Last week, Sterling exchange rates hit new lows against the Euro at 1.07 and dropped against the U.S Dollar hitting rates of 1.27- The reason wasn’t so much that the Pound was weak, but that the Euro had been gaining a lot of strength in the running up to the next ECB meeting and political uncertainty around the world; Due to uncertainty surrounding the U.S & North Korea many investors chose the Euro to be their safe haven- and that much was evident with the EURUSD exchange rate hitting 1.20.
Brexit has now become somewhat of a non-event for Sterling as the markets now seem to be desensitized to Brexit negotiations and click bait headlines concerning the UK’s exit from the single market- I personally think this is a positive thing as these negotiations will be on going until at least March 2019, and I’m sure I am not the only one who would like a stronger Pound before then!
The reason for the strength of the Pound at the end of the week was due to strong factory orders in the UK, the weaker exchange rate has made UK produced goods more attractive to overseas buyers, and we have seen orders going up to reflect this. These figures have given the UK a good start to September and give me the idea that economic figures for the UK should be pretty strong because of this. Fortunately, I think the markets have come off the idea of a BoE interest rate hike anytime soon and will be able to look at our economy’s numbers without any bias towards them which will protect the Pound from sharp moves from speculation about interest rates.
We do have plenty of data releases over this next week, however, the main event will be the ECB interest rate decision on Thursday. Leading up to the meeting the rumors have been that Mario Draghi will begin tapering QE in the Eurozone, however, this no longer seems to be the case. It is believed that this will be discussed, alongside a downgrade in inflation forecasts, which isn’t great for the Euro- the only factor that can counteract this is that the Eurozone’s growth forecast has been upgraded and the recent strength in their currency definitely reflects that. I feel that Mario Draghi will say this but will warn against excessive moves against the Euro. As I always say with speeches, anything can be said and it is hard to predict what motives are behind a central bank- we usually find that the markets “Buy the rumor” and “Sell the fact”, so we may well see good buying opportunities prior to Thursday, and then after the result we will be clear on the next direction for the Euro.
There is a good chance that the GBPEUR exchange rate will reach 1.10 over the next week and that the GBPUSD exchange rate hits 1.30 providing economic figures come out in favor, but if you have an upcoming transaction please contact me for further analysis.
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