Strong Pound struggles against USD bolstered Euro

23 October, 2013

Matthew Boyle

It has been a slightly strange few weeks for the pound against the Euro with exchange rates slowly dropping from the 9 month high experienced recently. Strange as despite a recent raft of positive UK data – House prices up, unemployment down, GDP up, and of course the Bank of England maintaining their change of stance towards Q.E with its new position of forward guidance.

This week is quiet in the way of major data releases for almost all bar the pound however with the BoE minutes released today and of course the MPC vote on Q.E. Likely to remain unchanged at 9 votes against perhaps tomorrow may see more movement as Mark Carney speaks, which on previous occasions have seen rates particularly volatile. As we reach Friday UK Q3 GDP figures are released which again have the possibility of causing movement, which despite the slow drop inGBP/EUR rates has been relatively stagnant few weeks for this currency pairing.

Interestingly however whilst the pound struggles against the Euro, against USD we are experiencing rates that are near the best we have seen in 2013 due to the ongoing US debt crisis, also affecting all pegged currencies.
As this crisis debt goes on, investors are moving money out of the US which has previously seen “safe-haven” status and into Europe- which is a large part of the explanation as to why the pound is losing against the Euro despite good news in the UK and a relatively strong pound. As Investors move money out of the US and into Europe this is providing the Euro with increased strength and as such is pushing the pound down. This is showing in the current EUR/USD rates, with the single currency gaining considerable ground against the greenback in recent weeks– gaining almost 3 cents in the last week alone. USD durable goods data on Friday could only add to USD woes and indeed the pound as it helps bolster the Euro.

Certainly it would seem whilst the US crisis is ongoing and investors move funds out of the US and into Europe that the pound is fighting an uphill battle against the Euro, and one might question what it will take for it to begin to claw back the losses made in the last 3 weeks.

If you have any upcoming transfers to make , particularly those involving GBP, USD or Euros you would be well advised to speak to your Currency Index Broker sooner rather than late. With the US crisis largely dominating what is an increasingly volatile melting pot of issues and affecting exchange rates across the board, don’t be caught out unfortunately. We can help you stay well informed and well ahead of the market.