Of FC Ex­change, looks back at an un­set­tled year for the GBP/EUR ex­change rate

Charles Mur­ray,

Living France - - LES PRATIQUES -

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

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