Which direction will the Euro go now?

Tomorrow at 12.45 UK Time The European Central Bank is due to make an announcement which could permanently change the Euro. The recent mood surrounding the Euro has been one of cautious optimism. Markets are hopeful of some constructive plans for solving the Euro crisis and tomorrow is the day we could see news from the European Central Bank. The Euro will likely break out of the current ranges it has been flirting with on both EURUSD and GBPEUR so anyone considering a transfer soon should be aware of the importance and significance of these actions. Let us look at the state of play and what you can do to protect yourself and secure the best rate.

The Euro has weakened further and further over the course of this year as confidence in the currency has plummetted. Investors who have been supportive of the single currency throughout the debt crisis hoping for resolution have been disappointed time and time again. Numerous Emergency Summits, countless private meetings and untold amounts of unreported conversations behind closed doors have failed to yield any serious tunraround in the outlook for Europe. It really is quite reasonable to expect that tomorrow too will let us all down again, but there are reasons to be hopeful and believe things could be different.

‘Without access to bond markets at reasonable rates, these struggling economies have very little chance of becoming competitive and reversing their fortunes.’

A Bond is a promise to pay back a debt. This is how governments finance day to day expenses, they sell off ‘bonds’ (on the financial markets) on a promise to pay back the holder at an agreed rate in the future. UK Government bonds are for 10 years paying back a rate of about 1.64%. Spanish bonds curently pay 6.4%. The higher the rates of return (yield) the more risky the investment.  This is important for the Euro because it is the expense of the bonds issued by Spain, Italy and the other ‘peripheral’ economies which has raised investors fears. It was these fears plus the possibility of a Greek exit that caused the rate to fall to near 1.20 on EURUSD and to 1.2860 (0.7776) on GBPEUR (EURGBP). Without access to bond markets at reasonable rates, these struggling economies have very little chance of becoming competitive and reversing their fortunes.

The ECB via Mario Draghi has indicated it will do ‘whatever it takes’ to save the Euro. Their options tomorrow include buying more bonds and setting out to what extent it is their repsonsibility to intervene into these bond markets. A real bone of contention is from some quarters in Germany (but all over) who argue that it may not the ECB’s responsibility to intervene in such a fashion. This camp argue such intervention dissuades governments from implementing their own budget deficit reduction measures (by articifically reducing government borrowing costs)  and is not a long term solution. The other side argue if they do not intervene the crisis will only perpetuate and more will have to be done down the line to assist these economies.

If you are planning a currency transfer now or in the future involving the Euro an awareness of all the issues and an understanding of what to look for will save you money. As well as offering my clients a commercial exchange rate I can also assist with the timing of your transfer. Every half a cent on a €200,000 to sterling transfer at present is £632.

Even if you think you have everything tied up with your bank or broker it is well worth a second opinion on the exchange rate. We always go thast extra mile for clients who contact us via this site and I would be very pleased to assist you personally. Just email [email protected] for more information