Foreign Currency Market Update – GBP / EUR Update
The Pound rose by around five cents to a fresh seven-year high against the Euro last week as traders reacted to hawkish comments from Bank of England Governor Mark Carney.
Sterling begun the week by rallying around 150 pips to 1.4080 in reaction to the latest Greek debt deal. Analysts argued that the harsh austerity measures would reduce Greek economic output and do little to help the Hellenic Republic return to fiscal sustainability. So while the agreement is good in that it keeps Greece in the Euro for now, it is bad in that it will likely to lead to further flare-ups later down the line.
The appeal of the Pound increased again on Tuesday when BoE Governor Mark Carney commented that ‘the point at which interest rates may begin to rise is moving closer with the performance of the economy’. The Governor’s first remarks on monetary policy since May sent GBP/EUR higher by 120 pips to 1.4200. A slight slowdown in consumer prices from 0.1% to 0.0% had little impact on the exchange rate.
Sterling remained strong on Wednesday as UK wages accelerated from 2.7% to a five-year high of 3.2%. British unemployment rose unexpectedly from 5.5% to 5.6% but this was not enough to lift the Euro.
The Pound’s slick run against the single currency continued on Thursday as European Central Bank President Mario Draghi asserted that the bank’s expansive quantitative easing scheme would continue at full speed for at least another year and BoE Governor Mark Carney hinted that British interest rates could rise before the end of the year. GBP/EUR jumped to a new seven-year high of 1.4350 in response.
And Sterling rose above 1.4400 temporarily on Friday as sentiment continued to support the Pound.
So what next for the Pound? Well, with GBP/EUR standing at its strongest level since before the financial crash in 2007, now is an incredibly good time to exchange Pounds for Euros.
Over the next five days we could see Sterling tick a little bit higher if Wednesday’s BoE minutes report shows that some policymakers have already begun arguing for higher rates. However, we could see the single currency recover if traders opt to lock-in profit from the recent 500-pip appreciation in the Pound.
At this stage it is advisable to make the most of the current high exchange rate by transferring at least some of your money at the current seven-year high rate.
Heads Up
Summary of major upcoming data releases that we think may move the market.