Outlook for Sterling Exchange Rates

EUR
As against most other major currencies, Sterling weakened against the Euro in the early stages of last week, with the GBP/EUR rate trading at a low of 1.1528 on Wednesday.

Positive sentiment towards the Eurozone economy and Euro were boosted by better than expected data from its largest economy; German manufacturing output rose by the most in almost two years in May, whilst industrial production also increased at its fastest pace in nearly sixteen years.

In an absence of any further Eurozone economic data, there was little in the way of Euro momentum over the remainder of the week to direct the GBP/EUR rate. Renewed concerns over the health of the Eastern European economies coincided with Sterling strength, as the Bank of England (BoE) left interest rates unchanged at 0.5% and decided not to expand its £125 billion quantitative easing (QE) stimulus programme, enabling the Pound to move above the €1.17 level early on Friday.

However Sterling was unable to hold on to these gains after comments from the Chancellor, Alistair Darling, that the recession was proving to be longer lasting than anticipated.

The GBP/EUR rate closed on Friday 0.6% down at 1.163 from 1.17 a week earlier, benefiting those converting Euros into Sterling.

This week’s calendar will offer further evidence of the UK economy’s current trajectory, with retail sales data, house price data and consumer price inflation data on Tuesday. Further doubts over the UK’s recovery prospects could be highlighted by a 16th consecutive monthly drop in employment on Wednesday, if the figure increases more than expected.

On the other hand, the German ZEW think-tank’s economic sentiment survey and industrial production data, both due on Tuesday, could undermine the Euro if they are worse than anticipated and dampen Eurozone recovery hopes. The latest consumer inflation data will also be closely watched on Wednesday.

Contact us to ensure you make the most of the currency markets and understand how these data releases will affect your purchase.

USD
The USD spent most of last week trading in a narrow range around the low 1.60’s, falling for the second successive week but at least, seemingly, reaching a support level at 1.60. The future outlook on the Dollar will again depend hugely on global economic conditions, as the world optimistically awaits the ‘green shoots of recovery’.

The most notable economic release from the U.S this week will be the minutes of the Federal Reserve’s most recent interest rate policy meeting. Investors and those with an upcoming USD requirement of any kind will be paying close attention for the Fed’s opinion on the financial markets and growth, as this will undoubtedly have some impact on the direction of GBP/USD cross later in the week.

Focus will also be on Retail Sales data (Tuesday), industrial production data (Wednesday), manufacturing data (Thursday) and housing data (Friday). Any positive releases could be seen as a sign of a U.S recovery and potentially provide strength for the struggling dollar.

However, as regular readers will be aware markets are rarely straightforward and the USD is certainly no exception. Throughout the financial crisis the USD has been widely perceived as a ‘safe-haven’ currency, and with risky assets being collectively avoided by mainstream investors, the Dollar has benefited hugely.

The result of this could be that as the U.S economy recovers, there is actually an indirect correlation with the strength of the USD. While this is highly unusual, it is certainly possible as any signs of recovery in the U.S could lead to global investors unwinding safer investments and taking those funds elsewhere to fund investment in more risky (potentially more profitable) schemes.

All this conflicting information makes it extremely difficult for analysts to predict the direction of cable in the short-term and increases the need for anyone buying US Dollars to stay in regular contact with their account manager and pay close attention to all relevant economic data releases.

This Weeks Data
The main data to look out for this week is the ZEW Survey which measures the institutional investor sentiment, reflecting the difference between the share of investors that are optimistic and the share of analysts that are pessimistic.

Also the US Retail sales the retail Sales measures the total receipts of retail stores. Monthly percent changes reflect the rate of changes of such sales. Changes in Retail Sales are widely followed as an indicator of consumer spending. Last readings were below expectations and we saw Sterling strength against the Greenback.

And on Wednesday we see the BOJ (Bank of Japan) interest decision. As each data may carry a spike in the right or the wrong way, with this in mind you may want to look into the number of ways that FCG can try save you money on your transfer.

With the Pound taking a hit against the Euro today this gives an unexpected window of opportunity is certainly a time when those of you needing to make significant currency purchases at any point during 2009 should consider the benefits of locking into a forward contract. This contract type allows you to lock into exchange rates for anything up to two years ahead with only a small deposit required.

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