Forex markets saw the British pound to euro rate (GBP/EUR) at the lowest conversion rate since late 2014, but where next for the Sterling against the single currency and US dollar? Leading foreign exchange rate forecasts from the top banking institutions updated.
The British pound (GBP) slipped sharply in the red against a basket of global currencies after the weekend close, including the EUR, USD, AUD, NZD, CAD and the ZAR.
The Mayor of London, Boris Johnson, shocked the markets today by announcing that he will campaign for the UK to leave the European Union, a move which has seen GBP tumble into negative territory against EUR and the USD.
According to Reuters, Pound Sterling is now at a 22 month low when measured against a basket of currencies. The US Dollar To Pound, Euro Continue To Perform "As Before" Despite PMI DisappointmentUS dollar tested the best exchange rate in over seven years against the pound.
Here are some of the key winners and losers for the GBP, updated as of Monday:
- The British pound versus the Australian dollar cross is 1.02 per cent lower.
- The GBP/CAD is also sharply lower, 0.74pct down on the Canadian dollar.
- The pound to euro spot exchange rate trends 0.08 per cent in the red, having dropped 0.68 per cent Sunday evening.
- Sterling's biggest loser at market open is against the New Zealand dollar, down a huge 1.12pct.
- Finally, the GBP to USD exchange rate is 0.4 per cent in the red.
Foreign exchange investors were given hopes for a more-sustained pound sterling (GBP) recovery as we approached the end of the week.
The Euro to Dollar, Pound Exchange Rate Outlook
Lloyds see the following EUR/GBP exchange rate trading ranges in a note to clients (as of 22/02/2016):
"We remain trapped in the 0.77 - 0.79 range we have been in for the last two weeks or so . While over 0.7725 EURGBP the technical bias is for a break-up through 0.79 opening a further extension into more important long-term resistance in the 0.80 - 0.82 region."
Citi analysts, when briefing on the euro to dollar forecast, say:
"...the EUR’s deterioration from the mid-month peak has left spot trading around broader congestion support at 1.1050/1.1. Intraday trading patterns look heavy for EURUSD but the EUR responded positively to a retest of yesterday’s low near 1.1075. We think EURUSD should struggle in the low 1.11 area intraday and we would rather favour short positions overall."
The Pound to Dollar Exchange Rate Forecast
Scotiabank share their view on the pound to dollar exchange rate in the near-term outlook:
"We still think the broader technical signals – especially the repeated failures around the 40-day MA through February – are negative for the GBP. Loss of short-term support intraday at 1.4310 (now minor resistance for the balance of the day) also suggests a negative bias for the market into the end of the week. Look to fade modest GBP gains from here."
They go on to say "We think a strong, underlying bear trend is in play here while spot remains below 1.4450/1.45."
Before we continue with the news, here are the latest fx rates for your reference;
On Saturday the Euro to British Pound exchange rate (EUR/GBP) converts at 0.858
The live inter-bank GBP-EUR spot rate is quoted as 1.165 today.
Today finds the pound to canadian dollar spot exchange rate priced at 1.715.
The GBP to AUD exchange rate converts at 1.9 today.
The GBP to NZD exchange rate converts at 2.088 today.
FX markets see the pound vs us dollar exchange rate converting at 1.255.
NB: the forex rates mentioned above, revised as of 4th May 2024, are inter-bank prices that will require a margin from your bank. Foreign exchange brokers can save up to 5% on international payments in comparison to the banks.
UK budget surplus was at an eight-year high in January, but does that make Osborne’s deficit target realistic?
The UK government saw a record £12.4 billion in self-assessment tax receipts during January, which could make it easier for Chancellor George Osborne to achieve his budget targets, although this failed to boost GBP-EUR and GBP-USD exchange rates.
However, many still believe that his long-term goal of running a budget surplus by 2019/20 is overly ambitious.
According to Maike Currie, Personal Investing and Fidelity International Savings Director, ‘budget surpluses are rare events…since 1952 there have only been eight out of 63 years in which the UK government has spent less than it has received in revenues and it has never done so for more than three consecutive years.’
Currie states that, ‘The Chancellor may have painted himself into a dangerous corner with his deficit elimination promise, after all total debt matters far less than debt affordability and currently record low interest rates means that we have never seen Britain’s debt as cheap.’
ING Bank believes the UK could see a rate hike in 2016 if it votes to remain in the EU.
January’s strong retail sales figures, which rose 2.3% month-on-month (MoM) compared to the forecast increase of 0.8% and 5.2% year-on-year (YoY), could suggest that conditions will support a rate hike later this year.
That’s the prediction from James Smith from ING Bank, who says, ‘With headline inflation likely to remain low in the near-term, the Bank of England has room to leave rates unchanged until the Brexit uncertainty subsides.’
‘However, if the UK votes to remain in the EU, we think there is a strong chance of a November rate hike given that consumer spending remains strong (as demonstrated by this data) and a weaker sterling is likely to help push up inflation in the medium-term.’
EUR/USD, EUR/GBP Forecast: While the ECB is confident that loose monetary policy is working, it also notes the need for more.
According to a recently released account of the January policy meeting:
‘Cross-checking the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the effectiveness of the monetary policy measures that were in place, but also the need to review, and possibly reconsider, the monetary policy stance at the next monetary policy meeting in early March.’
However, not everyone is convinced that additional stimulus is enough to revive the economy, with Vincent Juvyns of JP Morgan Asset Management claiming that ‘European monetary policy will soon reach its limit. What will really revive the European economy is structural reform, labour reform.’
If the European Central Bank (ECB) intend to loosen monetary policy then the trajectory of Euro exchange rates trend is likely to take a negative bias.
USD Exchange Rates Weak as Markets and Fed Disagree on Rate Hike Path
There is still some discrepancy between how the Fed see the future of US interest rates and what the market is expecting them to do.
According to a February speech by San Francisco Fed President John Williams, the Federal Open Market Committee (FOMC) will continue to gradually tighten policy as the US economy looks to strengthen.
Fed funds traders would appear to disagree, however, with the probability that interest rates will remain at 0.50% still above 50% by the December 21st meeting, while there is already a 2.3% likelihood that the FOMC will cut rates to 0.25% in February.
Update:
They may have been political rivals before, but David Cameron, Nick Clegg and Ed Miliband now stand on the same side of the EU debate that has seen the Pound crash against the Euro and the US Dollar.
All three party and ex-party leaders have separately voiced their support for the European Union and Britain’s place within it today