Outlook for the pound, and the weeks data.

Good Morning. Today as usual, we’ll take a detailed look at the weeks data and how this may affect exchange rates. Let’s have a quick look at where rates stand this morning:

  • GBP/EUR 1.0971
  • GBP/USD 1.6502
  • GBP/AUD 1.8020
  • GBP/NZD 2.3000
  • GBP/CAD 1.7408
  • GBP/CHF 1.6526
  • GBP/ZAR 12.185
  • GBP/JPY 142.10
  • EUR/USD 1.5036

The main news to kick off the week is the debt crisis in Dubai. The main stock markets in Dubai and Abu Dhabi have dived at least 6%. The falls came after Dubai’s property developer, Nakheel, asked for trading of some of its Islamic bonds to be suspended.

Shares are trading for the first time since the state-owned property company Dubai World asked for an extension on repaying its debts. The central bank of the United Arab Emirates said on Sunday it would provide banks with extra liquidity.

While shares in the Middle East dropped sharply, Asian shares rebounded on Monday on hopes the Dubai debt crisis will not spread to other financial markets after the UAE central bank decision. The yen rose against the dollar after the announcement from Nakheel, paring earlier declines.

The fear for Sterling, is that many UK banks are heavily exposed to this, as they have lent Billions of pounds into this market. As I’ve said here before, finance and banking is one of the biggest parts of our economy, and one of our biggest exports. So, any exposure could be negative for the pound.

“The UK has the biggest loan exposure to Dubai among the G7, which should ensure sterling underperformance against the forex majors,” said Lena Komileva, head of G7 market economics at Tullett Prebon.

This Weeks Data
For the UK, we have already had Consumer Confidence data today, that measures the level of consumer confidence in economic activity. The figures were much worse than expected, and the pound has fallen as a result. We also have some inflationary measures later in the week. The main driver for the pound is likely to be the developing news from Dubai; as UK banks have lots of exposure to this market, it doesn’t bode well for Sterling.

In the Eurozone we also have inflationary measures, along with Gross Domestic Product and an interest rate decision. It’s likely that rates will be left on hold, so the main news to watch is Gross Domestic Product. This a measure of the total value of all goods and services produced by the Eurozone. It’s considered as a broad measure of the Eurozone economic activity and health, and can therfore have a big impact on the Euros value, and thus GBP/EUR rates.

In the USA, we have various measures of employment, and Nonfarm payrolls on Friday. The report presents the number of people on the payrolls of all non-agricultural businesses. The monthly changes in payrolls can be excessively volatile, and therfore hard to predict. So, any difference to the predicted figure can cause USD volatility.

Elsewhere, we have GDP for Canada and Switzerland, retail sales for Australia, and Commodity prices for New Zealand. This is is considered as an early indicator of export price changes. The price changes influence GDP and exchange rates. An increase in prices may indicate strength of the NZD, while a decrease in prices may indicate weakness of the NZD.

Monday
UK – Consumer Confidence
UK – Money Supply
UK – Mortgage Approvals
EU – Consumer Price Index
Can – Gross Domestic Product

Tuesday
Aus – Building Permits
Aus – Interest Rate Decision
Swi – Gross Domestic Product
Ger – Retail Sales
Ger – Purchasing Managers Index
EU – Purchasing Managers Index
EU – Unemployment

Wednesday
UK – PMI Construction
EU – Producer Price Index
US – Employment

Thursday
Aus – Retail Sales
NZ – Commodity Prices
EU – Purchasing Managers Index
UK – Purchasing Managers Index
EU – Gross Domestic Product
EU – Retail Sales
EU – Interest Rate Decision
US – Jobless Claims

Friday
Swi – Consumer Price Index
Can – Unemployment
US – Nonfarm Payrolls
US – Unemployment

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