Pound & US Dollar forecast

The Euro initially strengthened against the pound last week, despite contradicting evidence about the German economic recovery. A surprise 0.9% decline in German industrial production in July was countered by a stronger than expected 3.5% rise in German factory orders over the same month.

European investor confidence data released this week helped to suggest that the Euro zone economy is beginning to see a steady improvement as a result of the better than expected business conditions throughout August. However, most of the Euro’s gains against Sterling were pared later in the week following the Bank of England’s decision not to expand QE measures.

Rates stand as follows as at 08:30am 15/09/09:

  • GBP/EUR 1.1375
  • GBP/USD 1.6621
  • GBP/AUD 1.9286
  • GBP/NZD 2.3622
  • GBP/CAD 1.7990
  • GBP/ZAR 12.371
  • GBP/JPY 151.47

This week will see the release of the German ZEW research institute’s survey of investor sentiment on Tuesday and Euro zone international trade data on Thursday. Better than anticipated results supporting the Euro zone’s economic recovery could lead to further strength for the Euro.

The current pressures facing Sterling look to increase this week with the looming prospect of poor inflation data being released on Tuesday. This coupled with the increasing stability of the Euro would suggest any GBP/EUR exchanges would be best completed earlier in the month rather than later.

Finally, last week GBP/EUR closed 0.24% down at 1.1433, compared with 1.1460 a week earlier leading to a positive outlook for any clients wishing to sell.

The US Dollar weakened against all the major currencies, including Sterling, towards the end of last week, as rallying global stock markets lowered the demand for the Dollar as investors pulled money away from the safe-haven of the U.S to fund investments around the world.

Support for the currency was also undermined by a report that the United Nations would like a new reserve currency to replace the US Dollar. This has also been regularly suggested by the Chinese and given the substantial holdings the Chinese government have of US$ Reserves, it is becoming a growing concern and will almost certainly have some impact on the value of the dollar.

The fear in the U.S is that theoretically if a global reserve currency were introduced and the Chinese were to move their holdings away from the Greenback then there would be an immediate and substantial weakening of the $. In further damaging news, consumer credit across the pond fell for a sixth consecutive month, whilst the US trade deficit widened as the rise in imports outpaced exports. While this news paints a negative view for the $, there was more positive news, the latest mortgage approvals data and consumer confidence data recorded a better than expected improvement.

At present the direction of the dollar is subject to a great deal of debate and if factors continue in the same manner as last week with stock-markets rallying and the U.S economy struggling to sustain a prolonged recovery then the dollar could continue to weaken favouring those with a need to purchase $’s. However, it is important to keep in mind that up until last week there had been much sentiment that the U.S had reached the end of the recession, if so there may be further dollar strength to come.

US data releases this week include retail sales data (Tuesday), consumer price inflation data (Wednesday) and housing construction starts data (Thursday). Even if the data reflects positively on the US economic outlook, the overall impact on the US Dollar could be uncertain if it raises investors’ tolerances towards risk.

To ensure you are protected in what promises to be another volatile week of trading, contact us today about the benefits of Limit and Stop-Loss Orders.

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