Exchange Rate Forecast

Exchange rate forecasts and foreign currency news

Sterling finds support but unlikely to make any significant impact in the coming days

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Sterling has found some support this week, making inroads against the EUR and curbing any further losses against the USD.

GBP/EUR rates spikes back above 1.14 yesterday, hitting 1.1432 at this morning’s high.

Whilst Cable rates have yet to advance the Pound has found plenty of support around 1.35, which is now likely to be a key threshold for the pair over the coming days.

Global events from yesterday are likely to overshadow any minor developments in the House of Lords and whilst Theresa May continues to find resistance at almost every juncture, President Trump may has once again stolen the limelight.

The most controversial President of my generation has caused international uproar by pulling the US out of the Iranian nuclear deal. Whilst the US were just one of several global powers to be part of the agreement, their withdrawal could potentially put the whole deal in jeopardy.

Whilst Trump claims it economically unviable, surely there is a method to his madness?

I fear not and it is once again a demonstration of a gung-ho Presidential style that sits uncomfortably with many.

This decision is yet to fully filter through to the currency markets but ironically it could actually boost the USD’s value against GBP, as investors global risk appetite decreases and they return funds to the safer haven currencies such as the USD.

Despite this I still feel the Pound will find plenty of support around 1.135 as we head towards the end of the trading week.

Another key economic event this week is tomorrow’s Bank of England (BoE) interest rate decision and subsequent monetary policy statement by governor Mark Carney.

It is likely that the markets have now factored in tomorrow’s decision, with the prospect of a rate hike seemingly completely eliminated from investors thought process.

The UK economy had, for a period of time earlier this year, over preformed. This had led to a strong run of economic data, which continued to defy analysts predications and as such investor s had started to factor in the likelihood of a 0.25% rate rise at the central banks next policy meeting this month.

However, a sharp downturn has changed market conditions and investors perception and this is why there was a sudden sell-off of Sterling currency positions.

It will be interesting to BoE governor Mark Carney’s comments during Thursday’s press conference as he is likely to give us a deeper insight into the central banks current thought process. It may well be that he dampens talk of a rate hike for the rest of this year, in which case it will be very difficult for Sterling to make any further impact over the subsequent days.

Important week for Sterling as the Customs Union takes centre stage

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Sterling exchange rates have opened the week relatively flat, with the major economic headlines surrounding the upcoming MP’s debate on the issue this week.

Last week the government faced a blow when they suffered defeat on the EU Withdrawal Bill in the House of Lords, when they lost a vote in favour of leaving the EU’s customs union with even some members of May’s own cabinet voting against the plan.

Over the weekend a number of key figures have made comments in favour of sticking to the plan of leaving, and this week there will be a debate on the issue on Thursday.

A customs union is when the countries involved agree to apply the same taxes on imports to goods from outside the union. This way when goods have cleared customs in one country they can be shipped to others in the union without further tariffs needing to be applied.

If the UK remains part of the EU’s custom union, it won’t be able to strike deals with countries around the world. One of the reasons the current governments opponents wish for the UK to remain in the EU’s custom union is so that the border between the UK and Ireland in Northern Ireland can remain open. This topic is one that the government is yet to address so I expect to see the issue continue to put pressure on the Pound’s value should it continue to be a sticking point.

The debate and vote towards the end of the week isn’t binding, but I do expect it to have an impact on the Pound’s value especially if talks don’t go in favour of May’s government.

Four interest rate hikes from the BoE over the next 18-months?

Over the weekend a forecasting body by the name of the EY Item Club has predicted that despite the UK economy being quite sluggish the BoE is likely to hike rates twice this year and then another two-times in 2019. They’re putting their predictions downs to a strong jobs market along with strengthening earnings, which are now picking up with the inflation levels.

The forecaster also predicted growth of 1.6% this year and growth of 1.7% in 2019. Rates currently stand at 0.5% and many analysts expect the next hike to be a 0.25% rate hike up to 0.75% which would be the highest the UK has seen since exiting the recession almost a decade ago.

Interest rates and the effect on Pound to Euro rates

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The Pound has recently hit the best exchange rate to buy Euros in eleven months but has subsequently come under pressure since the middle of this week.

On Wednesday the Pound started to fall owing to lower than expected inflation which means that the interest rate hike in May could potentially be delayed. However, average wages have surpassed inflation for the first time in over a year and this was why the recent high was hit.

Bank of England governor Mark Carney spoke last night and suggested that although interest rates will be going up the pace may not be as quick as some may expect and this caused the Pound to fall vs the single currency in early morning trading.

Since then Sterling exchange rates have fought back and I think this could continue. Clearly Carney’s tone was a little negative but overall the UK economy has been showing positive signs recently and one of the sticking points continues to be the uncertainty caused by Brexit and this will take a long time before we get anywhere near any kind of resolution.

Another Bank of England member Michael Saunders has said signs of a UK slowdown is ‘questionable.’ Saunders has also claimed that he will be looking to vote for a rate hike as he did previously. His justification is that although retail sales fell recently this was caused by the unusually heavy snow rather than a lack of confidence in the UK economy.

With the first estimate of UK GDP for the first quarter due out next week we could see a fall but Saunders has suggested that previous Q1 estimates have often been revised upwards. Therefore, I think we could see a lot of movement for the Pound vs the Euro during next week so make sure you’re well prepared.

Will the Bank of England raise interest rates twice this year?

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The Pound is still performing well against most currencies despite a tricky day yesterday as the markets struggled to digest the news regarding Inflation which has seen the Pound performing so well lately.

All eyes on the Bank of England

The currency market is bracing for the Bank of England to hike interest rates which has seen the Pound strengthening this year and a hike is widely expected in May. The next meeting is the 10th but the news this week has potentially put a bit of a dampener on this enthusiasm.

For a start the Bank of England have been looking to monitor Inflation levels and not just paying attention to whether or not they will hike on the 10th but also whether they will be hiking even further down the line. The general perception is that now any future hikes are less likely, which will mean Sterling could drift even lower if the market does not support better information on Inflation. Essentially Inflation has been rising owing to the weaker Pound as imports increase in cost, this has fed through into higher prices for consumers.

Raising interest rates will help to quell this situation but if Inflation is dropping of its own accord this will not be as necessary. The general trend now is for the market to be pricing in future hikes, but only if Inflation is shown to be rising – this is something we will now have to monitor very closely.

As usual the recent burst of Sterling strength must be taken with a pinch of salt, next week’s UK GDP (Gross Domestic Product) data will provide more insight into whether or not the Bank of England will raise rates and what we can expect in the future for Pound Sterling exchange rates.

Will Pound Sterling strength continue this week?

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The Pound is hovering close to an 11 month high against the Euro after an excellent rally on Friday saw rates surge higher for the pair. Sterling rallied against all of the major currencies including the Australian and New Zealand dollars whilst rates for GBP/USD also saw a good jump higher.

Politics will be a big driver for Sterling exchange rates this week as the missile strike lead by the US, Britain and France will continue to be debated after the event. Theresa May is facing criticism from members of opposition parties including the SNP and Labour parties. This is likely to be the main theme this week and any political uncertainty stemming from these developments could see volatility for the Pound.

Economic data for the week ahead

UK economic data this week will largely focus on UK unemployment data released tomorrow morning at 09:30. The Bank of England will be paying close attention to the numbers as although unemployment has been falling which is good for the British economy the level of wage growth has been sluggish.

Impact on Bank of England interest rate decision

Any indication that wage growth is finally picking up would be welcome news for the central bank and could help cement the likelihood of an interest rate increase next month in May. For the moment the markets are largely expecting that rate increase to happen and the risk for the Pound will be if the numbers disappoint. Any back tracking from the Bank of England due to weaker economic data could see the Pound come under new pressure.

The question for the Bank of England will be how to manage the weaker economic data due to the cold weather from the beast from the East. The last two weeks saw a drop in the construction and services sector which has so far been shrugged off by the markets. There are fears that Gross Domestic Product (GDP) for the first quarter of 2018 may have fallen and this could be damaging for the economy and hence the Pound.

Sterling maintains recent strength despite weaker economic data

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Sterling has been supported over the last week despite a series of weaker economic data releases. Last week’s Purchasing Managers Index (PMI) data from the construction and services sectors in particular highlighted that the “Beast from the East” certainly saw performance in these sectors fall as a result of the cold weather blast. The weaker data, though which did fall by someway, has failed to give major concern for the markets, which have largely shrugged them off.

The Brexit negotiations which saw the second round of discussions covering the transitional arrangements concluded have also helped lend support to the Pound. For the time being the mood on Brexit is looking more optimistic with the hope of a future trade deal between Britain and the EU. However there is still a long way to go in this negotiation and the third round of talks which will cover such topics as a future trade agreement are likely to be the most difficult to achieve a suitable solution.

There are two main issues that Britain faces and unless resolved could end up with the “no deal” scenario which all sides are trying to avoid. The Irish border is perhaps the most talked about but still remains a major obstacle to any free trade agreement. The other issue is whether financial services can be included in any future deal. The services sector comprises almost 80% of the British economy and it is crucial that it is included. If it is not then there won’t be a trade deal and this is the risk that remains, which is likely to keep the pressure on the price of Sterling.

Now that politicians have returned from the Easter recess it will only be a matter of time before Brexit is making the headlines and causing more volatility for Sterling exchange rates

Bank of England Governor Mark Carney will be making a speech tomorrow and his choice of words can always have a direct impact on the price of Sterling. The markets are already gearing up for an interest rate increase as soon as May and this is helping support the Pound. Any strong comments should see further volatility ahead of the next interest rate decision to be held next month.

The GBP/EUR exchange rate breaches 1.15

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For only the second time this year the GBP/EUR rate has breached 1.15 today, providing a fantastic opportunity for the Brits that are buying properties in Europe at present.

With limited data releases for the UK and the EU today, arguably the reasoning for the improvement in exchange rates, comes from recent developments surrounding Brexit and the commentary from the Bank of England (BoE) and the potential of an interest rate hike in May.

Brexit transition deal positive for Pound

A few weeks ago now, UK Prime Minister Theresa May agreed a transitional deal with the EU which will start on March 29th and run for 21 months. To finalise a deal many people within politics believe she gave away more than she wanted as she gave full rights to EU citizens that enter the UK within the transitional period.

Mark Carney’s due to speak on Thursday

The commentary coming from the Bank of England is that an interest rate hike could occur as early as May this year. This has led to investment re-entering the Pound which has caused the Pound to increase in value against most of the major currencies. All eyes now turn to Governor of the Bank of England Mark Carney’s speech on Thursday afternoon. Mar Carney has the ability to cause major fluctuations with GBP exchange rates.

With the Pound gaining in value, foreign currency buyers have something to smile about however I think this improvement could be coming to an end. Over the last 18 months, any time the UK start to negotiate an element of Brexit the Pound comes under pressure as the negotiations don’t go to plan and I expect this trend to continue. Arguably the most important aspect of the Brexit deal is the trade relationship between the UK and the EU, and as yet this is to be discussed, therefore this could cause the most amount of volatility for the GBP/EUR exchange rate.

For foreign currency buyers the recent surge in Sterling value is certainly an opportunity and one that should be considered.

Has the Pound reached a peak?

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The Pound seems to be struggling to improve on the recent strong performance as the market desires to learn of better news. Whilst the good news is not exactly forthcoming there is a very high expectation the data will continue to be positive for the UK and the Pound which will lead to the Bank of England considering an interest rate hike in May.

The problem with the news coming out this month is that it reflects the news from March which is when the snow caused widespread disruption across the UK, leading to lower economic figures. Whilst the Bank of England will take this with a pinch of salt, they cannot ignore the reflection of a slightly weaker economy and this might influence their decision making.

Other concerns for the Pound centre on the Brexit and what might be likely to happen in the future with the Irish border and also the final trade arrangements for the UK and the EU. This is unlikely to be finalised this month and therefore Sterling might drift down owing to any negative headlines surrounding this situation. What could be more likely in the future is any evidence of conflict between the UK and EU over the Irish border and trade talks leading to a breakdown in the current confidence and Sterling losing ground.

The week ahead is not too busy on the data front so it might be a good week to organise yourself ahead of any future transfers. We know from experience that it is usually when everything seems to be going swimmingly in one direction that we see some sudden uncertainty that suddenly changes the picture. Nothing can ever be wholly predicted on exchange rates but Sterling could well be trading at the top of the latest ranges, holding on for any major improvements could prove expensive.

Will the Pound rise higher in April?

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The Pound has reached fresh highs against all currencies on the back of renewed confidence in both the outlook for Brexit and also the prospect of the UK raising interest rates.

I have to say that if we go back to points in 2017 and 2016, it is quite difficult to imagine Sterling at the current levels which it has now found itself at. The overriding belief is now that there will be more of an overall ‘softer’ Brexit which should minimise the disruption to the UK economy. This has helped the Pound to regain some strength during 2018 so far.

There could be further Sterling improvements ahead, although it is difficult to see anything major happening in April, since we do not have any key news like a Bank of England interest rate decision or any EU Summits released. What will be very important is the potential for future interest rate hikes, but with UK economic data struggling because of the weather in March, I feel it is likely the Bank of England will have to remain cautious in their assessments of future interest rate hikes.

Sterling will only rise this month if we see some sudden progress on Brexit or if there is an unexpected improvement in the UK economic data. Whilst there is a possibility this will happen, I do not feel that it is too likely since there are no scheduled ‘big’ releases on Brexit talks and the poor weather in March has seen the UK data coming out rather poorly so far.

The Pound is benefitting from the improvement in sentiment that we learned of last month but this will not alone be enough to see the Pound just continue to rise. Current levels, which are across the board at the top of the recent ranges are therefore very worthy of consideration as it seems unlikely the Pound will just keep rising without any extra new good news.

Will this Sterling strength continue?

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The Pound is ending March on a good note, finishing higher against most currencies than where is began at the beginning of the month. The expectation is for the Pound to remain strong, and the progress that has been made during Brexit negotiations so far should help Sterling avoid any cliff edges. However, the lack of clarity on a final deal for Brexit or any firm confirmation of future interest rate rises from the Bank of England is holding the Pound back and could see some of the recent strength undone.

Against both the US Dollar and the Euro the Pound has lost ground from the absolute highs of last week, this is perhaps partly explained by the initial enthusiasm wearing off from last week’s news.

With much of the good news now priced into current Sterling exchange rates, it does seem a more likely outcome is a gentle softening in the recent strength of the Pound. The progress that has been made should help Sterling to keep its head above water but I would not be expecting any major surprises in the near future, we will need to see much better data being released to really trigger a sharp move higher.

The next piece of key news for the Pound is tomorrow, with the latest GDP (Gross Domestic Product) data released at 09:30 UK time. There are no significant changes to the figures expected, this would probably see the Pound remain within the recent ranges. This is the last estimate from Q4 of 2017 so will give us the final figures for economic growth in 2017 for the UK.

Growth in the UK has been nowhere near as low as was believed it might have been following the Brexit vote, which is helping support the Pound and is also a key factor for the Bank of England to be considering in their estimates for the future.

The Pound is enjoying buoyancy at present but this could quickly change in the coming weeks as wider concerns over the final EU trade deal the UK gets come to surface and capture headlines.

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