Sterling up on GDP and stress test results

26th July 2010

Pound vs Euro

Last week we witnessed a relatively volatile week for Sterling/Euro exchange rates with the difference between the high of €1.2003 and the low of €1.1717 – just over the 2.3% mark, a significant difference when transferring thousands of pounds overseas.

The main news of the week that caused the volatility came from the Bank of England minutes and UK Gross Domestic Product figures which were released on Wednesday and Friday morning respectively. The minutes showed that as expected the Monetary Policy Committee had voted in the same fashion as they had in June. Andrew Sentence remained the only member looking for an interest rate hike of 0.25% while the seven other members all voted for a rate hold at the record low of 0.5% a figure which has now been in place for 16 months.

Many had thought Mr Sentence may have found support from some of the other committee members and the likelihood of a rate increase in August would be a high possibility, but with the news that he is still alone on the panel a rate increase and in turn Sterling improvement may still yet be some time away.

GDP figures for the UK soared on Friday as the second quarter showed an improvement from 0.3% in Q1 to a highly surprising 1.1%. The predictions had been for the figures to read 0.6% but at almost double this forecast the expectation of a Sterling rally was high. Surprisingly the market did not react in the way many would have expected and although a small gain was made it was not at the pace or severity expected after such a release.

In the afternoon trading session on Friday Sterling continued to make gains as the Euro weakened off as the results of the stress tests came out. These were tests that showed the level of reserves held by 91 Eurozone banks to assess how they would cope should they enter another recession. The results showed seven of the banks failed the test but the main weakness for the single currency came as many felt the tests were not strong enough leaving investors questioning just how credible they were.

The week ahead sees a number of data releases which could affect GBP/EUR exchange rates with the most important likely to be Consumer confidence figures for the UK and Eurozone unemployment figures.

This Weeks Data

Below we list the main data releases for the week that we think may affect exchange rates. Fundamental data often has a big impact on the currency markets, and so can reduce or increase the cost of any currency purchase significantly.

We offer a free consultation to anyone that has a requirement to buy or sell a foreign currency. A consultation specific to the currency you need to trade, and the timescales you’re working to can help to maximise the rate you achieve, and being fully informed of data releases and other factors can help you make an informed decision on when to trade, and limit any impact market volatility can have. Contact us today to have your consultation, and make the next step to taking control of your currency requirements.

Monday

Producer Prices from Australia measures the average changes in prices in the Australian markets by producers of commodities. AUD has been strengthening of late, and higher than expected PPI figures will increase the chances of further rate hikes, strengthening the currency further.

House price information for both the UK and USA is also released today. Higher house prices indicate a growing economy, and so the figures may affect the value of GBP and USD if different than forecast.

Tuesday

Retail Sales from Germany are released at 7am this morning. The changes are widely followed as an indicator of consumer spending, and so are a barometer of consumer confidence. A high reading may strengthen the Euro bringing GBP/EUR rates down, and vice versa.

In the USA at 3pm, there is a measure of Consumer Confidence. A high level of consumer confidence stimulates economic expansion while a low level drives to economic downturn, so watch these figures closely if you need to buy or sell USD.

Wednesday

We have consumer prices for Germany and Australia today. It is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. A high reading may strengthen the currency, and a low reading could weaken it making it cheaper to purchase.

Staying with the antipodean currencies, in New Zealand today there is a measure of business confidence, along with an interest rate decision. If the RBNZ is hawkish about the inflationary outlook of the economy and raises the interest rates it is positive, or bullish, for the NZD.



Thursday

For the EU, watch for the German Unemployment figures and measures of EU Industrial and Economic Confidence. These results help investors to decide whether to invest in the EU

Friday

Today the EU releases the unemployment rate. In Canada and the USA, GDP figures will be watched closely. Last week, better than expected GDP helped push the pound higher, illustrating how the measure of economic growth can affect exchange rates.

If you are looking for the best exchange rates, click the link below to send us an enquiry, and have a free consultation on what’s happening in the currency markets.

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