GBP/EUR crashing following FED minutes (Joshua Privett)

The Federal Reserve Bank of America’s minutes from their July meeting yesterday has altered the whole timeline for global interest rate rises. The consensus among analysts was that most were expecting an interest rate hike in September, but the views expressed in the minutes by the FED members has put seeds of doubt into the market prices had previous reflected a ‘sure thing’. The stimulus for their change in heart seems to be mainly attributed to a slowdown in China and prolonged low oil prices, which crashed again overnight, affecting all major commodity currencies like the CAD, USD and AUD.

What does this have to do with GBP/EUR rates?

Firstly, Sterling’s current strength is largely based around the established understanding that the UK will be following close behind the US in raising interest rates. Multiple reasons do not permit the Bank of England to raise rates before their cousins in the FED. Due to the current weakness in the Euro, should the UK be the first Western country to raise interest rates, the value of the Pound would go out of control, and our largest trading partner will not be able to afford our goods. As such the delay in America for raising rates will have a similar delay for the UK. This is why the Pound is weakening across the board against all major currencies as investors move away to get more short-term returns elsewhere. 

Furthermore, Euro strength is why these rates are crashing rather than simply move gradually against the favour of Euro buyers. Yesterday saw GBP/EUR fall following increased confidence in the Eurozone, a result of the final ratification of the Greek bailout deal. This was exacerbated by the FED minutes as, traditionally, when the USD weakens this translates into Euro strength. USD/EUR is the most commonly traded currency pair in the world, so USD weakening usually means that investors are selling off their USD for EUR, particularly while the single currency is a bargain.

There are no expected data releases today to counteract this rapid crash in GBP/EUR rates. I fully expect that rates will drop below 1.40 today. Those with Euros to buy over the next month will see their budgets tightened further down the road. This change to interest rate timelines will put long-term pressure on the Pound and not be reversed in a week.

I strongly recommend calling me on 01494 787 478 and asking for Joshua in order to receive a free quote, and some tailored advice to your particular situation. I guarantee to beat any rate offered by banks and other sources and will happily peg these current buying levels until the end of the year at no additional cost. Alternatively email me on [email protected] for me information, particularly if you are a Euro seller and want advice on how to ride this move in your favour.