By Matthew Boyle
As war rages on in the Middle East, rising oil and gas prices continue to drive the FX market and exchange rates. Yesterday saw the Brent Crude oil price rise to over $100 dollars a barrel, with some analysts warning of an increase to $200 should there be no end to the war in the near-term. The result of rising energy prices has seen markets pricing in higher inflation levels globally, leaving the UK exposed more than others, with current inflation levels higher than many other countries.
This has kept the Pound strong across the board by pushing up interest related products including UK bond yields, and so making the Pound more attractive to foreign investors. GBP/EUR rates remain close to the best they have been in 9 months and are up over 1.4% in the last month.
This means someone transferring £100k GBP to EUR is €1600 better off then they were only a few weeks ago.
It does seem in the short-term GBP/EUR rates have somewhat levelled out though, which is unsurprising given the multi-month high. Euro sellers may be tempted to wait for a drop however the longer the war rages on, the greater the likely impact rising oil and gas prices will have and so rates could well rise further. With the war looking like it may continue for some time, exchange rates positioned where they are offer both buyers and sellers a good opportunity.
Whilst the Pound has gained ground across much of the board, the US Dollar has benefitted more and remains strong given its safe-haven status, which has seen it strengthen significantly in the last few weeks. With Iran attacking regional oil facilities and Trump not able to control the all-important Strait of Hormuz, the situation doesn’t seem to offer an end currently. And as such it looks like GBP/USD will continue to come under further downside pressure due to likely ongoing USD strength.
Whilst we have some significant data releases still due this week – particularly the US interest rate decision today, the Bank of England decision tomorrow, alongside UK unemployment data – no changes are expected to the central bank interest rates and so markets will continue to be driven by rising energy prices.
Should you have an upcoming transfer speak to your consultant today for some guidance on how to remove the risk of your transfer becoming more expensive and make sure you are making your money go further.