B
BenjaminFX
New Member
With the first quarter behind us we are looking to see what the second will bring in the currency markets. The first three months of this year seem to have been dominated by the possibility of interest rate increases in both the UK and Eurozone, none of which have materialised.
So how do we see things going forward?
In the very short term I would suggest that any possible news on interest rate increases will dominate the market and this could be slightly more beneficial for the Euro than any other currency due to the Eurozones bullish attitude to raising rates in recent weeks. This is where we have seen the defining difference between the ECB and the Bank of England. We’ve all read that the road to recovery will be long and winding with many twists and turns, but I feel that it is the Eurozones positive attitude which has helped make the Euro so strong in recent weeks. Jean Claude Trichet was recently quoted as saying that a rate rise would be imminent from the ECB whereas the Bank of England have been far less aggressive in any statements hinting that they will do everything in their power to curb inflation but are reluctant to raise rates too quickly in case it dampens the already fragile recovery.
With the Euro currently sitting very near this year’s strongest position against the pound and also recently matching the high it saw against the Dollar back in November last year I feel that any potential gains are limited and there is a strong possibility that the market will become frustrated with the Euro if an interest rate increase doesn’t materialise very soon. There are also potential downsides to raising rates for the Euro and some of the peripheral Eurozone countries may well be pushed closer to asking for a bailout like Portugal and Spain.
Sterling also has its own problems but the ability to control its own monetary policy and interest rate should stand it in good stead going forward. The biggest blow for Sterling in recent weeks will definitely be that its biggest supporter Andrew Sentence leaves the MPC on the 1st June which will throw into doubt just how quickly the UK will raise rates. There’s no doubt that Sterling is weak at present and must seem good value for the market, but the negativity surrounding it is definitely putting off potential investors in the short term.
The Dollar for me is the potential unknown at the moment as the US seem to have turned up to the poker game showing their hand to the rest of the table. The US have laid all their cards on the table to the depths of the problems they face and as such the US Dollar has lost ground in recent months but a small retracement could well be not very far away.
So in summary how do I see this quarter overall, GBP/EUR to move higher but not to the dizzy heights of 1.20 until the third quarter with EUR/USD losing some of its recent gains which leaves GBP/USD which I could see hovering at very similar levels.
So how do we see things going forward?
In the very short term I would suggest that any possible news on interest rate increases will dominate the market and this could be slightly more beneficial for the Euro than any other currency due to the Eurozones bullish attitude to raising rates in recent weeks. This is where we have seen the defining difference between the ECB and the Bank of England. We’ve all read that the road to recovery will be long and winding with many twists and turns, but I feel that it is the Eurozones positive attitude which has helped make the Euro so strong in recent weeks. Jean Claude Trichet was recently quoted as saying that a rate rise would be imminent from the ECB whereas the Bank of England have been far less aggressive in any statements hinting that they will do everything in their power to curb inflation but are reluctant to raise rates too quickly in case it dampens the already fragile recovery.
With the Euro currently sitting very near this year’s strongest position against the pound and also recently matching the high it saw against the Dollar back in November last year I feel that any potential gains are limited and there is a strong possibility that the market will become frustrated with the Euro if an interest rate increase doesn’t materialise very soon. There are also potential downsides to raising rates for the Euro and some of the peripheral Eurozone countries may well be pushed closer to asking for a bailout like Portugal and Spain.
Sterling also has its own problems but the ability to control its own monetary policy and interest rate should stand it in good stead going forward. The biggest blow for Sterling in recent weeks will definitely be that its biggest supporter Andrew Sentence leaves the MPC on the 1st June which will throw into doubt just how quickly the UK will raise rates. There’s no doubt that Sterling is weak at present and must seem good value for the market, but the negativity surrounding it is definitely putting off potential investors in the short term.
The Dollar for me is the potential unknown at the moment as the US seem to have turned up to the poker game showing their hand to the rest of the table. The US have laid all their cards on the table to the depths of the problems they face and as such the US Dollar has lost ground in recent months but a small retracement could well be not very far away.
So in summary how do I see this quarter overall, GBP/EUR to move higher but not to the dizzy heights of 1.20 until the third quarter with EUR/USD losing some of its recent gains which leaves GBP/USD which I could see hovering at very similar levels.
