Sterling/Euro & Sterling/US Dollar forecast Feb 2010

Good Morning. Today we’ll look at GBP/EUR & GBP/USD, plus a look at the weeks data as usual.

Pound vs Euro
Last week at last provided some good news for Euro purchasers after Sterling made gains against the single currency. A raft of broadly Sterling positive and Euro negative data was the dominant reason behind the shift in trading levels which saw them move from a low of 1.132 (interbank level) on Monday to a high of 1.162 (interbank level) on Thursday. In real terms on a purchase of €200,000 this represents a saving of over £4500 in market movement alone between Monday and Thursday.

Tuesday saw the start of Sterling’s run with the release of UK Q4 GDP figures which confirmed that the UK was no longer technically in a recession. The figures were however somewhat disappointing to the market, showing a growth of just 0.1% but falling some way short of the expected 0.4% growth. This perhaps prevented Sterling from gaining against the Euro even further and drew out the sceptics speculating that results are archetypal of an economy approaching a ‘W’ shaped recession.

Despite this the Pound continued to rally towards the end of the week as concerns over Greece’s huge debt problems continued to weigh heavily on the Euro and indeed the rest of the Eurozone.

Rainer Bruederle, Germany’s economic minister, said soaring deficits could have ‘fatal effects’ on the region sharing the European single currency. Fears are mounting that if Greece is not rescued by richer countries such as Germany and France, investors may start to lose confidence in other European member states.

The volatility of the markets over the past week only goes to highlight the importance of keeping in regular contact with your FCG account manager who can guide you through the markets. For those buying Euros, a forward purchase has become a much more attractive proposition, whereby one can secure a rate of exchange at today’s rates for a fixed point in the future.

However, for those selling Euros and converting funds back into Sterling that last week has highlighted just how quickly the market can move against you. Speak to your FCG account manager to find out how you can protect yourself against negative market movement and take advantage when the market beneficial to you.

Sterling vs US Dollar
Economic growth on both sides of the Atlantic were the main headline makers last week and helped Cable to drop 2.5 cents from Monday’s opening rate, to close on Friday. The previous week we had seen a run of better than expected figures out of the UK which had helped GBP-USD hit a one month high, mainly based on expectations that Tuesdays GDP reading for the fourth quarter 2009 would be 0.4%.

As we know, nothing is ever simple when it comes to the British economy and the reading was a lowly 0.1% growth, showing that the UK merely “limped” out of recession at the end of last year. We are also precariously close to dropping back into recession should activity stagnate again and this has caused an increase in risk aversion, whereby investors will pull money out of riskier assets (such as the Pound) and put it back into “safe haven” assets like the US Dollar. This caused the drop we saw in the rate between Tuesday AM and the close of business on Friday.

Economic growth in the US was a completely different story however. Fridays US GDP reading was an annualised 5.7%, one percent higher than the expected reading of 4.7%, which helped to force the rate down, further benefiting those selling Dollars. It may now be time to trade for anyone looking to sell Dollars as this week could rather different to last.

On the calendar this week we have a mix of UK house prices, mortgage approvals, consumer confidence and inflation figures which although may not prove a catalyst for Sterling growth, should at least halt the slide of last week.

The key day though will be Thursday when the Bank of England are expected to keep interest rates on hold but most importantly, it looks likely that they will announce a halt to their Quantitative Easing programme. This should prove Sterling positive so anyone with looming £/$ requirements should contact their FCG account manager to discuss the use of STOP & LIMIT orders to ensure they do not miss out on any temporary moves in their favour.

This Weeks Data
For the UK, we have measures of inflation, consumer confidence surveys, house price data, and an interest rate decision by the Bank of England. Last week we saw nationwide figures showing a rise in house prices. If the Halifax survey corresponds, then this will be positive for the UK. The main data however is the BoE Interest Rate decision. We expect rates to be left on hold again at 0.5%, but if any expansion in their Quantitative Easing programme is announced, this may weaken Sterling. The pound has risen significantly over the last few weeks, so those that wish to protect against any bad news negatively affecting the rate should consider a Forward Contract.

For the EU, we have retail sales and also an interest rate decision. We also expect rates to be left at 1%, but fears over some EU economies fiscal position were a significant driver for GBP/EUR rates climbing last week. Watch for any comments by the ECB with regards to this, as the markets are watching developments on this story very closely.

In the US, there are various economic measures as you can see below. The most important will likely be the confidence surveys and the Non-Farm 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. As it’s so hard to predict, it often causes volatility in the value of the US Dollar. Elsewhere, we have an interest rate decision for Australia that clients with AUD requirements should consider. There is also unemployment data for Canada and New Zealand, which may affect GBP/CAD and GBP/NZD

For more detailed and specific information on what these data releases mean for your particular requirement, contact us today for a free consultation from one of our expert currency brokers.

Monday
UK – House Prices
Ger – Purchasing Managers Index
UK – Consumer Lending
UK – Purchasing Managers Index
US – Personal Consumption
US – Manufacturing Data

Tuesday
Aus – Interest Rate Decision
EU – Producer Price Index
US – Home Sales
US – Consumer Confidence

Wednesday
UK – Consumer Confidence
Ger – Purchasing Managers Index (Services)
EU – Retail Sales
US – Employment
NZ – Unemployment

Thursday
Ger – Factory Orders
UK – BoE Interest Rate Decision
EU – ECB Interest Rate Decision
US – Jobless Claims
US – Non Farm Productivity

Friday
UK – Halifax House Prices
Ger – Industrial Production
Can – Unemployment
US – Non Farm Payrolls
UIS – Unemployment


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