The pound euro (GBP/EUR) exchange rate saw some dramatic shifts in movement over the past two weeks amid fears of global recession, diverging central bank policy, and UK political uncertainty.
GBP/EUR began the past two weeks on a slow decline, falling as low as €1.15 before rocketing up to almost €1.18 as Eurozone recession fears increased.
What’s been happening?
Poor Eurozone PMI results helped the pound to climb higher against the euro toward the end of June. Eurozone growth slowed to a 16-month low across the manufacturing and services sectors. An improvement to UK retail sales for May also likely helped Sterling to make gains.
Confidence in the pound faltered amid fresh Brexit-related headwinds, however. A strong US dollar limited major losses for GBP/EUR however as it sapped demand for the single currency.
The exchange rate slumped following a day of central bank speeches at the very end of June. The Bank of England’s (BoE) Governor Andrew Bailey led with a cautious tone which saw investors drastically pare back their bets on future rate hikes.
The European Central Bank (ECB) president Christine Lagarde meanwhile signalled her commitment to future rate hikes by the central bank.
The beginning of July saw the euro nosedive. Soaring energy prices and fears that Russia may soon cut off gas supplies to Europe dramatically increasing the risk of an imminent Eurozone recession and pushing EUR exchange rates sharply lower.
At the same time the resignation of Prime Minister Boris Johnson also helped to bolster the pound in the first week of July as it quelled UK political uncertainty.
What do you need to look out for?
Looking ahead for Sterling, next week is set to bring fresh GDP figures for May. Economic growth is expected to fall, albeit at a reduced rate, which could see confidence in the UK’s economy falter further.
Unemployment figures later in the month could be a key driver of bets on action from the BoE.
The next UK consumer price index will also be closely watched by investors. If inflation remains high, then the pound could climb owing to the need for aggressive rate hikes from the BoE.
The aftershock of Johnson’s resignation could weigh on Sterling in the coming weeks. A protracted leadership battle could prompt further uncertainty and limit any bullish bets on the pound.
The euro’s movements are also set to be driven by speculation over central bank movements ahead of the ECB’s interest rate decision toward the end of the month.
Investors will certainly be looking to speeches from various policymakers, including the ECB President Lagarde, for further hints on the central bank’s forward policy.
On the other hand, the euro is at risk of plummeting if Russia moves to cut off gas exports to Europe as the resulting disruption would inevitably plunge the Eurozone into a recession.
Protecting against volatility
This kind of volatility can cause some nasty surprises if you need to transfer money overseas. On a £200,000 transfer, just a one-cent gap translates to a €2,000 difference. And the larger the sum, the higher the discrepancy.
Fortunately, there are ways that you can protect against volatility.
Specialist currency brokers, such as Currencies Direct, offer different tools to help you navigate the ups and downs of the currency market.
For instance, you can use a forward contract to secure an exchange rate for up to a year. This way, you won’t lose out if the market moves against you.
Services like rate alerts and daily updates make it easy to keep track of what’s going on in the forex world so that you can make informed decisions. And with Currencies Direct you’ll have a dedicated account manager there to provide guidance and support whenever you need them.
At Currencies Direct we’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.
Since 1996 we’ve helped more than 325,000 customers with their currency transfers, just pop into your local Currencies Direct branch or give us a call to find out more.
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