Written by FX Manager Alastair Archbold
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With Sterling/Euro rates hitting an 8 year high of €1.44 last month, and many other currencies at their cheapest since the turn of the decade, FX Manager Alastair Archbold looks at what the coming months hold for the Pound/Euro cross, in addition to what has been happening with other major currency pairs including GBP/USD, GBP/AUD, GBP/CAD & GBP/NZD.
In July at the height of the well-publicised Greek debt crisis, GBP/EUR exchange rates hit the highest we have seen since 2007.
The reason was a weak Euro. In Greece there were real fears that the country may have to leave the single currency, and this fear drove investors away from the Euro, weakening it significantly.
In recent weeks some progress has been made, and the Euro has regained some strength.
Mid-market levels still remain above the €1.40 level, however, the problems in Greece haven’t gone away and many think the current solutions on offer simply kick the can further down the road, with no real solution to the problem.
Uncertainty remains and that’s why exchange rates to buy Euros remain very attractive.
However we have failed to see rates go any higher in recent weeks, and if a 3rd bailout for Greece is agreed we could see exchange rates drop away sharply.
With recent speculation that the USA will be the first major economy to raise interest rates, the Dollar has been gaining strength and becoming more expensive to purchase.
The hint of higher interest rates tends to strengthen a currency due to the higher return on offer for investors.
Furthermore should economic data such as jobs figures continue to impress, then this should strengthen the Dollar further.
Some analysts are expecting the GBP/USD rate to drop below the $1.50 mark by the end of the year.
Commodity based currencies are those from countries that depend heavily on the export of certain raw materials for income.
For example, Australia relies heavily on exports of raw materials to China. China’s economy has been slowing down recently, and their stock market is in turmoil.
As such, demand for raw materials is very low and this is hurting their economy, weakening the AUD. This is why Sterling/Aussie Dollar rates are currently around a 6-year high.
Commodity prices globally are very low at the moment. Canada, for example, is a large oil exporter, and low oil prices have also caused the Canadian Dollar to weaken, pushing GBP/CAD exchange rates to their highest since 2008. GBP/NZD exchange rates are also at a 6 year high, and while commodity prices continue to suffer, expect currencies tied to them to remain at attractive buying levels.
The above outlines why many currencies are weak and cheap to purchase at the moment, but that’s only part of the story.
Sterling is relatively strong due to the fact that the economy is performing fairly robustly at the moment, and the UK is likely to follow the USA and start raising interest rates by the turn of the year.
Just yesterday we had the latest assessment from the Bank of England however, and currently it seems that most decision makers want to keep rates on hold for the time being, which explains the recent drop in the value of the Pound as the wind seems to have been taken out of Sterling’s sails for the time being.
Do you have an upcoming currency transaction?
If you need to convert currency in the coming months, then contact your broker here at Foremost Currency Group to discuss your options.
We have various contract types available, such as Forward contracts, to lock in today’s rates for up to 2 years and Stop and Limit Orders that can automatically convert your funds at pre-agreed rates of exchanges.
Don’t simply hope the rate will move in your favour as hope is not a reliable economic tool.
Take the first step to making the most of your currency today by having a free consultation with your currency broker.