Pound Euro & Pound Dollar Forecast

Good Morning. Today we’ll take a detailed look at GBP/EUR and GBP/USD. First as usual, we’ll have a quick look at where rates stand @ 08:30am:

  • GBP/EUR 1.1079
  • GBP/USD 1.6525
  • GBP/AUD 1.8013
  • GBP/NZD 2.2785
  • GBP/CAD 1.7553
  • GBP/CHF 1.6744
  • GBP/JPY 146.45
  • GBP/ZAR 12.406
  • EUR/USD 1.4910

Euro
Last week began with the release of monthly trade balance data for the Euro zone on Tuesday. This revealed a larger than expected surplus, easing some concerns that a strong Euro is hindering the economy’s export performance. As a result this limited the chances of official intervention to stop the Euro rising and ultimately contributed to the GBP/EUR rate dropping towards the end of the week.

Further through the week an absence of any further major Euro zone economic data left the Pound’s weakness as the primary source of any Euro gains, particularly after Wednesday’s surprise Bank of England minutes showing a split vote for QE.

However, by Friday GBP/EUR took a further downfall as the Euro gained strength after the surprise comments by the European Central Bank President Jean-Claude Trichet. In brief his comments warned that the banks should prepare for the unwinding of stimulus measures, which could be taken away promptly if the threat of inflation awakens.

As a result GBP/EUR closed down 0.83% at 1.1101, from 1.1194 a week earlier, continuing to improve market conditions for those converting Euro’s into Sterling further.

This week sees the release of German business conditions data on Tuesday and consumer confidence on Wednesday, both of which will help shape economic growth expectations for the coming months depending upon their positivity.

Friday will also see the release of Euro zone business, consumer, and industrial confidence data which could support the Euro if stronger than expected. As for the UK, this week sees the release of Private Consumption, Government Spending, Imports and Exports and most importantly GDP figures all on Wednesday.

With the recent array of disappointing data releases from the UK and increasingly optimistic figures from the Euro Zone, it may be a wise to consider buying Euros before the market possibly falls.

US Dollar
Sterling fell sharply on Friday, falling more than 1 percent to a two-week low against the dollar at $1.6460, this erased all of the gains made on Monday when it hit a three-month high just shy of $1.69 on concerns over the UK public finances deteriorating almost twice as fast as expected and waning investor appetite for perceived risky currencies.

It is likely that public finances data will be weak in the months to come, and each time we get that it will be negative for sterling.

The highlight for UK data this week will be Wednesday’s second estimate of UK Q3 GDP, which many analysts expect to be revised up slightly from a first estimate reading of a 0.4 percent decline. If revised as expected GBP is likely to respond in a positive way.

Across the pond the American Thanksgiving holiday means that markets will likely become illiquid through later-week trade, but earlier-week price action could produce big US Dollar moves on several important reports. Tuesdays second release for Q3 GDP figures, Conference Board Consumer Confidence survey results, and the minutes from the Fed Committee’s most recent policy-setting meeting have been known to force considerable moves in the US Dollar, and it remains important to watch for surprises from each.

What this means for those wishing to repatriate their funds is that the early part of the coming week could prove critical if the widely expected UK Q3 GDP data is revised positively and the sentiment from the Fed Policy meeting is deemed dovish, it could elevate Sterling to undesirable levels resulting in losses.

On the flip side this could also prove critical for those buying Dollar as the latter part of the week could see flat exchange rates due to the US holidays.

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