Thursday 12th March 2015
Sterling reaches highest level against the Euro since November 2007
Yesterday started off exactly where Monday had ended with the Euro losing more ground against the Pound. The mid-market opened at 1.4050 after starting the week at 1.3870 and even woeful UK manufacturing figures at 09:30 (-0.5% actual against 0.2% forecast) couldn’t slow the climb down. The rate peaked at the highest level since November 2007 just before midday when it hit 1.4255 (mid-market) before slowly ebbing away over the course of the afternoon to finish the day around 1 cent lower.
While the difference between the high and the low of the week is only £10 on €500 cash for a holiday, on a €200,000 property purchase it is almost £4,000.
The USD also hit its highest level against the Euro in 12 years, touching a low on the day of 1.055, as a US jobs report maintained expectations that the FED would put up interest rates in June. The report showed openings rose to a 14 year high in January so the ratio of unemployed workers to job openings is now back at pre-crisis levels giving even less reason for the FED to keep rates on hold at their current low.
From the Eurozone we are seeing an ongoing weakening affected by the ECB’s quantitative easing programme which kicked off on Monday and is expected to continue until at least the end of 2016. Coupled with the expected tightening of monetary policy in the US, most large financial institutions (including Barclays and Deutsche Bank) expect to see USD parity against the Euro before the end of the year.
What does this mean for the Pound?
While the Bank of England look to be at least 12 months behind the FED in terms of when we will see an interest rate hike in the UK, any news that it could happen earlier than expected could stabilise the GBP/USD rate as it has dropped from 1.55 last month to 1.49 this week. The upcoming UK election could weigh on Sterling in the run up to polling day on 7th May as it is still so uncertain as to the outcome but if UK data continues to be reasonable then it may offset this uncertainty. Against the Euro we will most likely see it remain pretty volatile with the election and also another round of Greek negotiations in May but this by no means suggests it will be one way traffic so make sure you keep in touch with you FCG account manager to stay abreast of any market movements.
The key releases today are Australian unemployment rate, followed by UK trade balance this morning. We then have US Retails sales and unemployment claims at 12:30 before Bank of England Governor Mark Carney speaks at the Advanced Manufacturing Research Centre in Sheffield.
Associate Director of Foreign Exchange