Pound starts to fall – gains over.

Good Morning. Yesterday the pound hit 8 week highs against the Euro, and 3 month highs against the US Dollar. However the takeover bid for Cadburys along with continued worry about the UK economic recovery caused the pound to fall back in afternoon trading. Rates at 08:30am this morning stand as follows:

  • GBP/EUR 1.1110
  • GBP/USD 1.6649
  • GBP/AUD 1.7966
  • GBP/NZD 2.2524
  • GBP/CAD 1.7635
  • GBP/CHF 1.6788
  • GBP/ZAR 12.353
  • GBP/JPY 149.31
  • EUR/USD 1.4980

Following a hugely important week for the Pound last week, much focus will now be placed on determining what will happen next for the GBP/EUR cross. Surprisingly, following the Bank of England’s decision to increase its Asset Purchase Scheme by £25 Billion, Sterling has held relatively strong, actually gaining strength against the Euro by Monday morning.

This has been attributed to the wide spread anticipation within the market that this £25 Billion will bring to an end the UK’s Quantitative Easing cycle. Confirmation of this could come later this month when the minutes of the Bank of England’s most recent meeting are published, this will be vital for anyone with an upcoming requirement to buy or sell Euros. While for now an end to QE is being viewed as Pound positive news, the long-term effect of £200 Billion of additional government debt remains to be seen.

Looking forward, this week is a relatively busy week in terms of data from both the UK and our European trading partners. From the UK we have Retail Sales data, Unemployment figures and on Thursday a speech by Mervyn King (Governor of the Bank of England) which will give indications as to the bank’s future economic stimulus plans.

From the Euro-Zone key data includes the ZEW economic sentiment on Tuesday but most importantly the week climaxes with EU GDP figures for Quarter 3. Last quarter The Europeans narrowly remained in recession with a quarterly decline of just 0.2% and all eyes will be firmly focused on this release. A positive figure would bode badly for Sterling which presumably is still fundamentally fragile given the poor GDP figures for the UK at the tail end of last month and additional QE last week.

Early forecasts suggest that the EU will officially exit recession and therefore it would probably be sensible to consider booking an exchange rate in advance of the release for anyone looking to buy Euros in foreseeable future. Contact us today about the benefits of Forward contracts to protect against any pitfalls in the market.

For those bringing Euros back to the UK it would also be extremely wise to pay close attention the this release as it could well create some fantastic opportunities to fix a price at unnaturally good levels. Your account manager will be able to explain how Limit and Stop-loss orders will help you to achieve this.

Overall, despite some substantial data releases recently the direction of the cross appears unclear. This week could well help to determine the short-medium term future of GBP/EUR. As always in the currency markets expect the unexpected and be aware that the recent flat trading on the Euro could be replaced by a volatile market creating ideal buying and selling opportunities.

Pound/US Dollar
Last weeks data releases saw the US Federal Reserve maintain interest rates at 0-0.25%, and indicating that it is likely to leave interest rates low for an extended period. As a result the US Dollar was the weakest of all the major currencies last week causing GBP/USD to close 1.02% up at 1.6612, from 1.6445 a week earlier, benefiting those converting Sterling into US Dollars. In fact, yesterday saw a 3 month high for GBP/USD, but has already started to fall this morning.

This was in whole due to improving investor’s risk appetite and stronger global stock markets. The US Federal Reserve expressed greater confidence about the US economic recovery, which was generally supported by the economic data last week. This was also coupled with monthly increases in construction spending, pending home sales, manufacturing activity, service sector activity and factory orders which all rose throughout last month.

The only negative data this week came from the US Non-farm payrolls report which revealed a slightly larger than expected number of job losses for October, coming just after revised data for the previous two months had shown that 91,000 fewer jobs were cut than had been initially reported.

Counter to the dollar, Sterling benefitted this week from positive economic releases. This included Thursday’s Bank of England’s decision to only add a further £25 Billion in to the economy through the Governments Quantitative Easing scheme, instead of the anticipated £50 Billion. With the possibility of early signs of a Sterling recovery, the market is perhaps set to continue to become more hostile for those selling Dollars and perhaps suggests an earlier sale may be more favorable.

After a large number of data releases last week, this coming week is particularly quiet, with only a consumer confidence survey from The University of Michigan on Friday. In light of its safe haven status, this could leave trends in investors’ risk appetite levels to play a major role in determining the US Dollar’s performance.

In conclusion with such an unstable and volatile market it may be beneficial to discuss the possibility of locking into a forward contract with you Account Manager to enable you to take a greater control of finances and protect yourself from any loss.

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