By Matthew Boyle
After the recent jump in rates seen on the day Boris Johnson announced he would step down last week saw GBP>EUR rates tail off by around a cent. Whilst many would perceive the jump in rates was a show of increased GBP strength given Boris could be likened to Marmite – you either love him or hate him – it was also largely in part due to a weak EUR as Russia increased threats to cut gas supplies off to Europe.
And as the temperatures slowly rise in the UK, this drop could mark the start of a slide for GBP>EUR rates, as the Pound cools down and the single currency starts to heat up.
Since the start of the year central bank intervention has dominated the markets in terms of driving currency movements with the Pound benefiting heavily from several hikes by the Bank of England.
However, this could be about to change. Last month UK inflation was predicted to jump from 9% to double figures, it only rose by 0.1% to 9.1%.
It seems, (at least in the short term) intervention by the BoE may have abated rising inflation. Whilst this is good for the UK, it may spell short-term disaster for GBP>EUR rates.
Whilst UK inflation may be on turn, in Europe it still looks out of control. The European Central Bank however hasn’t used rate manipulation to control inflation not changing them in 10 years but rather opts for Quantitative Easing – the selling and buying of short- and long-term bond debt (in essence just printing money).
But, this could be set to change as rumours grow that the ECB may look to taper the QE programme in favour of hikes and soon. With EUR interest rates static for 10 years and it likely the BoE will now pause their programme with inflation slowing; this would result a significant shift in GBP>EUR rates.
Given how in many ways the Pound is overbought having benefited from months of good news, the Euro has been underbought and suffered badly in recent months due to many factors, not least of course the conflict in the Ukraine.
Things could be about to change though and fast. If you have a GBP>EUR requirement you would be well advised to speak to your consultant today or you might risk feeling the burn should rates fall further.