Pound vs Euro/Pound vs US Dollar weekly forecast

Monday 20th June 2011

• Poor UK data puts Sterling on back foot
• Greek debt weakens the Euro
• US Dollar strengthens on safe haven status
• 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 began with a bank holiday for Europe’s strongest economies France and Germany whilst Sterling hit its strongest levels in more than a week against the euro, helped by euro zone debt concerns. Sterling pared brief gains made against the euro on Tuesday after UK inflation data came in as forecast, giving investors little reason to believe the Bank of England will raise interest rates any time soon.

Wednesday saw mixed fortunes for Sterling. A fall after UK employment data showed the number of Britons claiming unemployment benefits rose sharply at their fastest pace in two years, then a rise as credit agency Moody’s said it would review the credit ratings of BNP Paribas, France’s biggest bank, and its peers Societe Generale and Credit Agricole, focusing on their holdings of Greek public and private debt.

Greece continued to dominate headlines with violent protests, debt and bailout concerns and also received credit for causing a rift between France and Germany. Sterling was subdued on Thursday as a loss of risk appetite swept the financial markets however Friday saw the euro gain and recoup its losses after French President Nicolas Sarkozy said a “breakthrough” had been made on the Greek debt crisis, following a meeting with German Chancellor Angela Merkel.
The past week has seen Sterling’s short term, upside prospects hurt by Bank of England Governor Mervyn King, who reiterated the case for ultra-low interest rates despite stubbornly high inflation. Sweeping cuts from the British government to try and put the UK finances on a firmer footing are also expected to dampen economic growth in coming months, lessening the need for monetary tightening and Sentiment towards sterling take a knock, as weak UK economic data added concern about a faltering UK economy.

Despite the doom and gloom, a ray of light could come from the Aid package for Greece which is dependent on the Greek parliament passing additional austerity measures. The past weeks volatility highlights the necessity of being prepared to act quickly and staying in close contact with your FCG account manager if you are exposed to the Foreign Exchange markets. If you have not done so already fill in this form to make a free enquiry now.

Sterling vs. US Dollar;

Another disappointing week for the UK saw Sterling dip down to a three week low against the Dollar last Thursday. The main pressure on the Pound is the ongoing expectation that base rates will not be hiked by the Bank of England until 2012.

This week’s data that reinforced this expectation was a downturn in UK retail sales which demonstrated an acute dip in British consumer confidence. Indeed the figures for May which showed a 1.4% decline struck a more than usually heavy blow as the pre data release rumours were for a slight upturn in retail sales. The ONS warned that UK spending trends have changed both year on year and month on month with even some of the usually heavy hitting major retailers of the UK high street suffering from lower sales.

Sterling appears particularly vulnerable to these changes and any further dips in confidence in the current socio-economic climate could see Sterling drop further against the Dollar. Indeed the back drop of the European sovereign debt crisis that is centred on Greece is triggering a pull out of riskier assets in favour of safe haven options. As we saw in the peak of the downturn the US dollar is always viewed as a global safe haven and may continue to hold its strength if no meaningful resolution is made in Europe.

It is not however one way traffic for Cable, as the graph above shows the currency climate is throwing up significant market volatility. There are still very real concerns about the US economic recovery, and of course whenever a short sharp dip is seen there is always a possibility of a quick correction: “With solid support around the $1.6000 area and the swiftness of the move from $1.6400 over the past two days the potential for a short squeeze remains quite high,” CMC analysts said in a note.

In the back drop of such sharp movements it may well be a prudent move to discuss Limit Orders and Stop Losses with us, as they allow you set parameters that you choose in the market to potentially target the price you want to buy or sell at and allow you the protection of a guaranteed worst case scenario. To find out more about these tools contact us now.

Weekly Economic Data that may affect exchange rates

Monday 20th June 2011
UK House prices are released today, giving an indication on the health of the UK housing market. Also from the UK today is an inflation report. We also have EU investment flow figures, which could weigh on the Euro given the debt problems that are affecting some EU member states.

Tuesday 21st June 2011
Today we have the German ZEW index which is a measure of economic sentiment. Given Germany is by far the largest economy in the EU, this often has a big impact on GBP/EUR rates. From the UK we see Public sector borrowing figures and Industrial Orders. From the USA Existing Homes sales will give an indication on the health of the US housing market.

Wednesday 22nd June 2011
Today we will be privy to the Bank of England MPC minutes from their recent decision to hold interest rates. It shows how the 9 member committee voted and can affect Sterling if there are any surprises. Some consumer confidence measures from the Eurozone could affect the value of the single currency. Stateside we have a statement from the FED and a press conference shortly afterwards, both of which could affect GBP/USD rates.

Thursday 23rd June 2011
On to Thursday, and the main UK data is mortgage approvals and a BoE report on financial stability. Rom the Eurozone we have a raft of inflation figures that if high could support the case for a July interest rate hike, which could push GBP/EUR lower. Unemployment data is the main news from the States

Friday 24th June 2011
There is no UK data of note today. The main data are EU Retail sales and German confidence measures. Rom the US we have release regards GDP and durable goods orders.

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