Currency Connect

07/05/2024

Calm Waters to Choppy Seas

Market Recap

Last week kicked off with a relatively subdued performance for Sterling against the Euro, but witnessed a mid-week surge, nearly reaching a monthly peak. However, this momentum was short-lived as Sterling retreated on Friday afternoon, reverting to its lowest level in a week.

Conversely, the dollar initially displayed resilience following the FED's decision to maintain interest rates, only to plunge after the release of lower-than-expected Non-Farm Payrolls data. Remarkably, the dollar recovered within an hour of this news and continued to strengthen after the week on a high against the pound – not great news for those who left their Dollar buys to the end of the week.

Looking Ahead

Today marks VE Day, leading to closures in some European banks. If you're awaiting payments in France, it's advisable to check back in when the banks reopen. Additionally, tomorrow is Ascension Day, a public holiday in some European countries, potentially causing delays in currency payments.

While the beginning of the week appears quiet in terms of economic data, it may soon become eventful, presenting uncertainty for holders of Sterling. The looming Bank of England interest rate decision on Thursday is our focal point. While economists largely predict no change, any unexpected deviation could significantly impact the pound's strength, potentially affecting purchasing power for those looking to buy Euros, Dollars, or other major currencies.

On Friday, the UK’s quarterly GDP figures are likely to influence the pound's performance. A stronger-than-expected result could strengthen the pound, while an underperformance is likely to have the opposite effect.

For those concerned about adverse market movements, our team of currency consultants is available to assist. Whether you seek risk mitigation strategies or ways to optimize your Sterling holdings, a consultation can provide tailored solutions to meet your needs.

Notable Observations this Week:

Tuesday:
RBA interest rate decision
VE Day – Banks Closed

Wednesday:
Ascension Day – Banks Closed

Thursday:
BoE interest rate decision followed by Andrew Bailey's speech – Consensus: no change at 5.25% with a view to reduce rates later in the year

Friday:
GB Gross Domestic Product QoQ & YoY
Canada – Net Change in Employment / Unemployment Rate
US Michigan Consumer Sentiment Index

29/04/2024

Last week witnessed a notable turnaround for the Pound, particularly against the Euro, as it approached recent highs once again. This reversal can be attributed to a correction following the initial fervour surrounding recent inflation reports and speculations about forthcoming central bank interest rate adjustments. Initially, there was widespread anticipation of US interest rate cuts, given the apparent stabilisation of inflation. However, unexpected inflation spikes prompted a re-evaluation, leading to a surge in Dollar strength. In contrast, UK inflation continued its descent, fuelling expectations of interest rate cuts by the Bank of England and consequently driving the Pound downward.

Despite suffering significant losses, the Pound managed to recoup some ground, likely due to the belief that interest rate cuts are still some way off. Nevertheless, it's noteworthy that the recovery hasn't returned us to previous levels, indicating apprehension in the market regarding the potential outcome of the upcoming Bank of England meeting, which could bring about the much-discussed interest rate cut, depending on one's financial position.

This rebound presents an opportune moment to assess one's currency needs, particularly for upcoming transactions. Securing currency through a forward contract can shield against market volatility. With GBPEUR rates hovering close to recent highs, such a move would lock in a favourable rate and mitigate the risk of any potential drops should the Bank of England act.

Looking ahead, the focus shifts to the US, with significant data releases scheduled, including the Federal Reserve's interest rate policy announcement on Wednesday and Non-Farm Payrolls report on Friday. Given the direct impact of US Dollar movements on Euro strength, it's advisable to maintain close communication with your account manager, whether your currency requirements involve Dollars or Euros.

17/04/2024

This morning, the UK's Office of National Statistics unveiled this month's inflation figures, marking a slight dip to 3.2% from the previous month's 3.4%, the lowest level observed in two and a half years. The decline primarily stems from softer increases in food prices compared to a year ago, coupled with a slowdown in fuel price escalations. While this suggests a potential easing in the cost of living, the current inflation rate fell slightly short of economists' expectations at 3.1%. Following the announcement, the Pound saw a modest uptick against the euro and a slight gain against the strong US Dollar. However, these gains may be short-lived as the Eurozone is set to reveal its inflation figures later today, which could influence currency market dynamics.

Inflation remains a focal point for potential interest rate adjustments by the Bank of England (BoE), as hinted by Governor Andrew Bailey preceding the inflation announcement. Speculation mounts that the BoE might implement rate cuts as early as June, a shift from the past two years characterised by rate hikes supporting the Pound against major currencies. Any move towards rate cuts could pose challenges for Euro and Dollar buyers. While the European Central Bank refrained from rate cuts in its recent meeting, future decisions could impact Sterling's strength against the Euro. If Governor Bailey indeed proceeds with interest rate cuts on May 9th, it could reverse any gains made by the Pound. Those with currency needs around this period are advised to consult with their currency experts to explore protective measures, such as forward contracts, which secure currency rates for future transactions with a deposit, ensuring stability amidst potential market fluctuations.

16/04/2024

Crucial Week Ahead for the Pound

Last week, the spotlight was on the US Dollar as it dominated the market, fueled by Wednesday's US inflation report revealing a continued rise in inflation to 3.5% from the previous 3.2%. This development all but dismissed speculations of a FED interest rate cut in June. In contrast, expectations of impending cuts by the Bank of England (BoE) and European Central Bank (ECB) propelled the Greenback to swift gains against both the Pound and the single currency, with approximately 1.5 cents and 1 cent gained respectively by the close of trading.

Amidst the turbulence driven by USD volatility, the GBP/EUR pair maintained relative stability. However, as speculations waned regarding an ECB rate cut next month, GBP to EUR buying rates approached the peak of its established range, reaching levels nearly unseen in 18 months.

This upcoming week places the Pound under the spotlight with significant data releases lined up. These include UK Unemployment data on Tuesday, a speech by BoE Governor Bailey, and UK inflation figures on Wednesday. All eyes are on these releases as they are closely tied to interest rates and could influence the timing of a potential rate cut by the Bank of England. Thus, it is undeniably a pivotal week for the Pound.

Unlike last year, where central banks hiking rates drove exchange rate movements, the focus this year has shifted to which of the three central banks will cut interest rates first. With expectations of immediate rate cuts by the FED and ECB now dwindling, positive data releases this week could bolster the Pound.

The week concludes with another significant release: retail sales data on Friday, promising a potentially volatile ride for GBP-focused markets.

Considering the gains made by the Dollar last week, it wouldn't be surprising to witness volatility, particularly in GBP/USD rates, with profit-taking and market corrections likely. For readers considering buying EUR, this week may present an opportune moment, especially if the Pound approaches 18-month highs.

Historically, GBP to EUR rates have struggled to breach higher levels on five occasions, followed by a period of consolidation lasting at least a month. Given the current position of GBP and the intensifying race among central banks to cut rates, this week may offer the last chance for some time to capitalize on GBP/EUR rates at these levels.

For tailored advice on optimising currency transfers and maximising savings, reach out to your consultant today for expert guidance.

08/04/2024

Upcoming Week's Focus: Interest Rate Decisions and Key Economic Indicators

The GBP/USD closed out last week on a volatile note, spurred by a surprising surge in U.S. non-farm payrolls, which climbed to 303K in March from the expected 212K. Coupled with a drop in the unemployment rate to 3.8% from 3.9%, contrary to expectations, this triggered market turbulence and pushed back expectations for the first Federal Reserve rate cut to September.

Meanwhile, the Euro maintained its upward momentum against the Pound, continuing its gradual ascent. Those anticipating a retest of previous highs should realistically consider securing Euros while favorable conditions persist to mitigate potential risks. Market participants are also weighing the possibility of the Bank of England (BOE) signalling an earlier-than-expected interest rate cut due to increased control over inflationary pressures.

Looking ahead:

In the U.S., key events such as the release of FOMC meeting minutes, the March CPI report, and the preliminary reading of Michigan consumer sentiment for April will dominate the week. Investors will scrutinize the March minutes and speeches from Fed officials for insights into potential interest rate adjustments, especially in light of robust jobs data. Headline inflation is forecasted to rise for the second consecutive period to 3.4%, while the core rate is expected to decline to 3.7%, its lowest level since April 2021. Both rates are projected to increase by 0.3% month-over-month.

In Europe, attention turns to the European Central Bank (ECB) meeting where interest rates are expected to remain unchanged. However, the meeting's significance lies in assessing the likelihood of future rate cuts and any communication shifts from the ECB. Should the ECB maintain a stance of holding off on rate cuts for the near term, the Euro could strengthen against both the Pound and the Dollar. Germany's export data is expected to show a slight decline of 0.5% from an 11-month high, with imports forecasted to decrease by 0.9%. Nevertheless, Germany's industrial production is anticipated to continue its upward trajectory for the second consecutive month, indicating resilience in the manufacturing sector.

In the UK, the Office for National Statistics will release monthly GDP figures alongside industrial production, construction output, and trade balance data. The UK economy likely expanded by 0.1% in February, following a 0.2% growth in January, with manufacturing production showing signs of recovery. With GDP figures as the week's major release amidst relatively quiet UK data, unexpected outcomes could lead to notable movements in trading levels.

07/12/2023

We successfully facilitated a substantial cost-saving of 34,000 AUS for a prominent law firm making an international payment to an overseas beneficiary.

By leveraging our currency exchange and international payments service, the law firm’s client has not only experienced significant financial benefits but also incurred zero additional costs – as we do not charge law firms for our service.

This forward-thinking firm has effectively maximized the inheritance for their clients. Which aligns seamlessly with Principle 7 of the SRA Code of Conduct, showcasing the firm's unwavering dedication to safeguarding and prioritising the best interests of their clients.

To find out how we can help your firm achieve similar results feel free to get in touch: https://bit.ly/3Ru2doh

03/11/2023

No Tricks or Treats from BoE this Week

As we wrap up this spooky week, the Bank of England's monetary policy committee has chosen to maintain the interest rate at 5.25% for the second consecutive term. This decision came as no surprise to economists, following nearly two years of aggressive rate hikes.

The committee's vote, however, was not unanimous. Three out of the nine members supported another rate increase, citing the need to combat continued high inflation figures. In yesterdays speech, Governor Andrew Bailey confirmed that the rate of price rises is slowing, and attributed this to the sustained high-interest rates. He also confirmed we should not expect and reductions in interest rates for the foreseeable future.

Inflation, which peaked at 11% in 2022, receded to 6.7% in September. The impact of maintaining the 5.25% rate on the current forecasted inflation rate, currently standing at 4.9%, will be known after November 15th. This rate aligns closely with the Prime Minister's target to halve inflation by the end of the year.

The Bank of England's Monetary Policy Committee has not dismissed the possibility of further interest rate hikes should their targets remain unmet. They remain steadfast in their commitment to achieving the 2% inflation target, emphasising that any downward adjustments are unlikely until this ambitious goal is met next year.

So, what does this decision mean for the Pound?

Despite yesterday's positive announcement for investors, the Pound displayed minimal movement against the Euro. It continued to hover within its 1-cent trading range, which it has maintained for the past ten days.

Against the Dollar, the Pound displayed a slight uptick following the announcement, reaching its peak for the week. However, the sustainability of this strength remains uncertain. GDP growth forecasts suggest marginal expansion in the final quarter of this year, upcoming Halifax House price data is expected to indicate further declines and the ongoing challenges in the Middle East may well lead to additional energy cost increases, all of which contribute to a less optimistic outlook.

In the context of currency markets, investors and traders are closely monitoring these developments, looking for signals of potential future movements. The decision to maintain interest rates reflects the cautious approach taken by the Bank of England to address inflation and its commitment to achieving a stable and manageable economic environment.

If you have an upcoming currency requirement but find yourself concerned about market volatility don’t hesitate to get in touch with your currency consultant for some expert advice and friendly guidance.

20/10/2023

We're delighted to be sponsoring the Nottinghamshire Law Society Private Client Seminar. We can't wait to meet and connect with everyone at this event!

https://www.nottslawsoc.org/events/international-property-with-wills-and-estate-management-seminar

Join the Private Client Committee at the second seminar of the year, this time focussing on international property, wills and estate management. The seminar begins with a networking lunch, followed by presentations from Dennis Phillips from Buckles Solicitors LLP

18/10/2023

As we find ourselves well into another month, Sterling-Euro exchange rates continue to teeter within a tight two-cent range. Currently, we're residing towards the lower end of this range, primarily due to the recent release of UK wage data on October 17th.

The actual wage data figures fell short of expectations, causing a minor setback for the Sterling. Average earnings, including bonuses, dipped by 0.2% below the forecast and 0.4% lower than the previous data. While average earnings excluding bonuses matched the forecast, they were down by 0.1% compared to the prior period.

This decline in UK wage data, if it persists, could significantly dampen inflation over the upcoming months. Consequently, there's potential for Sterling to regain some strength against the Euro, provided the Bank of England remains responsive to these fluctuations by adjusting interest rates accordingly.

Another significant piece of data that was expected to be released yesterday was the unemployment figures. However, the Office for National Statistics has postponed the release until October 24th. This data holds substantial weight and could influence Sterling's short-term movements based on its outcome.

As of 7:00 am this morning, crucial data was unveiled - the Consumer Price Index (CPI), which serves as a key indicator of inflation in the UK. Here are the results:

CPI month-on-month actual: 0.5%, surpassing both the previous figure of 0.3% and the forecast of 0.4%.
However, for CPI year-on-year, the actual figure was 6.1%, a slight drop from the previous 6.2%, but not as significant as the anticipated drop to 6.0%.
In essence, this data brings some positive news for Sterling as inflation is on the decline. However, the pace of this decline is not meeting the UK's ideal rate.

Given the current state of the market, it remains an opportune time to purchase Euros. Although we aren't at the peak of the current range, it's unwise to wait and hope for higher rates. Sterling is still grappling to maintain its strength. A breach below the existing range could have dire consequences for Sterling, potentially triggering a free fall to the next support level or beyond.

If you have an upcoming currency exchange requirement, we encourage you to connect with your currency consultant today. They can help you make the most of the current exchange rates and establish a strategy, especially if you have some time to work with before needing your currency.

17/10/2023

Can the Pound Survive the Chill or Will the Bank of England Ignite a Rally?

Over the past half-year, we've witnessed GBP/EUR rates fluctuating within a narrow 2-cent range, rendering the currency market seemingly inert. Amid the chaos in global financial markets and the persistent dominance of news related to conflicts and natural disasters, uncertainty reigns supreme. It comes as no surprise that, given its high liquidity and safe-haven status, the Pound and the Euro find themselves entangled in an unending tug-of-war, while the US Dollar emerges as the clear victor. However, as the temperatures drop, there are signs that things are about to heat up. The greenback plays a pivotal role in determining whether GBP or EUR emerges victorious in this battle, potentially breaking the ongoing range-bound trading.

The recent surge in gas prices, combined with an unexpected uptick in US inflation, has put the Bank of England under renewed pressure to raise interest rates. Such a move would likely bolster the strength of the GBP. In the past week, gas prices skyrocketed from £89 per therm to £140, driven by increased demand due to colder-than-anticipated weather forecasts for the remainder of the month and escalating conflicts in Ukraine and Israel, pushing wholesale prices higher. This surge in gas prices is expected to elevate global inflation, and last week, the US reported higher-than-expected core services inflation. This development will likely embolden the already hawkish Federal Reserve to increase rates. Consequently, the Bank of England faces mounting pressure to hike rates, keeping pace with the Fed. The UK, being a net importer of USD goods and having a significant portion of government debt serviced in USD, faces the outcome of essentially importing inflation from the US.

The confluence of US inflation and rising gas prices has once again opened the door for the Bank of England to implement further interest rate hikes, which in turn will influence currency exchange rates. The crucial question arises: will the surge in gas prices lead to inflationary pressures, or will it merely squeeze the budgets of UK households, potentially pushing inflation down? Moreover, could the rising US inflation prompt the European Central Bank (ECB) to follow suit with rate hikes, thus preserving the ongoing deadlock in GBP/EUR rates?

This week will provide significant insights into the potential actions of the Bank of England, as the release of UK unemployment data on Tuesday and inflation figures on Wednesday will set the tone for short-term market movements. With uncertainty looming and GBP/EUR rates poised for a breakthrough, it's advisable to explore options for protecting your exchange rate and mitigating cost risks.

13/10/2023

The Pound has faced a challenging period in recent weeks, notably against the US Dollar. GBP/USD rates have experienced a decline of over 4 cents within just six weeks. The surge in oil prices, escalating tensions in the Middle East and Eastern Europe, and a noticeable contraction in global financial markets have all contributed to the strength of the US Dollar.

Despite being on the brink of selling their USD positions against GBP at levels not seen since last September's notable mini-budget announcement by Liz Truss, it's worth noting that the Pound, despite its recent difficulties, managed to gather enough support to distance itself from a financial precipice. In the past week alone, the Pound has been able to recover around one and a half cents against the USD and three-quarters of a cent against the Euro.

While the UK has grappled with economic challenges throughout the majority of the first three quarters of this year, investors seem to be gearing up for the possibility of a change in government ahead of next year's UK general election. With the Conservative party facing ongoing internal divisions, it appears that Keir Starmer and the Labour party are poised to step into the role of Prime Minister and governing party. However, there are lingering concerns about the lack of detail in Labour's proposed policy changes, and in the ever-evolving world of politics, a lot can change over the course of a year. Only time will tell if the anticipated changes at the top will bring the necessary optimism and a more positive economic outlook.

Looking forward, the release of Eurozone Industrial Production data this morning, coupled with ECB President Christine Lagarde's speech this afternoon, may potentially bolster the Euro if her typical cautiously optimistic messaging resonates with investors.