Sterling Outlook August/September 2009

Good Morning, & welcome to a new week. Today we’ll have a quick look at where rates stand, some news about an end to the recession, a quick review of last weeks trading and the future for Sterling. Finally as usual for a Monday, we’ll have a detailed look at the weeks data. So, pound rates as at 08:30am 24/08/09:

  • GBP/EUR 1.1518
  • GBP/USD 1.6473
  • GBP/AUD 1.9653
  • GBP/NZD 2.4117
  • GBP/JPY 156.34
  • GBP/ZAR 12.796
  • GBP/CHF 1.7487
  • GBP/CAD 1.7798

Recession to end?
Confidence among business professionals has seen the biggest rise for two years, suggesting the UK recession is at an end, a survey has said. The Institute of Chartered Accountants’ index of business confidence rose to 4.8 in June, from -28.2 in March.

However, chief executive Michael Izza warned against underestimating the challenges ahead for businesses. The institute predicts the UK economy will grow by 0.5% in the third quarter. Its forecast comes after the economy shrank by 0.8% in the second quarter of the year. However, markets have reacted little to the news, with the pound still on the back foot after a raft of poor UK data.

Last Weeks Trading
Sterling fell to a one-month lowagainst the euro on Friday, hit by brighter data that is really positive for the pace of the euro zone’s recovery, although the rise ininvestors’ appetite for risk drove it higher against the dollar.

Sterling is already well down on highs against the USD, and is expected to struggle going forward due to signals from the Bank of England of more Quantitative Easing in the future. The UK economy shrank 0.8 percent in the three months toJune and economists predict a second reading next Friday will be unchanged, although some expect a modest upward revision.

My post on Quantitative Easing last week shows the fact that the UK is likely to take much longer to recover than other major economies. “For now, we still look for further sterling
underperformance going forward with the BoE arguably at the most dovish end of the G10 central bank spectrum,” Barclays analysts said in a note.

Still, many do see the pound gaining over the medium term on the back of improving financial stocks, which move closely with the UK currency, it’s really whether you want to gamble on this and take a risk, or play it safe with a Forward Contract. The choice has to be yours, however do get in touch so you are fully armed with all the information to make an informed choice.

This Weeks Data
A busy week for data releases from all corners of the globe. For the UK watch for House Price Data tomorrow. This shows the value of the houses prices in UK and indicate current movements in the housing market that is considered as a sensitive factor to the UK’s economy. We’re expecting an annual decline of 3.9% and a monthly rise of 0.6%. Any different, and expect GBP rates to move.

Also for the UK, we have Gross Domestic Product data on Friday. This is a measure of the total value of all goods and services produced. Recent GDP figures from Germany and France showed that they have exited recession. A similar result is unlikely for the UK, and so watch for any negative figures here that may weaken Sterling and cause exchange rates to call.

We also have yearly and monthly Gross Domestic Product from Germany tomorrow. This will probably show a decline year on year, but a continued monthly rise. This may cause the Euro to strengthen and cause GBP/EUR rates to continue to fall.

For the US, we have House Price Data, New Home Sales, Jobless Claims, Crude Oil Stocks and a manufacturing index. All of the US data will be important, as positive results may spur risk appetite for riskier currencies such as GBP, AUD and NZD. Negative data will likely cause investors to flock back to the safe haven USD, and weaken the riskier currencies.

So, in uncertain times right now the pound is weak and reacting negatively to any poor economic data. There’s a lot this week that could cause the recent decline in the pound to continue, and so if you have a requirement, contact us today, register a trading facility, and then you are in a position to discuss your particular requirement and be best placed to get the best possible rate from the market.

Monday
EU – Industrial New Orders
Can – Retail Sales

Tuesday
NZ – Inflation Expectations
Ger – Gross Domestic Product
UK – Nationwide House Prices
Swi – Employment Level
US – Consumer Confidence
US – Housing Price Index
US – Manufacturing Index

Wednesday
Ger – Import Price Index
US – Durable Goods Orders
US – New Home Sales
US – Crude Oil Stocks Change
NZ – Trade Balance

Thursday
Aus – Private Capital Expenditure
Ger – Consumer Price Index
Ger – Gfk Consumer Confidence
UK – Business Investment
US – Gross Domestic Product

Friday
UK – Gfk Survey
UK – Gross Domestic Product
UK – Government Spending
EU – Business Climate

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