Currency Update from ´Currencies Direct´

  • Dovish BoE sinks pound, impressive data supports euro

    November so far has been a bit of a struggle for Sterling, starting with the Bank of England’s (BoE) rate decision which prompted significant losses for the currency at the start of the month.

    Confidence in the pound in November has also been rattled by political developments in the UK, with investors fearing that the instability of the UK government may hamper Brexit negotiations.

    Meanwhile, the euro has been lifted over the past few weeks by a run of upbeat data from across the Eurozone, with the bloc looking to have capped off a of year impressive growth with a strong fourth quarter.

    The last four weeks has seen the GBP/EUR exchange rate trade between €1.1446 and €1.1099, with the pairing averaging at €1.12 by the middle of November.

    In the meantime EUR/GBP has ranged from a low of £0.8736, ahead of the BoE rate decision, to a high of £0.9009 on the back of some impressive EU data.

    What’s been happening?

    After rising in the second half of October, the start of November brought a considerable drop in the pound despite the BoE delivering its first interest rate rise in over a decade.

    Sterling fell over 1% as markets were dismayed by hints that this would be a ‘one and done’ kind of deal rather than the start of a new cycle of monetary tightening.

    Further adding to the pound’s woes was a growing sense of political uncertainty in the UK after Prime Minister Theresa May was forced to shuffle her cabinet multiple times after two of her top ministers were hit by unrelated scandals.

    GBP/EUR was further unsettled by reports that a sizeable number of Conservative MP’s were plotting a possible leadership challenge against the PM, with investors fearing that Brexit negotiations would be further complicated by the political instability in the UK.

    The Eurozone economy, meanwhile, appears to be booming, with Germany’s growth surging to 0.8% in the third quarter and helping to bolster the appeal of the euro.

    What do you need to look out for?

    The pound could see further losses in the coming weeks as Brexit negotiations are unlikely to be completed before the next EU Summit on December 14th.

    This could scupper any chances for trade talks to begin by the end of the year and likely dent Sterling sentiment.

    Meanwhile, the euro may continue to strengthen over the next couple of weeks if the positive trend in Eurozone data continues.

    However, the single currency’s gains could be undermined somewhat by the European Central Bank’s (ECB) stance that loose monetary policy would still be needed for the foreseeable future.

    The euro may also be suppressed by the strength of the US dollar, which is likely to pick up in anticipation of a rate hike from the Federal Reserve next month.

    At Currencies Direct we’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

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