Concerns for GBP EUR after FED announcement

18 December, 2015

Matthew Boyle

Yesterday was a fairly strange day following what was a hugely anticipated FED announcement about a US interest rate hike Thursday evening. Despite the FED increasing the base interest rate by 0.25% – the first raise in 7 years – The Dollar gained little ground and expected increases in GBP>EUR rates were not seen. As a result of the hike being largely priced in for several months now, added with a fairly dovish stance on how further increases may be implemented the markets reacted with little vigour. GBP>EUR rates remained stagnant, and perhaps of concern actually dropped through the day’s trading amidst news that UK retail sales were up to 5% from a predicted 3%, something which one would expect to push rates the other way. It was the Dollar that was unsurprisingly the winner as USD stole around a cent against GBP throughout the day, though again these were not the gains that were expected following what was for many a fairly disappointing outcome Thursday night. USD>EUR dropped by just over a cent as the Greenback gained some ground against the single currency.

Today has no data releases of note from the big 3 – GBP<EUR and USD with the main releases of note coming from Japan and Canada who release their monetary policy statement and inflation data respectively. Don’t be surprised then if we see a continuation of trend as we will likely sentiment and trend dominate the trading for the 3 majors.

A word of caution
Those of you with upcoming GBP>EUR transfers might be concerned given the way the markets have reacted to the FEDs announcement. Many expected it to be more aggressive and the resultant effect of the USD/EUR see-saw with GBP for Euro rates to improve – they have not. And this was also following a surprise retail sales figure form the UK which under normal circumstances see rates push up, again they have not.

Whilst many of you may feel disappointed and still be hoping for rates to return to higher levels, don’t get caught out. Many feel that rates GBP>EUR rates have been overpriced at times, and during the periods where we have seen rates push up to 7/8 year highs there have been a number of huge factors helping it – Swiss/ Euro peg, Q.E programme, UK interest rate hikes etc. This is not the case anymore, and in the short term aside from GDP we have little data from the UK now. With sentiment seemingly outweighing data at the moment and following the dovish FED approach at present there seems little that would encourage rates to push up in the short term.

So don’t be caught out by perhaps waiting for rates to shoot up again and take note that historically speaking these rates are still extremely good. There is a risk that in waiting to gain an inch you may lose a mile.

As this is my last report now until 2016, let me take the opportunity to wish all readers a Merry Christmas and all the best for 2016.