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GBP-EUR Best Rates – 1.37 breached comfortably and still available at the close of trading today ( Andrew Bromley )
A seemingly quiet day today with little movement on the markets, with everyone largely sitting tight waiting for the tedious process to unfold over the agreement on a bailout extension before any more movement could be expected, was suddenly and sharply shattered.
The reason for this was a culmination of events and data unfolding in the US, as well as a very nervous atmosphere on global markets.
Over the past few days Janet Yellen, the Federal Reserve Chair, has been presenting a rather dovish tone to her testimony regarding the US’s current economic situation and monetary policies. The delay to raise interest rates, in her opinion, was a prudent policy in light of undesirable levels of inflation and a still recovering labour force. It is also a rational approach to controlling the value of your currency – in a world of weak global growth and an economy still healing from the credit crunch, to have an extremely strong currency when your service and export sectors need to be affordable is damaging to long term growth.
So her testimony over the past few days was met with acceptance by the markets, with the GBP-USD rates breaching 1.55 comfortably, as well as the Euro rallying slightly. Then her gambit failed.
Her hearings were presided over by politicians who wish to be seen to be acting in the interests of the people, who clearly want interest rate rises after years of unsatisfactory returns from banks. They jumped on the inflation data released today which showed promising improvements even with low oil prices. What the market saw was Janet Yellen having to go on the defensive about not raising interest rates, repeatedly stating the FED was an independent body and not bound by politics. This kind of pressure put on the FED saw investors rush back into the US Dollar, after being dismayed by recent testimony, as well as repetitive announcements of delayed interest rates. In a world of weak global growth, investors are more eager to pounce on opportunities than ever.
Of course, the most desperate investors currently are those holding Euros. With worries that the single currency was going to weaken further (back to pre-2007/8 levels), many jumped hungrily on the assumption that the timeline to raise interest rates in the US would be shortened.
As the USD-EUR is the most traded currency pair in the market, the secondary effect of such a large capital flight out of the Euro was to cause a short term boost to the value of Sterling against the Euro up to a fresh 7 year-high of 1.377!
However, we must not lose sight of the main reason why the rates are this high…Greece. Once the uncertainty is completely lifted, and investors know the Quantitative Easing Program in the Eurozone can then commence and move forward, the rates will see a corrective pullback. Similar to Janet Yellen, the head of the Bank of England Mark Carney is of a similar mindset to controlling our currency value against our largest trading partner to ensure the stability of our own recovery.
This secondary effect today was a gift to Euro purchasers, and a further frustration to those selling and waiting for an agreement with Greece to be ironed out and signed.
Those looking to buy Euros, ahead of the German ratification of the Greek bailout extension tomorrow, and want to save money on exchange rates compared to using your bank then contact me directly for a free quote on 01494 787 478 – ask for Andrew. [email protected]
Source: http://www.poundsterlingforecast.com/2015/02/26/gbp-eur-best-rates-1-37-breached-comfortably-and-still-available-at-the-close-of-trading-today-andrew-bromley/
