By Matthew Boyle
GBP/EUR
In the last week GBP/EUR rates have risen and are now testing the highest levels seen in nearly 3 years.
Following the Bank of England interest rate cut last month, we saw a 2 cent drop in GBP>EUR rates but since the Pound has performed well.
No doubt helped by recent political unrest in France, the Pound’s strength is largely due to the fact UK interest rates will remain higher and for longer than was previously expected.
Just like someone would look to put their money in a bank account offering a higher rate of interest, foreign investors are attracted by currencies with higher interest rates and providing a higher rate of return. Last month the Bank of England cut rates for the second time this year to now 4.75%, whilst the European Central Bank has cut rates 3 times with their overnight deposit rate now sitting at 3.25%.
Aside from the fact that the UK’s higher interest rate has kept the Pound attractive, recent changes to the way the UK government can borrow has afforded Labour an additional £50 billion from the Bank of England – an amount nearly 1% of the entire UK GDP.
Whilst previously the expectation was that the BoE would cut rates again this year this has pushed back the expected programme of rate cuts significantly.
Consequently, UK Rates are likely to remain high in the short term whilst the ECB are expected to announce a 4th rate cut on the 12th December.
GBP/USD
It has been a turbulent month for GBP/USD rates. Following months of uncertainty ahead of the US election, the re-election of Trump as President may have been controversial for some but allowed some certainty in the US market to return, and with it investor confidence. After a near 5% drop for GBP/USD last month due to Greenback strength the last few weeks have seen rates buoyant as the Federal Reserve is expected to cut interest rates from the current level of just over 4.5% on the 17th December.
Interestingly then while Trump may be deemed a positive, at least for the domestic US economy, if that leads to the Federal Reserve cutting rates, this weakens the USD as a foreign currency: lower interest = less foreign demand.
We end the week data-wise today with Eurozone GDP and US non-farm payroll data – both of which could cause rates to move.
With GBP/EUR near 3-year highs and GBP/USD seemingly at a crossroads the current market is a uncertain one.
Buyers may be tempted to wait, hoping that rates push higher, whilst sellers might hold off hoping that rates will drop. This could well be a risky approach for both and when dealing with a large amount of money, potentially a costly one.
A Place in the Sun Currency offers several ways to secure your currency to help you remove risk. Should you have an upcoming transfer to make call us today to speak to one of our consultants for some professional guidance to help make your money go further.