The US Federal Reserve and the Bank of Japan will next week make major announcements on interest rates and policy decisions. The Federal Reserve’s agenda is one of the best kept secrets currently and is having a major effect on Sterling currently. Investors around the globe are waiting for the Fed to make a decision on the 21st September and have started to sell off their Sterling positions. The pound had shot up in the last week against the Euro just falling short of 1.20.
The recent spike now seems a long way off as preparations are made for further weakness if the Fed does increase their interest rate. Fed Chairlady Janet Yellen nearly a year ago suggested we could have 4 rate hikes this year however after one in 2015 and none since the markets are getting restless, especially as the conditions in America seem perfect for a hike.
The GBP/EUR rate looks likely to sit around this level for another few weeks until the interest rate decision is made. In my opinion there won’t be a hike this year as there is major uncertainty in the US with the general election coming in November, despite the FED’s supposed independence from the US Government.
Therefore I believe the GBP/EUR will move over 1.20 before the end of September when investors put their money back in Sterling. The Euro has recently become a risky currency as it appears there are cracks appearing amongst nations. This is only adding to the existing problems with the banking sectors and the migrant crisis.
Therefore, if you are buying Euros in the near future, the US elections will likely create some opportunities before the UK withdraws its membership from the EU. I would be cautious of holding off until 2017, as this is when the invocation of Article 50 is expected.