Currency Forecasts

Sterling falling as Brexit deal is rejected

Yesterday’s EU summit has not gone well for Theresa May. Last night EU leaders rejected her chequers plan, causing the Pound fall as you can see from the chart below:


To be honest, this was the only likely outcome. May was humiliated as the plan was dismissed, with the EU simply saying she has to come up with a new proposal, as they have done before. Donald Tusk went as far as mocking her in a photograph on Instagram with a picture of him offering her cake, but with the caption ‘sorry, no cherries’. Highly diplomatic….

Nobody expected the EU to agree to the chequers plan, but most expected them to be a little more engaging than they have been. This tough stance by the EU is not helpful to either side, and only increases the chance of these negotiations falling apart completely, resulting in a ‘No Deal’ scenario that would be a disaster for the EU as well as the UK, and of course for Sterling

Theresa May has been trying to find a middle ground, but there is now a deadlock. The EU won’t accept chequers, but the UK won’t accept Northern Ireland remaining in the customs union as the EU wants, and without the EU making any concessions, it’s looking more and more likely the UK could leave with No Deal.

Theresa May to make an announcement shortly

*** Theresa May is due to make an announcement regarding Brexit at 13:45pm, and this is also causing the Pound to fall ***  We think she will announce that she will not change tack with Brexit. We are edging ever closer to leaving with ‘No Deal.’

Sterling has fallen as a result, and this is largely due to the fact that the EU stubbornness leaves May in a perilous position politically. I’m not sure she’ll survive as PM for long. Brexiteers now have the upper hand and could force her out and I think we’ll see people manoeuvring, starting at the party conference later this month. If she does go, then it creates even more uncertainty for the UK, which would harm Sterling and weaken the Pound significantly.

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Sterling supported by strong Retail Sales

The Pound tailed off yesterday slightly against the Euro, but has bounced back strongly this morning. Theresa May’s speech last night to EU leaders didn’t excite the markets much, with GBP/EUR starting the day at around €1.1250.

This morning however UK Retail Sales smashed forecasts, showing a gain of +0.3%. Analysts had expected a drop of -0.2% so the number shows the resilient nature of the UK economy. Retail Sales are a very good overall barometer of how the economy is doing, and the better than expected number has pushed GBP/EUR back up to the €1.13 mark.

Sterling has also risen against the Dollar this morning, rising to $1.32. This is very good considering this pair was as low as $1.28 just a few weeks ago.

Will the Pound rise or fall today?

We’ve already had all the UK data for today, which as I’ve mentioned above has pushed the Pound up against other currencies. The main mover for GBP/EUR rates will be the EU leaders summit in Salzburg. Theresa May leaves before lunch, leaving the leaders of the remaining 27 nations to discuss various things.

I’m sure Brexit will be high on the agenda, and we could possibly see announcements at any time. Anything that signals progress will send the Pound higher. However if it looks like the EU will continue to refuse to make any concessions, the Pound will probably fall as it would increase the chances of leaving with ‘No Deal’.

Elsewhere, we have some jobless numbers due from the USA at 13:30pm. Most focus today however will be on any news that comes from the EU summit.

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GBP/EUR nears €1.13

Inflation numbers bolster Sterling

The Pound has risen against the Euro and other currencies this morning, thanks to a higher than expected inflation reading. They key measure of Consumer Price Index (CPI) came in at +2.7%. The markets were only expecting a more modest 2.4% rise.

The higher reading increases the chances of the Bank of England (BoE) having to raise interest rates sooner than expected, and the Pound has risen as a result (the prospect of higher interest rates tends to strengthen a currency due to the higher return on offer).

This is a fresh 2 month high for Pound/Euro rates, and nearly 3 cents higher than 3 weeks ago when the mid-market rate was at 1.10. This equates to a saving of £5,500.00 on a typical overseas property purchase of €250,000.00.

Brexit news still likely to dominate price movements

Today we saw economic data releases affect the Pound, which in times gone by has usually been the main factor that affects exchange rates. In recent times of course, it has largely been Brexit developments that have moved the Pound.

This is likely to continue to be the case for the coming months. Most of the gains in the last few weeks have been caused by the fact it looks like  progress is being made with Brexit negotiations. For example Michel Barnier looks set to improve its offer over the Irish border, which is one sticking point that has caused talks to become stuck.

Later today at a summit in Salzburg, Theresa May is expected to warn the EU that they cannot keep demanding things that are unachievable. With only 6 months to go until the UK leaves the EU, time is running out to reach an agreement in various areas.

It is expected that there should be a full agreement with regards to the UK’s withdrawal and future trading relations by November. If this proves to be the case, then I would expect the Pound to rise further against the Euro. However if progress continues to be difficult and we edge towards the November deadline without agreement, the Pound is likely to relinquish the gains it has made in recent weeks.

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GBP, USD, EUR and AUD exchange rates forecast

Good morning and I hope you had a nice weekend? As usual for the first update of the week at currencyforecasts we will provide an overview of key data releases this week and how they could impact GBP, USD, EUR and AUD exchange rates this week.

To start the week there is no data of note from the UK, although any developments around Brexit will continue to keep the pound on its toes. For me it is likely the GBP/EUR rate will continue to trade within a relatively tight range, 1.10-12, for the next few weeks until further progress is made with Brexit. Looking at the other currencies and I have provided and overview of key data this week.

Exchange rates week ahead

Monday 17th – This morning Eurozone inflation figures were released. As expected levels remained at 2% and has caused very little impact on euro exchange rates as a result. Euro buyers/sellers should look out for a number of speeches from European Central Bank (ECB) members throughout the course of today. There is no data of note from the US.

Tuesday 18th – Overnight will see the release of the Reserve Bank of Australia (RBA) minutes from its latest interest rate meeting. These minutes will give clues as to what future monetary policy the central bank may have planned for the Australian economy and can cause some big swings for the AUD as a result. The morning session kicks off with a speech from ECB governor Mario Draghi. Again look out for any clues regarding Eurozone monetary policy.

Wednesday 19th – A busier day for the pound with a speech from Bank of England (BofE) chief economist Andrew Haldane at 09:00. To follow this we have retail sales data and inflation figures. Inflation is the key, expected to fall from 2.4% from 2.5% and could put pressure on the pound in the morning session. From Europe we have construction output at 10:00 followed by another speech from Mario Draghi at 14:00. In the US look out for housing starts and building permits at 13:30.

Thursday 20th – Overnight the RBA bulletin will be released and the UK data kicks off with official retails sales figures at 09:30. Mont on month figures are expected to decline from 0.7% to -0.2%. The afternoon session is dominated by the US with initial jobless claims at 13:30 and existing home sales at 15:00. Those looking at the Euro should keep an eye on consumer confidence data at 15:00

Friday 21st – To end the working week we have another busy day. This starts with markit manufacturing data for Europe at 09:00 followed by UK public sector net borrowing at 09:30 and the BofE quarterly bulletin at 13:00. To finish the week look out for US markit manufacturing at 14:45

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September Forecast and outlook for GBP, EUR, USD, AUD, CAD

Good afternoon. We’ve seen Pound/Euro rates dip slightly today, after the Euro strengthened following comments from the European Central Bank president.  In today’s post, I’ll give an overview and forecast for the main currencies we trade, including Sterling, Euro, US Dollar, Australian Dollar and Canadian Dollar. For more information on our currency services or to get a quote, contact us today.

Pound Sterling forecast – Comments from chief EU negotiator Michel Barnier have prompted significant volatility for the Pound, fuelling speculation over the odds of a no-deal Brexit.

As Barnier indicated his belief that a deal could be agreed within six-to-eight weeks this drove GBP exchange rates sharply higher, in spite of continued opposition among some Conservatives to anything other than the hardest form of Brexit. While BoE Governor Carney agreed to extend his term until January 2020 this was not enough to give the Pound a significant boost, with investors disappointed that he will not serve a full eight-year term.

Until the final Brexit deal is signed off the Pound remains vulnerable to shifting market sentiment and political jitters. If the BoE signals a willingness to sit on its hands for longer in the face of an uncertain domestic outlook GBP exchange rates may struggle to hold onto any upward momentum.

Euro forecast –An unexpected dip in the headline Eurozone inflation rate put significant pressure on EUR exchange rates, undermining the prospect of greater European Central Bank (ECB) hawkishness. Investors were discouraged to find that inflation had eased from 2.1% to 2.0% on the year, with the slowdown suggesting that inflationary pressure within the currency union remains muted.

Worries over the Italian budget diminished, however, as politicians pledged the budget would not run afoul of EU spending rules. Greater signs of optimism from ECB policymakers could offer the single currency a solid boost against its rivals, especially if the central bank remains on course to wind down its quantitative easing programme.

US Dollar forecast – Surprisingly cautious words from Federal Reserve Chair Jerome Powell prompted the US Dollar to weaken sharply, dampening bets that the central bank will stick to a more aggressive course of monetary tightening. Even so, the losses seen in USD exchange rates were limited thanks to the wider sense of market risk aversion and escalating trade tensions between the US and China.

As the latest ISM manufacturing and composite indexes both pointed towards strong growth this has encouraged greater confidence in the domestic outlook, to the benefit of the US Dollar. After its bullish gains the US Dollar may struggle to push higher across the board, even in the face of fresh US tariffs on Chinese imports. If the Fed goes ahead and raises interest rates at its September meeting as anticipated, USD exchange rates could get a fresh boost.

Australian Dollar forecast – While July’s Australian unemployment rate unexpectedly dipped from 5.4% to 5.3% this was not enough to keep AUD exchange rates on a stronger footing for long. The notoriously volatile nature of the labour market data limited the positive impact of the improvement, especially as the change was largely fuelled by a decline in the participation rate. After Westpac surprised markets by raising mortgage rates out of step with the Reserve Bank of Australia (RBA) the chances of any fresh interest rate hike in the months ahead seem to have diminished.

As long as the trade dispute between the US and China continues to heat up this is likely to weigh on demand for the Australian Dollar. Any signs of weakness in domestic data could also drag AUD exchange rates lower, as this would give the RBA further incentive to remain on hold.

Canadian Dollar forecast – The unresolved issue of NAFTA re-negotiations has kept the Canadian Dollar under pressure in recent weeks, with the US threatening to impose auto tariffs in the event of there being no deal. Nevertheless, a sharp uptick in the Canadian consumer price index has given CAD exchange rates fresh cause for confidence.

With inflation running at the top of the Bank of Canada’s (BoC) target range the prospect of further interest rate hikes picked up, boosting the Canadian Dollar. Any widening of the Canadian trade deficit could weigh down CAD exchange rates, especially if NAFTA talks ultimately fail to yield an agreement.

On the other hand, a sustained recovery in oil prices, fuelled by decreasing OPEC production, may offer the Canadian Dollar a rallying point.

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