See saw effect in full swing, but will it last?
30 May, 2018
With no UK data released until Thursday this week, and the Pound on the backfoot against the Euro and Dollar because of ongoing Brexit uncertainty we are seeing the see-saw effect in full flow currently with the 3 major currency pairs. If you imagine a see-saw whereby the Pound is in the middle with the Dollar at one end and the Euro at the other, as one pushes up against the Pound, the other moves down. This was very apparent yesterday – as the USD made gains against GBP, taking it to a 6-month low for buying dollars we saw Euro buying rates trickle up and move to within a cent of the best they have been in 12 months. However, it must be asked how long this effect will last? Particularly for those who need to buy Euros in the short-term.
Today we have German data in the morning and US GDP in the afternoon. With no UK data, any US strength or Euro weakness will only encourage rates to move as they did yesterday. However, there are several factors to consider that might suggest it is more likely that the see-saw will reverse, and so GBP>EUR rates start to come back down. We have seen the USD gain now around 10 cents in the last 6 weeks, and given this, it is very likely we will see a technical correction at some point soon. We saw yesterday when the USD weakened slightly against the Pound almost immediately the Euro gained, so it is apparent how sensitive the movements are at present.
The Euro is also relatively strong currently (certainly stronger than the Pound) and it should be considered the reason GBP>EUR rates are at these levels is predominantly due to the strong USD, and little else. The last 2 inflation readings from the UK suggest we are unlikely to see an interest rate hike this year, and with Brexit uncertainty playing on with issues still surrounding the Irish border and Customs Union, we know any small demonstration of GBP strength is usually short-lived.
As such, those of you with Euro requirements in the next few months may like to consider this, and take advantage of the current levels before they begin to erode. Currency Index offers several ways in which you can protect your budget in these uncertain times, including Forward contracts which allow you to secure the currency you need now with only 10% of the total funds. So, if you have something coming up- why take the risk? Speak to Currency Index today.
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