Pound vs Euro Exchange Rates 12th August 2009

Today is a big day for UK data, and so we’re expecting some movement in Sterling exchange rates.

At 09:30am we have Jobless Claims, Average Earnings, Claimant Count and the Unemployment Rate. At 10:30am we have the Bank of England Inflation Report. The 2 most important pieces of data here are the unemployment and BoE report.

Let’s take a closer look, but first a quick look at where rates stand at 08:30am 12th August 2009:

  • GBPEUR 1.1643
  • GBPUSD 1.6426
  • GBPAUD 2.0038
  • GBPNZD 2.4823
  • GBPZAR 13.446
  • GBPJPY 156.57

UK Unemployment
The number of people out of work is expected to rise again when the latest unemployment figures are released by the Office for National Statistics. The jobless rate increased by 281,000 to 2.38 million in the three months to May – the highest jump since 1995.

More clues on the health of the economy will be revealed in the Bank of England’s quarterly inflation report (more on that in a moment). We’re expecting unemployment to be revealed at 7.7% and an additional 25.5k people claiming benefit. Look at the news for the figures, and if they are worse than this, the pound may weaken.

BoE Inflation Report
The Bank of England publishes a report at10:30 of the detailed economic analysis and inflation projections on which the Bank’s Monetary Policy Committee bases its interest rate decisions, and presents an assessment of the prospects for UK inflation over the following two years.

It will also provide more details on quantitative easing – its policy of injecting cash into the economy – remember it is this that has caused the pound to tumble in the last week. The Bank of England is to reveal later how it thinks economic output will perform over the next two years when it publishes its quarterly inflation report.

In explaining the additional £50bn, the Bank said the UK recession “appears to have been deeper than previously thought”.

The most recent official data showed that the UK economy contracted by 2.4% in the first quarter of 2009, more severe than the earlier estimate of a 1.9% fall. Meanwhile, inflation fell in June to 1.8%, below the Bank of England’s target of 2%.

Last week the Bank kept interest rates on hold at 0.5%, but injected another £50bn into the economy.

This is by far the most important data release this week. Look very closely at what is said with regards Quantitaitve Easing. This has been the main driver of Sterling weakness.

USA
We have some Trade Balance data and an interest rate decision today. Keep a close eye on this as. The Dollar has been the main Safe haven currency over the past year and has therefore strengthened dramatically as investors run for the relative safety of the dollar and away from equities and riskier currencies such as the pound. Look closely at this data, as if it’s poor, then it will decrease risk appetite for riskier currencies such as the pound, and this could compound the weakness in Sterling we have seen recently.

Summary
We already know the unemployment will be bad, so I don’t think this will have a massive impact, although if the figures are wildly different, then I could be wrong. QE is the main story of the day, and indeed the week. Depending on what’s said, it could lay the path for the pound for the remainder of the year. Of course I will post a detailed analysis of the results tomorrow, and the effect on exchange rates.

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