Of FC Exchange, looks back at an unsettled year for the GBP/EUR exchange rate
With a variance of over 15% between the highs of 1.44 IB (interbank rate) in July and lows of 1.25 IB in January, 2015 has been a rollercoaster year for the GBP/EUR pairing. Of course, the Greek debt saga was the major contributing factor to the euro’s demise for much of the first half of the year, pushing it to the highest levels in nearly eight years.
Once bailouts were agreed and Greece narrowly avoided what seemed an inevitable ejection from the eurozone, the single currency manged to breathe a sigh of relief enabling it to regain some much needed strength.
Markets hit a period of reflection and relative calm after the Greek saga subsided, and it wasn’t until focus turned to the possibility of an interest rate rise in the UK as early as February 2016 that sterling strengthened. This news pushed the pound back up above 1.40 IB once again – much to the relief of UK investors. UK inflation soon became big headlines for the pound as September’s reading fell into negative territory, as it did in April, causing the pound to weaken dramatically to low 1.30 IB levels.
As rock-bottom levels of inflation and the reality of an interest rate rise as late as 2017 sank in, it wasn’t long until the markets shifted focus back onto Europe and the talk of an extension to the quantitative easing programme. With recent comments from the ECB president, Mario Draghi, and signs that the central bank seems to be edging ever closer to injecting billions more euros into the markets, the single currency, once again, tested the higher levels of 1.43 IB.
The positive effects of this stimulus in Europe are a long way off, and with more cash injections likely in the next few months, the single currency is likely to feel even more downward pressure in the New Year. Not until the liquidity filters through from the banks to the small- and medium-sized companies, and they begin to increase lending, will inflation levels and employment rates be seen to normalise. If inflation in the UK begins to pick up momentum, then the GBP/EUR rate is likely to stay around 1.40 IB and higher for the first quarter of 2016 at least.
The year 2015 is a prime example of how volatile and unpredictable the markets can be, and with 2016 starting off with interest rate decisions from the UK and quantitative easing enhancements from the eurozone, volatility is only likely to continue. We recommend staying in touch with your broker Turn to page 84 for tips on getting the most out of your currency exchange. fcexchange.co.uk