Crossroads for Exchange Rates

By Matthew Boyle

On Wednesday we saw GBP-EUR rates reach the highest levels since April with its gains continuing to push it to around 18-month highs early on Thursday morning. This was however short-lived as the rate touched and then bounced off a key level of rate resistance then dropping by nearly a cent. This failure to break this established ceiling of resistance and subsequent bounce back has occurred several times over the last few weeks with concerns raised over what it may take to break higher. Despite the ongoing successful vaccine programme and easing of lockdown restrictions it seems the market sentiment remains relatively neutral. Once again, we saw GBP rates fall this early morning, dropping around half a cent in the bounce and subsequent downward move.

Against the USD equally the Pound is struggling and over the last 2 weeks as slowly ebbed lower.

It seems whilst freedom day is on the horizon – the likely catalyst to further GBP gains – many remain sceptical about the UK’s short term and given recent history question if perhaps we are headed for a return to a period of restrictions. With the media reporting that last week the NHS pinged 500,000 people to isolate last week (the highest number in a week so far) perhaps this is in fact a pragmatic rather than sceptical view.

Longer term the outlook for the Pound is looking more positive as the Monetary Policy Committee suggested the Bank of England are readying and prepared to raise Interest rates early 2022 to battle increasing inflation in the UK.

Right now however GBP-EUR rates are at a crossroads. If we see this key resistance broken and a push up then we might see a run of 1-2% until we reach the next ceiling. However rising rates of covid and delicate sentiment open the reality of downside risk. And with rates continuing to hit and bounce a loss of momentum could result in a slow and significant downward move.

A such both buyers and sellers who want to remove risk would be well advised to consider taking action now before we see a break out or breakdown.

Today date wise we have Euro Inflation data at 10 AM and US market sentiment figures this afternoon.

With sentiment largely driving rates currently though we are unlikely to see any major movements.

It would be prudent to take this opportunity to speak to A Place in the Sun Currency for some friendly guidance and look to reduce the risk of your upcoming transfer.