Euro strengthening and Dollar weakening- What's next?

Today was a very interesting day on the market- We saw the Pound weaken off by over 2 cents against the Euro, first of all this was in anticipation of Mario Draghis speech. During the speech, Draghi talked about the state of the Eurozone, the results of his recent implementation of QE (Quantative Easing) and of course, the current issues with Greece.

However, the main news today was from Angela Merkel, who encouraged Prime Minister Alexis Tsipras to follow the path set out by Greece’s creditors, saying his country belongs in Europe and she wants its economy to succeed. This has been the second time that Merkel and Tsipras have met over the last 5 days, which tells me that some sort of resolution is on the way. Angela Merkel made a statement today saying “We want Greece to be economically strong, we want Greece to have growth, and I think we share the view that this requires structural reforms, solid finances and a functioning administration.”

So as the Euro gradually gains strength, and UK elections looming, I would make the suggestion to Euro buyers that moving sooner rather than later may be smart- as we have seen with Greece, political uncertainty leads to a weak currency, as it deters investors, and we may see the same with Sterling over the next month.

For those of you who are watching the Dollar, or Dollar pegged currencies, then you would have already seen that the currency has weakened off slightly over the last 3 working days following Yellens recent meeting at the Fed.

The main point to take away from the meeting is that forward guidance has now been removed from the Fed meetings, and interest rate hikes may be delayed until September, this of course, weakened the Dollar instantly, we saw a 3% movement on EURUSD in under 5 minutes during this speech.

As I mentioned in a previous post, a strong Dollar is not good for exports, and it would be logical that the Fed would want to weaken the Dollar slightly, this was backed up by Janet Yellen last week when she said "export growth has weakened -- probably the strong dollar is one reason for that,'' A rising dollar makes U.S. goods more expensive to foreign buyers and may prompt them to purchase from elsewhere, and recent data releases are backing up that tenet, with the value of exported goods falling 4.1 percent in January from the month before, the biggest decline since October 2012.

With this in mind, we may see the GBPUSD exchange rate hit 1.50 again, and EURUSD hit 1.10 again, in both cases, I would encourage USD buyers to start looking at hedging strategies to minimise exposure, a weaker Dollar now just makes for a larger movement when the Fed eventually does do an interest rate hike.

As ever, if you require any further information or would like a more in depth insight into the markets tailor made to your situation, then please don’t hesitate to call or email me.