The pound remains weak, however we have seen a very slight recovery. Rates are still hovering around the €1.08 to €1..09 against the Euro, and still under $1.60 against the US Dollar.
We’ll now look in detail at the Eurozone and US economies, but first, you can listen to a recent interview with our Director of Foreign Exchange on Sky news :
Eurozone & GBP/EUR
Additional gains against the Pound came on the back of positive data releases with the Euro zone service sector activity growing for the first time in sixteen months, as well as factory output rising for the second consecutive month.
Recent performance against Sterling was underpinned further as current account figures improved from a deficit of €4.3bn in June to a surplus of €6.6bn in July. The GBP/EUR rate closed the week down 1.82% at 1.0858, from 1.1059 a week earlier (on a £200,000 into Euros this is a difference of €4,020 on your purchase) benefiting those converting Euros into Sterling.
Announcements coming from Europe include Euro zone Economic Confidence as well as the release of Euro zone Consumer Price Index data. Further upward trends in European data could underpin the Euros strength against the Pound.
With the current economic climate so unpredictable it maybe wise to think about safeguarding your currency requirement. If you are looking to obtain Euros or Sterling within the coming months you may want to think about looking into a forward contract. This is where one can purchase a currency for anything up to 2 years in advance with a 10% deposit safeguarding you against any pitfalls within the market sector.
Outlook for British Pound: Bearish, sentiment lingers after Bank of England Governor Mervyn King comments.
The Great British Pound begins to override the appeal the currency once held as a source for high yields and over the past weeks, it has become blatantly clear that Europe’s second largest economy is struggling to pull itself out of its deep recession with the time frame for a return to growth being continuously pushed back.
The pound dipped below $1.60 for the first time in four months on Friday as concerns persisted that the Bank of England was happy to live with a weak currency. Sterling fell by 0.6 per cent against the dollar to close at $1.5947 in London, a day after Mervyn King, had said that the pound’s decline would be helpful in rebalancing Britain’s economy, by supporting efforts to boost exports.
There were other concerns, too, that helped to pull the pound down, to start with the Bank may try to encourage lending by cutting the interest it pays on deposits held with it by British banks. That, in turn, could trigger a more widespread rate reduction. There was also unease about the quantitative easing (QE) programme and Britain’s huge budget deficit which the government will have to follow through on with a serious round of spending cuts in the near future (expected to be the biggest reduction in over three decades).
In the grand scheme of things, the pound has fallen by about 25 per cent against other leading currencies in the past two years, but, despite its recent slump, it has climbed significantly since the start of the year. Sterling hit a 23-year low against the dollar — of $1.35 — in January, before recovering to $1.70 in August.
Economic data is vital at this point and there are a slew of indicators to account for this week, perhaps a few of them could help jump start optimism. Most prominent is the final reading of the 2nd Quarter GDP figures, in addition the mortgage approvals and net consumer credit are important gauges for financial health. Growth focused data includes the PMI factory and construction indices.
The US dollar ended the past week marginally higher after the Federal Reserve issued a more optimistic outlook on the economy. In the coming week, there will be a variety of growth indicators on hand that may help to signal whether the US recession really ended in the 2nd Quarter.
Looking to the upcoming events, on Tuesday, the September reading of the US consumer confidence is expected to rise up to a one-year high of 57 from 54.1 in August, On Wednesday, the third round of US 2nd Quarter GDP estimates is due to hit the wires, Thursday, the manufacturing index is projected to rise for the ninth straight month in September to 54 from 52.9, which would be the highest reading since April 2006.
This would be the second month that the index signals an expansion in business activity. Finally on Friday, The US non-farm payrolls (NFPs) index is forecasted to show job losses for the 21st straight month in September, the NFP result will be the event to watch as it is extremely volatile and is one of the sole reports to impact the US dollar. A better-than-anticipated result is likely to provide a boost to the US dollar.
The dollar’s weakness of late has not come solely because of U.S. economic weakness, but also because of emergent recovery around the world. Investors have used the dollar as a funding currency to buy riskier assets around the world. The G20 say economic rebalancing is needed, with the United States saving more and export giant China consuming more.
There is no doubt that investor appetite for risk has had an impact on what kind of direction and pace the U.S Dollar takes. Should risk rise in the wake of the G-20 meeting as investors worry the capital markets cannot support their own weight without a government safety net the Dollar will likely Rise living up to its safe haven status, However, World Bank President Robert Zoellick said the United States should not take the dollar’s status as the key global reserve currency for granted because other options are emerging.
To summise, Selling your Dollars may be wise at this point considering the four month lows and the resilience of the Stirling to bounce back, however on another note buying the dollar may also be wise considering risk is fading from the market as investors again seek refuge with the greenback.
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