Euro Benefits From Safe Haven Effect

On the Forex front, the risk-off tone continued to coincide with support for the euro, yen and Swiss franc. Meantime, the dollar held a softer tone. EUR/USD traded above $1.13 for the first time since October, before edging back to trade just below this level. The EUR/GBP pair moved back up to 78p, for the first time in over a year. Cable (GBP/USD) traded back up near $ 1.45

In the day ahead, market risks/global macro uncertainty are likely to remain to the fore. With that in mind, Fed Chair Yellen’s first day of semi-annual testimony to the US Congress will have extra pertinence. Markets will be looking for a detailed update from the Fed in the wake of further market volatility in recent weeks. In particular, they will be looking for an indication as to how this will impact the pace of Fed tightening.

With markets already not pricing in a further 25bps interest rate hike in the US until around mid-2017, a less hawkish stance from Yellen today may apply limited downward pressure on the dollar. However, should she continue to signal that the Fed is leaving its options open, then it could help to stall the dollar’s recent slide.

What faces the Pound this year?

One thing is certain, if the UK people vote to leave the EU. Then a Norway type agreement will not take a couple of months to negotiate, instead it may never happen.

Currently the Pound is out of favour with the forex market in particular, trading between highs of 78 pence for the first time since the start of 2015. One of the major risk concerning the ‘Brexit’ vote is the portion of undecided voters which polls suggest is between 17 – 20% of people surveyed. This is a hug category which will ultimately become the major deciding factor.

One factor hidden by the Brexit debate is the UK economy. The manufacturing sector is under serious pressure for all of last year because of the strong Pound against the Euro which only beginning to show how much the manufacturing sector was hurt.

Ultimately the UK economy is reverting back to the services sector which it has heavily relied upon to maintain economic growth. This is a trend which George Osbourne has been struggling to revert. However his efforts have struggled due to a slowdown in emerging economies conducting trade because of the fall in commodity prices such as Iron ore and Oil.

Export Leadership Forum

Today and tomorrow, we are attending an event solely focused on exporting in Ireland. To date exporting accounts for 51% of Irish economic activity. Last year Microsoft was the biggest exporter of goods and services which accounted for over 18 billion euros or about 6 -7% of our total exports for 2015.

This year the Euro has enjoyed some support mainly because the UK builds up to a ‘Brexit’ vote which the result is by no means outlined. This has unknown factor of such an important vote for the UK and Europe has allowed the Euro to rise to 78 pence. The Euro has not near this level since the beginning of last year.

You may be wondering what I can do to take advantage of this, for now you have two options. You could stock pile additional goods if this was more economical for your business, once the goods were manufactured in the UK or you were using Pounds to pay for them.

The second option is called a variable flexible spot contract. This is a very important contract for businesses because you can buy up your currency requirements for six to twelve months in advance. This will allow you to plan well in advance and forecast the margins on your products. Last year the EUR/GBP fluctuated between highs of 80 pence to lows of 69 pence.

Using a variable Flexible Spot Contract will mean that you can take the worry out of paying your clients, which is invaluable. Chat to our team today for more information.

Michele Keogh, Trade Expert with Kevin O'Malley (American Ambassador to Ireland) at the Export Leadership Forum

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