By James Caley
The pound has extended its strong performance against the euro this week, gaining 0.37% yesterday. This upward trend presents an excellent opportunity for euro buyers, with the GBP/EUR exchange rate currently sitting approximately 1 cent higher than at the start of December, nearly 3 cents above its level on November 1st, and over 5 cents higher compared to early August.
The European Central Bank is expected to announce a 0.25% interest rate cut tomorrow, a move largely anticipated by the market. However, if the ECB opts for a more aggressive cut of 0.5%, we could see further euro weakness, potentially driving sterling even higher.
Throughout this year, the Eurozone has pursued an assertive approach to interest rate cuts, contrasting with the UK’s more measured stance. The Bank of England (BoE) is expected to maintain its current rate of 4.75% in next week’s policy update, with a gradual reduction likely in 2024 as the BoE focuses on containing inflationary pressures.
Beyond the euro, sterling has demonstrated considerable strength across other currency pairs, with GBP/AUD, GBP/CAD, and GBP/NZD all trading at five-year highs. The exception remains the US dollar, which has maintained resilience against the pound. However, today’s release of US CPI data could introduce new market dynamics.
Is now the right time to buy?
For those adopting a risk-based strategy, the current levels could be an opportune moment to secure currency at exchange rate reflecting a 5 year high. The last time the pound reached significantly higher levels against the euro was in July 2016 and more recently, when sterling euro reached similar levels in February 2022 it proved short-lived as sterling retreated soon after.
If you are considering your options then speak to one of our currency consultants who can guide you through how to approach the market, the risk of adverse market movement and of course our various contract options.