buy. It will be a long way off before we see GBPEUR rates reach anywhere near the highs of last year.
Eyes now turn towards tomorrow’s ECB interest rate decision and accompanying monetary policy statement from Mario Draghi. Whilst I expect the ECB to keep interest rates on hold at 0.05%, we could well see an indication that their quantitative easing programme could be further extended. With Eurozone inflation data showing just a 0.2% increase year on year to December, well below the bank’s target rate of 2%, the dramatic slide in oil prices worldwide as of late and concerns over China’s economic woes, the ECB may be of the view that extra stimulus is required to steer the Euro economy back on course.
If this is the case then GBPEUR rates could weaken back up into the early 1.30s and give Euro buyers that spike to take advantage of. Anyone with Euros to sell would be wise to utilise the current 12 month lows before tomorrow’s ECB announcement.
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