Monday, 5 October 2015

Monday, 5 October 2015

Non-Farm Payrolls kicks the Euro into Touch

It was all looking so good on Friday for euro buyers; a steady rise throughout the first half of the London trading session was decimated after the key US release- Non Farm Payrolls.

Job creation figures in the States are seen as a key barometer as to the health of the US economy and, therefore, when the US Federal Reserve are likely to begin raising interest rates. The Fed were widely expected to begin raising interest rates in September this year; however, Janet Yellen has been resolute in her stance that interest rates should only rise when economic data supports the change. The expected figure from the States 203,000; however, the US only managed a paltry 142,000 which led to a dramatic weakening in USD crosses.
So why has this helped the Euro?

EUR/USD is one of the most widely traded currency pairs and, as such, tends to have a reciprocal relationship. This relationship means that if the dollar weakens then the euro tends to gain, and vice versa, as the charts below will attest.

GBP/EUR exchange rate

GBP/USD exchange rate

So what does this mean if I’m holding Pounds?

For those looking to sell sterling for another currency it is worth exercising caution. Much of the pound’s huge gains this year were due to market participants expecting the Bank of England to also look at normalising monetary policy. Mark Carney has taken a similar stance to his American counterpart in using Forward Guidance to offer his assessment of the UK’s economic landscape and keep the public abreast of the Central Bank’s views and plans. Carney has been labelled an ‘unreliable boyfriend’ for his propensity to move the posts; however, as he pointed out when destroying a journalist who dared to call him out on this fact, he is a central banker and not a politician and is led by data and not pledges.

The shaky global macroeconomic outlook recently has meant it is more uncertain than ever as to when conditions will be suitable for rates to rise. This has been one of the most significant factors behind the pound’s recent drop. And could spell further trouble for GBP pairs going forward. If you have an upcoming currency requirement then it is worth taking the time to speak with your account manager about the different options available to you. The decline in GBP/EUR means that a €200,000 purchase is over £9,000 more expensive than just a few weeks ago.

Our clients who made use of a forward contract while close to the highs can now call on their euros at any point from now, up to two years in the future, at price above the current mid-market. If you don’t have an account manager at Foremost Currency contact us today for an explanation of how they can help.

By Joe Mayhew Senior Currency Broker, at Foremost Currency
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