Outlook for the pound against Euro and Aussie

Welcome back to regular readers, as daily posts from FCG now continue as normal. Today we’ll have a quick look at the pound and where things lie after poor GDP data last week, and also the data releases from Australia that are due this week.

Sterling and UK Economy
Sterling fell against both the US Dollar and Euro on Friday, as UK GDP growth figures for the second quarter came in weaker than expected, dampening hopes for a quick economic rebound while global stock market falls added to the downward pressure on sterling.

While an improvement on the previous quarter, the figures may indicate that the recovery could take longer than previously had been thought. The contraction was much less than the 2.4% seen in the first quarter but was still above analysts’ 0.3% prediction. The latest figures take the annual rate of decline to 5.6%, the biggest fall since records began in 1955.

The data suggested recovery could be slower than previously thought and added fuel to speculation over additional stimulus measures from the Bank of England, which has already embarked on a 125 billion pound quantitative easing programme.

“The big issue for the market continues to be what happens to quantitative easing, that is the 125 billion pound question — what kind of exit strategy the BoE will propose,” said Robert Minikin, senior strategist at Standard Chartered.

Analysts said the Sterlings fall was limited partly by the fact that second quarter GDP data was backward looking, while the real focus was on the outlook for inflation. Also, new GDP forecasts and upcoming moves from the Bank of England will likely have an effect.

The pound’s healthy run last week put it on track for a 0.5 rise against the dollar which would be its second straight weekly gain and its best weekly performance on a trade-weighted basis since mid-June. Earlier in the week, minutes from the BoE’s July meeting signalling muted optimism about Britain’s economic prospects provided the impulse for sterling buying.

Wednesday is the main day for UK data releases, with Consumer Confidence and Mortgage Approvals.

Australian Dollar
The economy is forecast to begin to grow from late 2009, although the recovery is expected to be gradual, partly reflecting the slow recovery in global demand, the Reserve Bank said in its quarterly policy statement.

Australia’s recession will be “less severe” than in many other countries, helped by lower borrowing costs for home buyers and businesses, the nation’s healthier financial system, a decline in the currency and the recent recovery in the Chinese economy. Investors expect Australia’s benchmark interest rate will be higher in a year.

Currently rates to buy AUD hover around the $2 mark, which is great for converting funds back to Sterling, as this is very close to the lowest it has been in the last 12 months. This week sees some significant data from Australia this week, read below for what we expect to see. The fact that the economy is forecast to continue to climb, means that we could well see rates fall below the $2 mark.

This Weeks Data
We have some significant data from Australia this week, that could well affect GBP/AUD rates. Business Confidence is released on Tuesday along with a speech by the Reserve Bank of Australia. Wenesday sees Home Sales, Thursday Building Permits and on Friday we will see the interest rate decision. If you have any requirements to buy or sell AUD, get in touch to discuss the implications of this.

Elsewhere, Wednesday is the main day for UK data, with Consumer Confidence and Mortgage Approvals. Data is light for the EU as a whole, however Germany (the biggest economy in the EU) does have significant releases that will likely cause GBP/EUR rates to be volatile. See below for a list of the main data releases, and if you have any questions about how this may affect you, get in touch and we will be happy to help.

Monday
UK – Nationwide House Prices
US – Home Sales
US – Fed Speech
NZ – Trade Balance

Tuesday
Aus – Business Confidence
UK – Trade Survey
US – Consumer Confidence
US – Fed Speech
US – House Price Index
NZ – Building Permits

Wednesday
Ger – Consumer Price Index
Aus – Home Sales
UK – Consumer Confidence
UK – Money Supply
UK – Mortgage Approvals
US – Durable Goods
US – Feds Beige Book

Thursday
Aus – Building Permits
Ger – Retail Sales
Ger – Unemployment
EU – Consumer Confidence
US – Jobless Claims
UK – Consumer Confidence

Friday
Aus – Interest Rate Decision

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