Tag Archives: Eurozone

GBPEUR @ its highest level since 2008.

The Pound has appreciated following today’s Bank of England announcement that the Monetary Policy Committee has kept interest rates unchanged at 0.50% and Quantitative Easing at its current level of £325bn. Whilst this was widely expected, the possible threat of further QE always poses a threat to the value of the Pound and as such the market was reassured by the announcement and the Pound has appreciated.

Because of the continuing economic and political woes facing the Eurozone the Pound has now appreciated to its highest level against the Euro since November 2008, hitting an interbank high of 1.2496 earlier today.

Currency Matters can offer a number of products which can help you plan your future currency requirements. By using a Forward Contract it is possible to purchase currency today at a guaranteed exchange rate for settlement at a later date. A small deposit is required to secure a Forward Contract with the balance due by the agreed future value date.

Please do not hesitate to contact the dealing team on +44 (0) 1695 581 669 for further information or for a live quote.

Sterling-Euro Highs

The Pound has pushed higher towards the most recent GBPEUR highs of 1.2161 (EURGBP 0.8223) last seen on the 9th January 2012, hitting a high so far of 1.2153 before falling back slightly. The UK with its AAA credit rating is currently being viewed as a relative safe haven as investors continue to be concerned about the on-going Euro zone debt crisis. Switzerland the traditional safe haven has lost some of its safe haven status as the Swiss National Bank continues to enforce the EURCHF floor at 1.20. The Pound also continues to trade near its recent highs against the USD at 1.59.
EURUSD 1.3170
EURGBP 0.8250
GBPEUR 1.2120
GBPUSD 1.5960
GBPCHF 1.4570
EURCHF 1.2020
The following rates are shown for indicative purposes only. Please note the rate you are able to achieve will depend on the amount of currency being purchased. Please do not hesitate to contact the dealing team on +44 (0) 1695 581 669 for a live quote.
12/04/12 12:40

Bank of England Quarterly Inflation Report & Eurozone Bond Yields

Today’s Bank of England Quarterly Inflation Report has suggested that UK inflation has peaked and is likely to fall sharply from its current rate of 5% (down from 5.25% in the previous month September) to 1.3% over two years. The Bank has also cut its UK economic growth forecasts to 1% for 2011 & 2012 but indicated growth should climb towards 3.1% in two years.

Both the outlook to economic growth and inflation are seen as unusually uncertain and much will depend on developments in the Eurozone, the Eurozone debt crisis posing the single biggest risk to the UK economy.

Current forecasts suggest that UK interest rates are likely to remain low for a prolonged period of time with the first interest rate hike from the Bank of England not expected until at least 2013 whilst the prospect of further Quantitative Easing remains a strong possibility.

The debt crisis continues in Europe with Italian 10 year debt trading back above the unsustainable level of 7% and the yield of Spanish government bonds back above 6%. Besides the usual suspects, debt market yields of France, Austria, Netherlands and Belgium have also risen sharply, hitting Euro era highs. Moreover, the spread between French and German 10 year debt has also hit a fresh high.

Clearly the debt crisis poses a significant threat to the value of the Euro, the Euro has been surprisingly resilient so far but over the medium term I would expect the Euro to fall against the US Dollar and Sterling.

On the interbank market the Pound is currently trading between 1.57-1.58 against the US Dollar and between 1.16-1.17 against the Euro.

Please do not hesitate to contact the dealing team on +44 (0) 1695 581 669 for a live quote.

Euro Uncertainty

Financial markets have responded negatively to the unfolding drama surrounding the Greek bailout, with equities and the Euro starting November under strong selling pressure.

EURGBP fell from last week’s high of 0.8830(GBPEUR 1.1325) to a low of 0.8548 (1.16986) yesterday and is currently trading around 0.8611 (1.1613).

Against the US Dollar the Euro fell from last week’s high of EURUSD 1.4247 to 1.3608 yesterday, again the Euro has pared some of its losses and EURUSD currently trades at 1.3783.

The Greek cabinet has endorsed Greek Prime Minister Papandreau’s controversial plan to hold a referendum on the EU debt rescue package and the market will now await the outcome of today’s talks between Papandreau and his French and German counterparts President Sarkozy and Chancellor Merkel ahead of Thursday and Friday’s G20 summit and Thursday’s European Central Bank interest rate decision.

Please do not hesitate to contact the dealing team on +44 (0) 1695 581 669 for further information or a live quote.

11:30 02/11/11

EU Debt Crisis Deal

The Euro has appreciated following the EU summit deal on the Eurozone debt crisis. The agreement came after prolonged late night talks and for the time being has convinced the financial markets they have a response to the economic crisis. The deal will focus on 3 key points:

Firstly, private banks will be asked to accept a 50% loss on Greek government debt. This is expected to cut the nation’s debt load to 120% of GDP in 2020. Under current conditions, it would have grown to 180%.

Secondly, the European Financial Stability Facility (EFSF) will be leveraged four-five times and increased from €440 billion to €1 trillion.

Finally, the deal will aim to recapitalise European banks, which will be required to increase their core cash reserves to 9% by June 2012.

The Euro has appreciated back above 1.40 against the US Dollar and above 0.8760 (GBPEUR 1.1416) against the Pound. The market is likely to remain volatile and will continue to await and scrutinise the finer technical and legal detail and implementation of the agreement.

European Sovereign Debt Crisis

The European sovereign debt crisis continues to pose a significant threat to the recovery of the Euro-zone and to the wider global economy. The €109bn bail-out agreed in July for Greece may have averted an immediate significant Greek default and contagion spreading to Ireland, Italy, Portugal, and Spain but the Euro-zone continues to face significant challenges. In fact, despite Greece’s significant austerity measures, figures released by the Greek government over the weekend project that the 2011 deficit will be at 8.5% of GDP, well short of the 7.6% target agreed to secure the first bailout. Greece needs to secure the next tranche from the bailout fund of €8bn or it will run out of cash this month. Therefore for the time being Greece will remain firmly in the spotlight.

The ongoing uncertainty over the economic recovery in the UK and Euro-zone has caused some uncertainty in the outlook in the Pound -Euro (GBPEUR) exchange rate. So far the Euro has shown a surprising amount of resilience to the European sovereign debt crisis. Against the Pound the Euro appreciated to a EURGBP high of 0.9083 (GBPEUR 1.1010) at the start of July before falling back to 0.8705 (GBPEUR 1.1488) in the middle of July and settling around 0.8750 (GBPEUR 1.1429) in early August. Throughout September the EURGBP exchange rate traded between 0.8527 (GBPEUR 1.1727) and 0.8795 (GBPEUR 1.1370). The threat of further Quantitative Easing from the Bank of England temporarily weighing on Sterling before Greece once again took the spotlight. Today 3rd October the rate trades in the region of 0.8585 (GBPEUR 1.1645).

In Europe despite the debt crisis, the European Central Bank has increased interest rates to 1.50% compared to the Bank of England’s 0.50%. The full 1% interest rate differential advantage the Euro holds compared to Sterling, coupled with the threat of further Quantitative Easing from the Bank of England has so far prevented the Pound from appreciating significantly against the Euro. Currently we are hopeful that the Pound will eventually make some further progress against the Euro towards 1.18-1.20. However, the fragility of the UK economic recovery and the threat of further Quantitative Easing does pose a threat to this view. We expect to continue to see increased levels of volatility in the foreign exchange markets.

Please do not hesitate to contact Currency Matters on telephone 01695 581 669 to discuss how you can save money and eliminate risk when conducting your foreign currency exchange.

BoE and ECB

The Pound has appreciated against the Euro following today’s Bank of England and European Central Bank (ECB) interest rate announcements. Both Banks kept their interest rates on hold at 0.50% and 1.50% respectively.

However, in the following ECB press conference, ECB president Jean-Claude Trichet struck a more cautious tone, warning that the Euro-zone economy will grow more slowly than previously expected and that the risks to medium-term inflation had moderated.

Whilst stopping short of hinting at rate cuts in the short term, it is now more likely that we could see an interest rate cut from the ECB within the next 12 months. If the current interest rate differential narrows between the UK and the Euro-zone the Pound should gain against the Euro.

The Bank of England Monetary Policy Committee (MPC) does not hold a press conference following their announcement so the market will eagerly await the release of the MPC minutes on the 21st of September and the Bank of England Quarterly Inflation Report on the 16th November. The possible threat of further Quantitative Easing still poses a significant threat to the Pounds value.

The Euro has depreciated against both the US Dollar and Pound hitting a low earlier of 1.3945 and 0.8705 (1.1487) before recovering modestly.  Elsewhere, the Pound continues to trade either side of 1.60 against the US Dollar.

Sterling falls following dovish Bank of England

The Pound has depreciated this morning (22/06/11) following the release of the latest minutes from the Bank of England Monetary Policy Committee (MPC). The minutes indicated that the Bank of England is less likely to raise interest rates this year, which makes Sterling less attractive to investors seeking higher yielding currencies*.  

The minutes show that out of the nine MPC members only two members voted for an interest rate hike, whilst seven members voted to keep interest rates unchanged at their record low for the 27th consecutive month. This was a change from the previous MPC meeting in May when three members had voted for a rate hike. The changing makeup of the MPC since Andrew Sentance’s departure after May’s meeting and the appointment of Ben Broadbent, who voted for a hold in June, points to a more dovish MPC. Andrew Sentance was consistently the most hawkish member of the MPC, being the first member to call for a 0.25% rate hike consistently since June 2010 and voting for a 0.50% hike at the last four meetings.

Whilst the Bank of England kept its Quantitative Easing Asset Purchase Programme on hold at £200 billion, the idea of further Quantitative Easing was floated by some members should the downside risks to inflation realise, further undermining Sterling’s value.

In the Eurozone, the Greek government won a critical vote of confidence, paving the way for the next crucial vote in which MPs will be asked to approve a €28 billion package of tax increases and spending cuts by June 28th. Laws implementing the reforms will need to be passed before the next extraordinary meeting of Eurozone finance ministers on the 3rd July in order to secure the next tranche of €12 billion of the EU and IMF’s €110 billion bailout package. It is essential for Greece to receive the €12 billion emergency loan in order to keep up with payments to her creditors totalling €340 billion. Without the €12 billion needed for Greece to make its debt repayments, Greece will likely default.

This evening the US Federal Reserve will announce its latest interest rate decision. Interest rates are expected to stay unchanged at their current level of 0-0.25%. However, tonight’s meeting also coincides with the expiry of the Federal Reserve’s current Quantitative Easing programme. The following press conference will be analysed for any suggestions of further Quantitative Easing in the future.

Currently Sterling is looking particularly vulnerable and further falls cannot be ruled out. Ongoing uncertainty surrounding the global economic recovery and the sovereign debt crisis in Europe means it is likely we will continue to see high levels of volatility in the foreign exchange market. Please do not hesitate to contact the dealing team for further information or to discuss how best to eliminate currency risk.

*Comparative World Interest Rates

Bank of Japan: 0.1%

Federal Reserve (USA): 0.25%

Swiss National Bank: 0.25%

Bank of England: 0.5%

Bank of Canada: 1%

European Central Bank: 1.25%

The Reserve Bank of Australia: 4.75%

People’s Bank of China: 6.06%

Brazil: 12.25%

Interest Rates

Today (07/04/11) as expected the European Central Bank (ECB) has raised its benchmark interest rate by 0.25% to 1.25%, the first such increase since July 2008. The Bank of England has kept interest rates on hold for the 25th month at their historic low of 0.5% and the Bank’s Quantitative Easing Asset Purchase Programme remains at £200bn.

 The focus will now shift to the release of the minutes (due 20th April) of today’s BoE Monetary Policy Committee (MPC) meeting to see if any further MPC members have been swayed to the rate hike camp. At the previous meeting in March, six members voted to keep rates on hold whilst three members voted for an increase in interest rates. The conflict between above target inflation coupled with weak economic growth making the Bank’s decision difficult. The market will also seek further clarity on the future direction of ECB interest rates as there had been some suggestions that the hike today may be the first of a gradual increase in ECB interest rates.

Typically, as a central bank increases interest rates their currency will appreciate as global investors seek a higher yielding currency. The widening interest rate differential between the BoE and ECB has been a major contributing factor to Sterling’s relative weakness against the Euro despite the ongoing European sovereign debt crisis.

Comparative World Interest Rates

Bank of Japan: 0.1%

Federal Reserve (USA): 0.25%

Swiss National Bank: 0.25%

Bank of England: 0.5%

Bank of Canada: 1%

European Central Bank: 1.25%

The Reserve Bank of Australia: 4.75%

People’s Bank of China: 6.06%

Brazil: 11.75%

Stronger than expected UK PMI Services data

Sterling has spiked higher today (05/04/11) following the release of stronger than expected Purchasing Manager Index (PMI) Services data. The PMI Services data is an indicator of the economic situation in the UK service sector. The reading of 57.1 was better than the expected reading of 52.5 and better than the previous reading of 52.6. A reading above 50 signals expansion, whilst a reading below 50 signals a contraction in the UK service sector.

This week sees a raft of economic data releases and announcements. Later today the minutes of the Federal Open Market Committee are released which should give an insight into future US monetary policy. On Thursday both the Bank of England (BoE) and the European Central Bank (ECB) are set to announce their latest interest rate decision. The BoE is expected to keep interest rates on hold at their current historic low of 0.5% whilst the ECB is widely expected to hike rates. It is the expectation of rate hikes from the ECB which has contributed to recent relative Euro strength despite the ongoing sovereign debt crisis facing the Eurozone.

The Pound is up on the interbank market against the Euro at 1.14 and up against the US Dollar at 1.62. Please note the rate you are able to achieve will depend on the amount of currency being purchased, please do not hesitate to contact the dealing team on +44 (0) 1695 581 669 for a live quote.