We’re almost a month into the new quarter and it’s certainly proving to be an interesting one. With just five months until Brexit, political volatility is dominating the headlines – and, with so many false starts over the last few weeks, what lies ahead is anyone’s guess. We’ve just published our latest copy of our quarterly forecasts and the results, as always, clearly show that even the major banks don’t know what’s going to happen with the exchange rates in this quarter.
Take the GBP/EUR exchange rate, for instance. Deutsche Bank’s predicted rate in three months’ time is 1.1792, while BNP Paribas’ prediction comes in 0.09 lower at 1.0869. In other words, Deutsche Bank thinks £250,000 could get you €295,000, while BNP Paribas thinks it’d be only €270,000.
So, what is the purpose of these forecasts? Well, they demonstrate above all how market volatility makes the exchange rates in this quarter very difficult to predict. That’s why it’s so key to understand what’s going on in the market – and what is likely to cause this volatility in this quarter. That way, you can understand better how to protect your budget from sudden changes.
As our CEO, Charles Purdy, says, “At their best, forecasts can be considered useful guides to what could happen. At their worst, they are dangerous.”
What will influence the exchange rates in this quarter?
There are a number of key factors that could impact the exchange rates in this quarter, especially as we’re in a period of such political volatility. Here are the main ones to look out for.
There are just five months to go until Brexit – and a deal still doesn’t seem close. A number of false starts have previously sent the pound on more than a 20-cent swing against the US dollar and 13-cent swing against the EUR. The banks’ predictions do look a little more steady over the next few months, but still with this 0.09 divergence in what they’re expecting – and we can never discount a sudden shock sending it soaring or dropping.
On 9th November, we’ll see the first estimate of the UK’s GDP growth rate for the third quarter of 2018. Although the UK economy failed to grow back in August, there is some cautious optimism with some predictions expecting a growth rate of 1.4%, 0.2% higher than last year. A strong figure will undoubtedly reassure investors, but coming in below expectations will have the opposite impact on the exchange rates in this quarter.
The Eurozone’s economy hasn’t been performing as well as hoped. It is still growing at 1.5%, but trade fears are weighing heavily on economic growth. This has particularly affected business confidence in Germany, which has kept the euro lower than might otherwise have been the case.
This might seem a little unrelated if you’re not sending money to Italy – but it will have impacts across the eurozone and beyond. Italy risked the ire of Brussels in September by increasing public spending, despite being in mountains of debt. The situation seemed to be resolve – and the markets staged a comeback – as Italy backed down. However, Jean-Claude Juncker has still hinted of disapproval of the plans, saying there was a gap between Rome’s promises and what it said to Brussels. There could be fireworks to come.
November will see the US midterm elections, with a third of the Senate up for election. It’ll provide a real indication of how Americans view Trump’s presidency to date. Any setback can easily impact the dollar – any hint of lack of support for Trump’s trade policies could lead to a wariness among investors.
The Fed is expected to hike rates for the fourth time this December. This could very well cause the value of the dollar to rise. As we’ve previously explained, higher interest rates makes holding onto dollars more profitable – which increases its demand and therefore value. Donald Trump has been deeply critical of Federal Chair Jerome Powell’s rate hikes thus far, however, so nothing is set in stone.
If you’re making a transfer in this quarter, or beyond, it’s absolutely crucial to protect your budget. As our forecasts show, not even the major banks are sure where the above factors could push the pound. Speak to your Personal Trader on 020 7898 0541 about how they can use a forward contract to lock in an exchange rate for 12 months. That way, you’ll know exactly what you’re paying – no matter where the markets go.