Economic Data that can effect exchange rates

Good Morning. As usual on a Monday, we’ll take a detailed look at the weeks data releases. First, a quick snapshot of where rates stand @ 08:30am 11th January 2010:

  • GBP/EUR 1.1108
  • GBP/USD 1.6140
  • GBP/AUD 1.7322
  • GBP/NZD 2.1795
  • GBP/CAD 1.6565
  • GBP/ZAR 11.812
  • GBP/JPY 148.74
  • GBP/CHF 1.6398
  • GBP/NOK 9.0657
  • EUR/USD 1.4527

US Job Losses up
US employers unexpectedly cut 85,000 jobs in December, but the unemployment rate held steady at 10%, official figures have shown. The number of job losses was surprising, particularly after November’s figures had been revised. This has weakened the US Dollar, which is good news for those needing to buy USD, as rates have climed slightly.

UK Producer Prices up
The prices of goods leaving UK factories rose at a faster pace than expected in December, figures show. Figures from the Office for National Statistics (ONS) showed UK producer prices rose by 0.5% last month.

It took the annual rate of output price inflation to 3.5%, which is the highest rate since January 2009. Input prices, the cost of materials bought by producers, rose at an annual rate of 6.9%, the fastest pace since November 2008. Despite this, the pound has remained weak over fears over the level of debt, the looming election, and the fact our interest rates are likely to remain low for a long time to come.

How do interest rates affect exchange rates?
Well, low rates are not attractive to investors. Therefore, they will place funds where rates are higher to get a better return. This means they are selling Sterling for other currencies. This then weakens the currency as it is flooded on the market, and GBP exchange rates drop as a result.

As our rates are likely to remain at 0.5% for quite a while, the EU has higher rates and other economic zones are forecast to raise their rates before us. This means Sterling may well remain on the backfoot.

This Weeks Data
We have some important releases this week, that in the current economic turmoil surround world economies, will likely affect exchange rates if the figures are different from forecast. As usual, we’ll take a look at each main economic area, and data releases of note.

For the UK, US and EU, there are trade balance figures. It is a balance between exports and imports of total goods and services. A positive value shows trade surplus, while a negative value shows trade deficit. It can generate quite a bit of volatility.

For the UK there is also House price data, and Industrial and Manufacturing production. These measure the output. Manufacturing & Industrial Production is significant as a short term indicator of the strength of UK activity that dominates a large part of total GDP, and therefore is an indicator of the economy as a whole.

In the EU, we have some inflation data, a speech by the central bank, and an interest rate decision on Thursday. Rates will likely be left on hold, however after the decision the speech given may give clues as to how the economy is faring.

In the US there is a budget statement that summarises the financial activities of federal entities, disbursing officers, and Federal Reserve banks. A positive budget statement that receipts exceed budgetary outlays is seen as bullish for the USD. On the other hands, a negative figure (deficit) that indicates government debt is seen as bearish.

A full breakdown of the weeks data day by day is below. For more detailed information on how this may affect rates for your particular requirement, contact us today.

EU – ECB Trichet Speech
Can – Building Permits & Housing Starts
Swi – Retail Sales

UK – BRC Retail Sales
UK – RICS/DCLG House Prices
UK – Trade Balance
US – Trade Balance

UK – Industrial Production
UK – Manufacturing Production
EU – Industrial Production
US – Budget Statement

Ger – Consumer Price Index
ECB – Interest Rate Decision
US – Jobless Claims
US – Retail Sales
US – Import Prices

EU – Consumer Price Index
EU – Trade Balance
US – Consumer Price Index
US – Consumer Sentiment

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