Euro sets new 2016 high versus Sterling

February 9, 2016 by Joe Wright

Euro continues strong start to the year

Yesterday we saw the Euro close at its highest level versus the Pound in 13 months whilst also setting a new 2016 high of 0.7787. The Euro has traditionally been preferred in times of financial uncertainly and current signs suggest no change to this pattern with the Euro gaining more than 5 percent verses the Pound this year alone. Euro bulls will also have been buoyed by ECB executive board member Benoit Coeure stating on Monday that “The Eurozone is not part of the problem,” when referring to current weakness and uncertainty in global markets, and that there are no bubbles within the Eurozone economy with emerging markets, China and the US economies creating anxiety within global markets.

Euro to continue bullish trend?

As well as the single currency being considered a safe haven during market turmoil as we’ve seen recently, the Euro has also been boosted off the back of Pound Sterling weakness. ‘Brexit’ fears coupled with an unlikely interest rate hike this year have weighed on the value of Sterling which has contributed to the strength of the Euro in recent months.

In the short term I believe that the Euro will continue its bullish run versus the Pound predominantly due to the uncertainty surrounding the UK’s continued membership within the EU, also any signs of weakness in the UK’s banking and financial sector will heighten Sterling’s weakness due to the UK’s reliance on financial services to boost its economy. From a longer term perspective I believe we could see return to the long term upward trend in Sterling’s value versus the Euro due to reduced political uncertainty surrounding the UK once we know the outcome of the referendum, although should the UK opt for a ‘Brexit’ I expect further falls in Sterling medium term assisted by Bank Of England intervention in order to increase exports by making the Pound more attractive to overseas buyers.

Weekly forecast: Sterling to continue fall against the Euro?

February 8, 2016 by Joe Wright

Sterling one of the worst performing currencies so far in 2016

Sterling bulls have been dealt a number of blows in recent weeks with the currency making financial headlines for all the wrong reasons. GBPEUR levels are currently trading around their worst levels in almost a year and the Pound wasn’t helped last week as the Bank of England’s dovish inflation report continued to put pressure on the currency.

Last Thursday (known as ‘Super Thursday’ due to the large volume of economic data released) saw the Bank of England (BoE) release a report cutting growth forecasts from 2.5% down to 2.2% for 2016, whilst also cutting growth forecasts for 2017 down to 2.3% down from a previous figure of 2.6%.

Will the negative trend continue for Sterling?

I expect the dovish comments from the BoE last week coupled with the increasing uncertainty surrounding the potential for a ‘Brexit’ to continue to weigh on Sterling’s value. Additionally economic data coming out of the UK this week could apply further pressure to the value of the Pound, with the release of Industrial Production and Manufacturing data (which hit 6 year lows last month) being released on Wednesday, as well as the NIESR (National Institute of Economic and Social Research) GDP estimate for the past 3 months which could signal a further slowdown in line with global markets once again negatively impacting the value of the Pound.

Over the upcoming week I cannot personally see the Euro’s strong run versus the Pound running out of stream unless we’re presented with substantially weak data coming out of Europe with Friday being the key day as German, Italian and Eurozone Gross Domestic Product figures are due out.

Should you be looking to avoid volatility it may be a good idea to complete any currency conversions you have earlier in the week as opposed to later due to the above GDP figure releases having the potential to move markets quite sharply.

Will GBPUSD Continue Long Term Downward Trend?

February 5, 2016 by Joe Wright

The Pound’s dreadful start to the year

Investors with a bullish outlook on the British Pound (Sterling) have been dealt a number of blows in recent months with the currency losing over 3% of its value in trade weighted terms since the beginning of the year. Those with an interest in converting GBP into EUR have just witnessed the longest running downward trend between the pair since the Euro was introduced in 1999.

These falls have been due to a number of factors with the China-centred global slowdown, the dovish tone of Mark Carney (Governor of the Bank of England) in his last two speeches, an interest rate hike unlikely this year and perhaps most of all, the potential for the UK to vote in favour of leaving the EU (also known as the “Brexit”).

There weren’t many surprises as the Bank of England (BoE) left the basic Bank Rate unchanged at their February meeting, but this time all of the 9 MPC members voted in favour of unchanged interest rates, with Ian McCafferty dropping his call for a rate hike.

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Sterling Forecast for 2016

The general consensus surrounding the Pound is bearish at present, with Bank of America Merrill Lynch forecasting that cable (GBPUSD) could fall below 1.40 and that those converting Euros could receive around 80 pence for each Euro (current levels are around 77 pence). Goldman Sachs are particularly pessimistic surrounding the potential for a Brexit suggesting that Sterling could lose up to 20% of its value and trade around the GBPUSD 1.20 to 1.15 mark, adding that the fake rolex UK would be ‘at risk of an abrupt and total interruption to incoming capital flows’.

Personally I’m a little more optimistic and believe that much of the uncertainty around the Brexit has already been factored into the value of cable and should the UK vote against the Brexit we could see significant strength in the Pound and perhaps a strong rebound. I also believe that should the FED (Federal Reserve Bank of America) cool off its aggressive interest rate hike approach we could see weakness in the US Dollar improving buying rates for Sterling sellers. Further Quantitative easing by the ECB could weaken the EURO and should the fears around the Brexit subside I can see Sterling strengthening later in the year as economic data coming out of the UK at the moment show that it’s performing quite well when compared to its peers.

Will Canadian Dollar exchange rates finally rebound?

February 4, 2016 by Joe Wright

Why is CAD trading at such low levels?

Current levels on the Canadian dollar are hovering around 13-year lows and since the autumn of 2012 the loonie has shown a steady decline with very few signs of a fight back. CAD is significantly correlated to oil prices and has been for some time due to the fact that the sale of crude oil is where the majority of its US Dollar income comes from, with roughly 97% of Canada’s crude oil exports going to the US. With oil prices also witnessing a long-term gradual decline, CAD has been under significant pressure due to the following reasons.

When oil prices are high, Canada earns more USD on every barrel of oil exported resulting in a higher supply of USD in relation to Canadian dollars, which in turn pushes up the value of the CAD. Alternatively, when the oil price is low the supply of USD relative to Canadian dollars is lower resulting in a weakening loonie when compared to the USD.

The correlation between the two sits at 0.78 to the power of 1 when we compare the two from January 2005.

Will the negative trend continue?

The loonie has shown signs of a rebound this week, mainly down to USD weakness and an oil rebound as both OPEC and non-OPEC consider a co-ordinated cut in production. Should oil continue this uptrend I would expect the CAD to follow suit due to the reasons previously stated. With Canada’s dependence on oil exports increasing in recent years (partly due to the increase in oil sands production), it finds itself at the mercy of bigger players in the oil production market such as Saudi Arabia and Russia who may not decide to cut production in order to increase the value of oil due to fears of losing out on their market share.

How will Pound Sterling fare in the upcoming months?

February 3, 2016 by Joe Wright

The story so far

Faced with a great deal of scepticism regarding the UK’s continued EU membership, David Cameron put his promise of an upcoming election at the forefront of his successful election campaign last May. Whilst appeasing the supporters of a ‘Brexit’ with this move, Sterling hasn’t received the news quite as well and since May we’ve witnessed a gradual decline of the GBP/EUR exchange rate from the high 1.30’s down to where we are now in the low 1.30’s.

Whilst the potential of an upcoming exit has had a knock on effect on the value of the Pound, it’s not the only reason we’ve seen this gradual decline. Slowing growth figures coupled with Mark Carney’s suggestion that an increase in interest rates during 2016 is unlikely, have taken their toll on the value of Sterling with the currency making national news because of its weakness.

Will Sterling exchange rates continue their decline?

Currency rates have traditionally weakened in times of political uncertainty and what we’re witnessing right now with Sterling is no different. I believe the Pound will continue to weaken against the major currencies as we approach the referendum, with some sources, the prime minister included, suggesting that it could be held as soon as possible although it was originally outlined for the end of 2017.

Additionally with the US economy showing signs of a recovery and having raised interest rates towards the end of last year with the potential for further increases this year, I find it difficult to see GBP strengthen against USD in the upcoming future. With the Chinese economy growing at its slowest rate for a quarter of a century and emerging markets generally slowing down we’ve seen the Euro gain strength as investors seek safer options for their funds, with the Eurozone generally being considered more of a safe haven by investors.