In this week’s Report:
- Interest Rates still driving GBP/EUR
- Mixed UK economic figures create uncertainty
- Pound vs. US Dollar retreats from 18 month high
- Round up of the week’s data that may affect rates
(For currencies other then GBP, EUR and USD, contact us for a consultation)
Sterling vs. Euro;
Last week saw a number of volatile swings on the Sterling Euro cross with both currencies attempting to establish a trend over the other on the back of bullish data releases and official statements. Early in the week Sterling made gains over the single currency with decent retails sales figures overshadowing the expected slight fall in house prices. Indeed the fact that the B of E’s inflation report and Mervyn Kings’ following speech were viewed by many analysts as more hawkish than other recent B of E statements pushed the Pound up further against the Euro on Wednesday.
Investors are mainly occupied with thoughts of interest rates at present, attempting to predict who will be the next to push their base rates up. Obviously the economic woes of several of the peripheral EU economies such as Greece and Portugal along with the moderately hawkish B of E rhetoric gave the cross a mid week swing in the Pound’s favour. It was somewhat of a shock therefore when Fridays Euro zone GDP figures came out strong, and pushed the cross back down towards the lows seen the week before.
Of particular Surprise was the Greek economy’s growth of .07%, a figure that few would have foreseen and that certainly will have left a few analysts scratching their heads. Further bolstering this figure were solid figures above expectations from Germany, France and Spain; the combination of which meant that the Euro zone as a whole grew 0.8% by GDP quarter on quarter (in spite of the fact that Portugal slipped into double dip recession with a second quarter of negative growth). All this has left the recovery in the UK looking patchy at best, and well behind some of the European power houses.
Speculation will be rife over the next few weeks and months that it will in fact be the ECB who will act next to raise rates again, though a hawkish sentiment form the UK could bolster the pound. Undoubtedly this cross will be one of the hardest to call and will certainly see some hefty swings in the near future as it did last week. Whether you are looking to buy or sell the Euro therefore, the peaks and troughs that are likely to appear could represent a real opportunity for you. Register an account now and speak with an experienced trader to find out how we can help you get the best of your currency requirement.
Sterling vs. US Dollar;
News from both sides of the Atlantic last week was poor, but it didn’t stop the GBP/USD rate from falling to 6 week lows after hitting a 19 month high of 1.6708 just a fortnight before. Interbank levels on Friday afternoon were struggling to stay above 1.62.
The main reason for the downward slide was renewed risk aversion from investors as UK manufacturing and industrial production data disappointed. Manufacturing showed 0.2% growth (below market expectations) while industrial figures rose by 0.3% which was again below forecasts of 0.8%. The fall in Sterling was also encouraged as the NIESR GDP estimate for the UK was only 0.3% after a better reading last month.
This showed that even with the Bank of England suggesting that UK inflation could reach a whopping 5% this year, potentially slowing economic growth could tie their hands where interest rate hikes are concerned. This could potentially weaken Sterling against the Dollar as we move through the year but on the flipside US figures aren’t exactly promising. Initial jobless claims and inflation have both improved slightly while retail sales are slowing again but it still doesn’t look like the FED will look to tighten their monetary policy any time soon. Therefore with both economies looking like they may just drift through 2011, risk appetite could be the key driver of cable.
With the current risk aversion, especially with the renewed commodity price weakness we have seen lately, there is increased support for the Dollar as investors look to reduce their speculative positions and pump funds into the perceived “safe-haven” Greenback. If this is to continue then we could see the rate back below 1.60. However, if the state of play in UK, US and some of the faltering Eurozone economies looks to improve then any renewed appetite for risk could help to push rates back up towards 1.70, even if the Bank of England decide to hold tight on putting up interest rates.
There are some key data releases from both sides of the pond this week including Bank of England minutes, UK & US inflation data and unemployment figures, while there are also some speeches from members of both Central Banks. To see how these may affect any upcoming US Dollar requirements you may have, take a look at the market data section below.
Weekly Economic Data that may affect exchange rates
Below we list the main data released for the week ahead. For a free consultation on how they 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.
At midnight last night Rightmove released House price data, which showed that . There is no other UK data today. From the Eurozone we have Trade Balance figures and Inflation figures. If these are high it could push GBP/EUR rates lower. From the USA we have a FED speech and inflation data.
Lots of UK data today: Retail Sales, Consumer Confidence, Consumer Price Index and House Prices, all of which will be closely watched as an indicator of the UK economy. Germany releases some sentiment survey which is the only EU data of note. From the USA we see Housing Data, Building permits and Industrial Production.
Jobs data today for the UK, in addition to the claimant count. More importantly, we see the BoE minutes to see how the vote was split in the recent decision to hold rates. Markets will look at this very closely as an indication of when interest rates may rise. Expect volatility.
Retail Sales is the main UK release today. The ECB president Jean Claude Trichet will give a speech; last time he spoke he caused the Euro to fall by over 1 % so keep a close eye on his comments. The US has some Jobless figures and Home Sales data.
We end the week with Inflation data from Germany, the largest economy from within the EU. Other than that the only other data of note is from Canada: Retail Sales and inflation data.
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