Obama’s intervention in April, initially with gentle suggestions that then digressed into more heavy-handed economic ‘reality checks’ as he put it, allowed some pressure on the Pound to be lifted. This allowed buying Euro rates to move up by just over seven cents as an example, running parallel to the rise in the Remain camp’s share of the vote of most polls conducted.
Markets have made no secret that they would prefer for the status quo to remain, and regardless of your own political opinion, this consensus is the governing factor in how buying rates for Euros and the various Dollars will be affected this month.
The Pound’s mixed fortunes – Firstly, the impact of heavy hitters
Frankly, I have been surprised this year by how much store has been put in the polls. The general election got it woefully wrong, yet the value of the Pound still shows clear correlations to the jostling for position between the Remain and Leave camps in national statistics.
Barack Obama’s visit to the UK in April, which was hard to miss even if you only ever glance at the news occasionally, put a large store of momentum into the Remain camp. Apart from proving that he seems to have more sway with the British public than our own Prime Minister, this event did reflect how quickly the fortunes can change for both campaigns.
Boris Johnson had a similar effect in February when he announced his support to loosen ties with the Eurozone, causing the Pound to fall against most major pairings by around 2%.
Changes to vote shares for the Remain and Leave camps during last month have created a greater likelihood that the UK will remain within the EU. However, these vote splits are still well within the margin of error.
The Pound will still likely remain under pressure unless the Remain camp manages to pull ahead further and make a potential Brexit less of a gamble and more of a certainty that it will be avoided.
UK’s economy to be the deciding factor for Sterling?
The further lesson given at the start of the month that the Pound had room to fall. The lowest manufacturing and construction figures for three years saw GBP/EUR see a net loss of 3 cents across two days of trading.
Slowing growth for the first quarter of this year compared to the final three months of reflects that a strong Pound after the Referendum shouldn’t be considered as a given.
The Bank of England will be voting on UK interest rate policy on Thursday. With a new member being added to the policy committee, markets are worried that for the first time in 13 months one of the members may vote for a rate cut. Luckily for foreign currency buyers some areas of the UK economy have allowed some bright sparks of strength for Sterling.
The intermittent weather of April saw an early bump to retail sales ahead of summer, and low oil prices seem to have translated into increased spending habits in other sectors.
The Pound is currently in an uphill battle, but with so much pressure coming from the Referendum, this can quickly change. A premium over this month will be on keeping up to date with polling figures which change almost as much as exchange rates themselves. Anyone with a foreign currency buying requirement should contact their broker in order to be kept up to data on any news that will affect your transfer.
Euro still enjoying benefits of economic turnaround
The Euro has continued its run of outstanding economic performance this year. Growth figures for the Eurozone actually outstripped the UK for the first time in 3 years during the first quarter of 2016.
Whilst there are still issues, Greece for one has started coming back into the headlines as they still struggle with their austerity reforms, it’s all relative.
Currency markets care about growth and improvement. The unemployment rate in the Eurozone is still above 10% whilst the UK’s is now below 6%, and they just entered deflation once more. But after more than a year of cheap credit and interest rates on the verge of 0%, their extreme economic stimulus measures have begun to work, and the world has noticed.
The Eurozone has attracted more global investment in the first four months of this year than the entire year of 2015 combined - €270bn. The demand for Euros to fuel this outside investment is one of the reasons why the Euro hit 22 month highs against Sterling, 9 month highs against the USD, and near 7 year highs against the Australian Dollar during April.
Currently the European Central Bank are toying with the prospect of further stimulus as a pre-emptive measure given their current problems with negative inflation. This may present some short-term opportunities for Euro buyers, which have been rare to find so far this year.
However, this meeting is not until the final week of May. In the meantime, it seems that the Eurozone economy’s performance may continue to benefit Euro sellers as we edge further into the month.
Anyone concerned about buying Euro rates may wish to take advantage of a forward contract, which will allow you to fix the current buying levels as they are today, for a future purchase up to 18 months in advance. Though most people usually use this for periods of a few weeks to three or four months, and in doing so, avoid any pitfalls affecting your transfers.
Questions over interest rates sees US Dollar weakness
Dollar buyers have been given some breathing room over the last two weeks, and not simply from Obama’s recent visit to the UK.
The US has enjoyed the title of the first major economy to raise interest rates since the 2007/8 financial crisis, and suggestions of a further four incremental rises this year allowed the USD to break into 7 year highs against the Pound during January. But the roadmap for hikes in 2016 has begun to crumble. Excuses and dovish tones from the Federal Reserve Bank of America have begun to characterise press releases during April.
Slowing growth to 0.5% for the first quarter of the year, and jobs growth coming in 25% less so far this month are feeding this FED concerns that its economy may not be able to handle any further hikes in the short term. The resulting loss of near-euphoria for investors has seen the value of the Dollar change its natural trading band established in March between 1.41-1.45, to something more like 1.44-1.47.
Before the Referendum begins to bite one more, some very attractive Dollar buying rates may emerge over the coming weeks. To be kept informed of any movements, I strongly recommend contacting your account manager and detailing any upcoming requirements you may have to them in order to be updated immediately should any tempting exchange rates emerge.
Surprise gift for Australian Dollar buyers
If you ever wanted an example of just how sudden the turnaround in fortunes for any currency can be, between April 27th and May 10th GBP/AUD rates have risen by 9 cents.
After a prolonged fall of 26 cents since January, Australian Dollar buyers have been presented with an overwhelming gift which has been popular for many to seize this week. The reason for such a drastic and sudden change of momentum was a series of events, all of which within a couple of days of each other. The result of which can only be described as a market panic.
Firstly, it was revealed that the Australian economy had slipped into negative inflation. A likely result of the winding down of the tourist season and prices returning to normality, but this then informed the second quick-fire decision to cut interest rates as a preventative measure to protect the economy.
Finally, the call for an early election next month has produced not only a lack of confidence, but uncertainty to go with it on the direction of the Australian economy over the next few months. Enough to see a reactionary sell-off of Dollars.
This turnaround has been more pronounced on EUR/AUD and USD/AUD; it is simply the current situation in the UK which has prevented prices rising even further on GBP/AUD rates.
This stall on the rise on Australian Dollar buying rates is also the main argument why this turnaround on GBP/AUD is likely to be short-term. Whilst Australia now have an election coming up, much more is at stake with our current Referendum.
Anyone wishing to take advantage of these significant improvements, either by buying currency immediately, or by fixing these current buying levels ahead of a future purchase, should feel free to contact their personal broker here for a live quote. Each day the average difference between the high and the low on GBP/AUD is 2-3 cents. As such, even a well-timed transfer that day could dramatically increase your currency return.
To keep track of current exchange rates visit our live foreign exchange rates page. Alternatively you can call our currency brokers on 0044 1494 725353.