In this week’s Report:
• Sterling vs Euro tumbles to 3 week low
• Interest Rate speculation in UK/EU driving exchange rates
• Effect of unrest in Libya on Oil Prices and GBP/USD
• Round up of the week’s data that may affect rates
(For currencies other then EUR and USD, contact us for a consultation)
Sterling vs. Euro; 3 week low
Sterling fell on Friday as data showing a deeper fourth-quarter UK economic contraction reduced expectations of an interest rate hike by mid-year and raised concerns about how the economy can deal with rising inflation. Revised data showed the UK economy shrank 0.6 percent in the last three months of 2010, more than the preliminary reading of a 0.4 percent contraction. This data highlights the dilemma faced by the BoE in balancing rising inflation, which is double the central bank’s 2 percent target.
Due to this, Sterling slumped to a three-week low against the Euro, extending its downward movement versus the single currency this week. Also helping to boost the single currency was hawkish rhetoric on Euro zone interest rates, as European Central Bank policymaker Axel Weber kept the speculators on their toes when he stated that Euro zone rates could only rise from here. The Euro looked to end the week nearly 2 percent higher on the week, its best performance since late October.
The negative risks to the Euro’s health have been repressed for some time now. The real financial uncertainties that remain behind the Euro-region have been offered a temporary stay of execution when policy officials offered their open-ended promises to further bolster the bailout effort going forward. Yet, in the weeks since, conditions have continued to deteriorate. And, reminding of the trouble ahead, German policymakers discussed proposals aimed at insuring a hard-line approach to further bailout accommodations at EU meetings. It just so happens, that the Parliament plans to vote on these proposals on March 17 – one week before the EU summit.
The volatility last week highlights the risk that private individuals are exposed to when international financial events entirely out of their control move the markets. With this inherit risk in the background and your life savings in the foreground it is well worth while seeking the guidance of an experienced currency trader at Foremost Currency Group to assist you through your currency purchase. Contact us Today.
Sterling vs. US Dollar; drops from near 1 yr high
Sterling finished the week in dramatic style against the US Dollar after slipping over a Cent following disappointing GDP figures on Friday. In what was a distinctly flat week for Cable, Sterling began well trading at over 3 month highs at 1.62 plus on the Mid Market.
The early part of the week was distinctly slim on market data releases and was driven more on speculation as to the minutes of the Bank of England’s meeting at the beginning of the month however, this had little impact on the exchange rates.
When the minutes were released sterling rose against the dollar after it showed a hawkish tone, with three members of the Monetary Policy Committee voting for a rise in interest rates. Bank of England Chief Economist Spencer Dale joined Andrew Sentance and Martin Weale in voting for higher rates. More importantly the minutes showed that some of those members who voted against a rise would consider changing their decision if the economy showed signs of picking up after the unexpected drop at the end of 2010.
Things started to unravel against Sterling on Thursday as problems in Libya escalated and concerns over the supply of oil were heavily voiced. As the price of oil spiked by over 8 cents at the high of the day, investors were driven to more ‘safe-haven’ status currencies such as the Dollar putting pressure on the Pound.
On Friday Sterling continued to slide against the Greenback and once again appeared to be the weaker relative after disappointing GDP figures were released showing a negative growth of 0.6%. Sterling supporters had been hoping for a more positive reading as evidence that lasts month’s disastrous reading had been a one off and a result of extraordinary weather conditions affecting the economy.
This was not the case and in fact this month’s reading showed that even though the poor weather did have an impact on growth the figure would still have been negative which prompts renewed concern about the stability of the economy and whether the UK may be headed towards another technical recession.
Next week is another important week in the markets with inflation data in the UK and across the Atlantic Non-farm payrolls are released, these crucial employment figures are generally seen as litmus test for the health of the US economy.
Weekly Economic Data that may affect exchange rates
Below we list the main data released for the week ahead. The implication of these economic releases will differ depending on the currency you need to buy or sell. For a free consultation on how this could affect the cost of your currency requirement, open an account with us today. This is free to do, doesn’t obligate you in any way, and simply gives you access to our market knowledge and commercial exchange rates.
The week kicks of with data from the Eurozone in the shape of Consumer Price Index measure. These indicate inflation and therefore can impact interest rate policy. A high reading may cause GBP/EUR to fall. We have GDP figures from Canada at lunchtime, followed by House Prices and Inflation data from the USA.
The new month starts today and the first data of note is an Interest Rate decision from Australia and Canada, although we expect no change from either. From the UK we see the latest House prices from Nationwide, indicating how this sector is performing. We also have UK Mortgage approvals today. From the Eurozone watch for German unemployment and inflation data that may cause GBP/EUR volatility.
UK data today is in the form of Halifax house prices which follows yesterdays report from the Nationwide. The EU also has various inflationary measures being released today. Further afield Australia has GDP figures showing how the economy is performing.
Today is very busy for EU data. We have: Gross Domestic Product; Retail Sales; Inflation figures and an Interest Rate decision. There’s a lot that could affect GBP/EUR rates so contact us if this is the currency you need to buy or sell. From the USA there are some unemployment and jobless figures at lunchtime.
We end the week with US unemployment and Non-Farm payrolls. This often causes significant volatility for Sterling vs. US Dollar rates as the actual figures are often very different to those forecasted.
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