Monday 8th August 2011
• EU debt crisis significantly weakens Euro
• World markets rocked by sovereign debt worries
• US Debt agreed, Job figures better than expected
• 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;
This week European markets have again fallen sharply amid a crisis of confidence in the ability of Eurozone leaders to deal with debt problems. Due to this the pound has risen sharply against the euro reaching a two month high last Thursday.
Barroso says that the Eurozone crisis is no longer “just in the Euro-area periphery”, a reference to the uncertainty spreading from Ireland, Portugal and Greece to Spain and Italy which are now at the eye of the storm. The fear that these countries would need assistance has significantly weakened the Euro giving some great opportunities to buy at the moment.
The European Central Bank has said it will offer a fresh round of loans to banks in light of continuing fears about the Eurozone debt crisis. “Given the renewed tensions in some financial markets, the ECB has decided to conduct a supplementary refinancing operation,” said the bank’s president, Jean-Claude Trichet. He added that economic uncertainty was “particularly high”‘.
Last week bonds issued by the Irish and Portuguese were bought up by the ECB but there was concern that they did not appear to have intervened to help Spain and Italy, whose borrowing costs have risen significantly recently.
Time will tell whether the EU manage to come to an agreement to avert the crisis escalating, but in the meantime you should look at the positive; you can buy Euros at a much better price than has recently been available. It’s very important to note however that this is purely due to movements with the debt crisis in the US and fundamental UK data is still very poor.
If you need to buy Euros in the next 6 months, consider discussing the options available with a currency broker such as Forward contracts, Stop Loss orders and Limit orders, to ensure you secure the best possible exchange rate.
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Sterling vs. US Dollar;
The US Dollar suffered last week as fears escalated that the US economy was heading towards another recession. Stock markets tumbled to their lowest point since 1978 and Sterling climbed close to 1.65 as continued political and economic woes weighted on the dollar.
Carrying over from the week previous, a last minute deal to raise the U.S. borrowing limit cleared its biggest hurdle in Congress on Monday, warding off the risk of a debt default after weeks of feuding which damaged America’s image abroad but failed to dispel fears of a credit downgrade.
Moody’s Investors Service and Fitch Ratings maintained U.S. ratings for now, but said additional deficit-reduction measures were needed for the government to put its finances in order, Underscoring that threat, Moody’s assigned a negative outlook to the AAA rating, which means a downgrade is possible in the next 12 to 18 months.
Fitch promised to conclude a more thorough review of the United States by the end of the month and did not rule out slapping a negative outlook on the rating. Now investors await Standard & Poor’s. The agency has been tougher than its rivals, threatening to downgrade U.S. ratings by mid-October if lawmakers did not come up with a plan to meaningfully cut the budget deficit.
The dollar fell further on Friday despite stronger-than-expected U.S. jobs growth, the much anticipated Non-farm payrolls accelerated more than expected and the unemployment rate dipped to 9.1 percent from 9.2 percent Markets however remain sceptical on the inability to stem the spread of the euro zone’s debt crisis, but Friday’s employment report offered a glimmer of hope.
Do you need to buy or sell US Dollars? Send us an enquiry now.
Weekly Economic Data that may affect exchange rates
Monday – House Prices and Retail Sales from the UK today will give some idea how confidence in the economy is faring. Eurozone confidence figures are also due, which in the current climate are unlikely to be positive.
Tuesday – Lots of UK data today; Manufacturing Production, Trade balance, Industrial Production and a GDP estimate. We could therefore see significant volatility for Sterling today. There is also an interest rate announcement and press conference by the US Federal Reserve.
Wednesday – German inflation figures will be closely watched today, for any hint of a further EU interest rate hike. In the UK we see a confidence report, and there is a Bank of England inflation report, along with a speech by BoE governor Mervyn King.
Thursday – A bit quieter today, with a report from the European Central bank the only thing likely to affect GBP/EUR. In the USA there are various jobless measures.
Friday – We end the week with Industrial production figures from the EU, and Retail Sales from the United States.
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