Sterling Exchange Rate Outlook 2010

Good Morning and welcome to a New Year in the currency markets. The pound had a good run at the end of the year due to thin trading volumes exaggerating the price. At 08:30am on the 4th January 2010 rates are as follows:

  • GBP/EUR 1.1271
  • GBP/USD 1.6141
  • GBP/CAD 1.6833
  • GBP/AUD 1.7865
  • GBP/NZD 2.2234
  • GBP/CHF 1.6759
  • GBP/ZAR 11.869
  • GBP/JPY 149.95
  • GBP/NOK 9.3215
  • EUR/USD 1.4318

So will the pound rise through 2010?
Many analysts believe Sterling could come under pressure early in 2010, however, due to jitters about its huge debt burden ahead of a UK general election, although the currency is broadly seen as undervalued on a longer term horizon. Over the next couple of months the market will have to take into account the potential implications of the election and this could prove negative for the pound. Investors are concerned about the possibility of the election resulting in a hung parliament, which may make it difficult for the government to take steps to reduce the UK’s ballooning budget deficit.

So, for the longer term, rates will rise at some point throughout the year. When this will happen is very hard to predict. Most analysts think there won’t be a decent recovery until the second half of the year, after the General Election.

Finance Chiefs confident
Finance chiefs at the biggest companies in the UK are in their most confident mood for two years, a report has said. The appetite for risk among chief financial officers (CFOs) is at its highest since the beginning of 2008, financial services firm Deloitte said. However, 48% said the economy was their biggest concern in 2010 as they expect any recovery to be weak.

The UK has been in recession for a record six consecutive quarters but is expected to have returned to growth in the final three months of 2009. When we see the GDP figures, we’ll know for sure and if so, this may be the start of recovery for Sterling, however as mentioned above, fears over UK debt could well hinder this into the latter part of the year.

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This Weeks Data
We’re back to normal in terms of data releases, and the week is a very busy one. If any of the below data releases have figures different than forecast, then expect exchange rates to be affected. Let’s look at each economic area in turn:

For the UK, the most important data releases to watch for are the Purchasing Managers Index for Manufacturing and Services. This is is an indicator of the economic situation in the UK services sector. It captures an overview of the condition of sales and employment. It is worth noting that the UK service sector does not influence, either positively or negatively, the GDP as much as the Manufacturing PMI does. Traders want the highest possible reading as that will be taken as positive for the GBP. We also have an interest rate decision. We expect rates to be left on hold, but watch for any comment on further Quantitative Easing.

For the EU, we also have Purchasing Managers Index measures, unemployment data and Gross Domestic Product. This is a measure of the total value of all goods and services produced by the Eurozone. The GDP is considered as a broad measure of the Eurozone economic activity and health. We expect a rise of 0.4% – if it’s higher than this, GBP/EUR rates may drop and vice versa.

For the US, we have unemployment measures and on Friday the non-farm Payrolls. Unemployment is expected to be at around 10%, and the non farm payrolls is one of the most important data releases. 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 therefore hard to predict.

Monday
Ger – Purchasing Managers Index
UK – Money Supply
UK – Mortgage Approvals
UK – Purchasing Managers Index
US – Construction Spending

Tuesday
Aus – New Home Sales
Ger – Unemployment
EU – Consumer Price Index
Can – Industrial Production
US – Factory Orders

Wednesday
Aus – Retail Sales
Ger – Purchasing Managers Index
Eu – Purchasing Managers Index
UK – Purchasing Managers Index
EU – Industrial Orders
EU – Producer Price Index
US – Mortgage Applications
US – Employment
US – FOMC Minutes

Thursday
Aus – Retail Sales
EU – Consumer & Economic Confidence
EU – Retail Sales
UK – Interest Rate Decision
UK – House Prices
US – Jobless Claims

Friday
Ger – Trade Balance
UK – Producer Price Index
EU – Gross Domestic Product
EU – Unemployment
Ger – Industrial Production
US – Non Farm Payrolls
US – Consumer Credit

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