Sterling Exchange Rate Outlook

The pound took a battering last week, falling around 1.5% against most major currencies. Rates this morning @ 08:30am are as follows:

  • GBP/EUR 1.1388
  • GBP/USD 1.6352
  • GBP/AUD 1.9442
  • GBP/NZD 2.3788
  • GBP/ZAR 12.669
  • GBP/JPY 152.42
  • GBP/CAD 1.7802

Sterling starts to gain
Sterling edged up this morning slightly, supported as recovering global shares stirred risk demand, while traders awaited a reading of the UK manufacturing sector for more clues into whether the economy is continuing to improve. This is released later this morning.

UK share prices made slight gains in early London trade, helping to pull the pound further away from a 2-1/2 month low hit against the single currency last week. The UK Purchasing Managers’ Index due at 09:30am is expected to rise to 51.5 in August from 50.8 in the previous month, keeping manufacturing activity in growth territory for the second straight month. Any difference in these figures, and expect Sterling volatility.

Traders and analysts said a strong PMI print and a broadly weak dollar would keep sterling supported on Tuesday, but some pointed out that additional, significant gains may be met by some selling.

The pound recovered on Tuesday after taking a beating last week, when dismal UK business investment figures helped to further convince the market that UK interest rates would remain at a record low 0.5 percent for some time to aid the economy.

Other figures showed the UK economy contracted less than expected in the second quarter, helping sterling to stem losses, but that data only added to the view the Bank of England would continue its quantitative easing policy.

Also due on Tuesday are figures on UK consumer and mortgage credit for July, which are expected to show a rise in mortgage approvals.

See a full breakdown of the weeks data releases below.

Eurozone Prices
The eurozone’s annual rate of inflation was negative in August for the third consecutive month.
Prices in the 16-nation bloc fell 0.2% in the past year, Eurostat said, following the record 0.7% fall in July. Inflation in the eurozone has been dragged down by lower energy and food prices and by falling demand from both companies and households.

The downward trend began in June with a 0.1% fall in prices, but a Japan-style deflationary spiral is not predicted. Deflation is considered damaging to an economy because consumers tend to delay making major purchases until prices fall further. Without consumer spending to stimulate growth, economic output falls. The European Central Bank’s target rate for inflation is just below 2%.

This is helping GBPEUR and without this bad news from the Eurozone, rates would be even lower than they are now.

UK Defence Industry
Investment in defence research and technology must be maintained to protect the industry, its trade body has warned in two reports. The Defence Industries Council has published two reports amid fears spending could face major cuts in the next Ministry of Defence review.

The DIC says investing in the industry will help protect the country and could provide a “path out of recession”. The sector currently employs 300,000 people in the UK.
It also generated an annual turnover of £35bn in 2008. The Ministry of Defence review will decide the future direction of defence after the next general election.

Defence is a big part of the UK economy, and spurs investement. So, if we do see significant cuts, expect further Sterling weakness.


This Weeks Data
Markets are extremely volatile at the moment, as the big movements in exchange rates last week demonstrated. This week we have various data releases from across the globe, that will no doubt cause further changes in exchange rates.

For Australia, we have an interest rate decision, Gross Domestic Product, and building permits. The interest rate will probably stay at 3%, but there has been talk recently of a rise in the coming months. When it is raised, expect AUD to strengthen and rates to fall.

For the UK, we have various releases that will be a good barometer of the UK economy. We have House Price Information, Mortgage Data, Construction Data. Watch for the Halifax House Prices Today

In the EU, as is always the case on the first Thursday of the month, we’ll see an announcement regarding interest rates. Again we expect rates to be left on hold at 1%. The UK announce their decision on interest rates on the first Thursday in the first full week of the month. Given the bank holiday, this means we wont get any news on this until next Thursday.

Contact us today to discuss how these data releases can affect your currency requirement.

Tuesday
Aus – Building Permits
Aus – RBA Interest Rate Decision
Swi – Gross Domestic Product
Ger – Retail Sales
Ger – Unemployment
EU – Purchasing Managers Index
UK – Money Supply
UK – Mortgage Approvals
UK – Purchasing Managers Index

Wednesday
Aus – Gross Domestic Product
UK – Halifax House Prices
EU – Gross Domestic Product
US – Mortgages Applications
US – Non Farm Productivity
US – Fed Speech
US – FOMC Minutes
US – Factory Orders

Thursday
Aus – Trade Balance
NZ – ANZ Commodity Prices
EU – Purchasing Managers Index
EU – Interest Rate Decision
US – Jobless Claims

Friday
Swi – Consumer Price Index
Can – Unemployment
US – Non Farm Payrolls
US – Unemployment


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