Euro Pound Fluctuation after reaching a 4 month high
January 17, 2011 Leave a comment
This time last week, Sterling Euro rates were approaching a four month high, hitting €1.2060 at the peak. However towards the end of last week this upward trend in rates was over, and we saw a big decline in rates. In this week’s report we look at why exchange rates moved up so far, and what caused it to fall back away so quickly.
The main reason for the recent upward trend in currency rates was due to a very weak Euro. Following the bailout of Ireland and Greece, many people thought that Portugal and Spain would also need assistance. It was this fear that had been weakening the Euro during the start of 2011, helping push rates to their best in over four months.
However, last week Portugal and Spain held a bond auction where they successfully managed to raise significant amounts of finance, allaying fears that another bailout would be necessary. The two bond sales suggest that investors are somewhat more confident about the countries’ ability to pay their debts, and as a result the Euro has regained significant strength pushing GBP/EUR rates down.
After markets realised there was no problem raising capital through Bond auctions, investors were quick to re-invest in the single currency and it was this demand that caused a fall in GBP/EUR rates of more than 2%.
Also helping to strengthen the Euro were comments by European Central Bank (ECB) president Jean Claude Trichet saying that they would have no problem raising interest rates to combat price inflation. Higher rates represent a higher return for investors, and so this also spurred investment to the Euro creating demand that strengthened the single currency. So the double whammy of possible higher interest rates in the EU combined with more confidence in EU countries being able to raise finance has pushed rates lower.
Going forwards, where rates may move in the coming months is hard to predict. Of course rates could head lower if UK data is poor and markets remain confident in the Euro. However doubts remain over the long-term structural problems in the Eurozone and so we could see further Euro weakness.
In volatile times like this when markets could move either way, it’s important to know the options available to you to ensure you don’t end up paying more for your currency than necessary. Currency Brokers offer various market orders such as Forward contracts that allow you to fix rates even if all your funds aren’t available. They also offer Stop Loss orders which protect you against a downturn in rates while allowing you to still take advantage of any gains.
Contact your Currency Broker today for a free consultation to discuss the options they can offer. The alternative is leaving things to chance and simply hoping rates will move your way; hope is not a reliable economic tool so take advantage of expert market knowledge to help you budget effectively and take control of the cost of your currency purchase.
If you have yet to open a trading facility to gain access to commercial rates of exchange click here to open an exchange rate account today and an experienced trader will be in touch to discuss your requirement and offer expert market knowledge.