• Rumours of French downgrade weakens Euro
• Market Volatility creates big exchange rate swings
• BoE paint gloomy picture of UK growth
• 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;
The most notable event which detracted from GBP gains was the Bank of England’s Growth forecast cut, which demonstrated to the market, as if it didn’t already know that times are still hard in the UK and that the economy is by no means out of the woods. Indeed it is still not out of the realms of possibility that a second recession could bite in Britain.
However for all the gloom on this side of the channel, much of the focus going forward will be on whether France with its problems, will be able to continue to support Germany in bankrolling the sovereign debt issues cropping up all over Europe. With severe worries about Spain and Italy requiring bailouts akin to those in Greece, Ireland & Portugal, the purse strings across the channel may not be as freely loosened as they have been thus far.
This week will probably continue to see fairly choppy rate fluctuations, although most traders will expect it to calm down when compared to the week gone by. A full list of the main data to watch out for follows later, but for this cross Tuesdays UK inflation figures and the Bank of England Minutes usually cause some volatility and Tuesdays’ Euro zone GDP figure is worth watching out for too. This said, often the biggest market moves occur on the back of events that appear on no calendar; the rumours and political events that unfold throughout the week.
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Sterling vs. US Dollar;
In what was one of the most turbulent weeks across the global markets since the credit crisis began in 2008, all eyes were on the US as worldwide stability looked shakier than ever. Global stocks saw Billions of dollars wiped from their value on consecutive days in the early part of the week as the markets readied themselves for another potential credit crunch.
Sterling’s momentum against the Dollar was maintained early on Tuesday as the UK’s AAA rating looked safe following Standard and Poor’s Chief stating in an interview that he didn’t expect a ratings drop in the UK within the next 2 years. However, comments about Sterling becoming the next ‘safe haven’ currency were quickly dismissed in light of the unfolding problems with rioting in the capital which dragged on throughout the week.
This was followed just before lunch on Tuesday by a slight slip as UK manufacturing data fell by a surprise 0.4% rather than a 0.2% growth as expected – However, continuing concerns over the US prevented the Pound slipping too much. “In isolation this data is definitely sterling-negative. In ordinary conditions it feeds the idea the Bank of England will not be hiking interest rates any time soon,” said Jane Foley, currency strategist at Rabobank.
The fortunes of Sterling were almost instantly reversed on Wednesday as the Pound fell by 1 percent against the Dollar following the news that BoE lowered its expectation for annual GDP growth to around 2.0 percent in the last quarter of 2011. In May, it had forecast 2.47 percent growth by the end of the year. Investors, appearing very fickle following comments earlier in the week took the news and headed straight back to the relative ‘safely’ of the US Dollar and out of Sterling.
Following the release of the inflation report, BoE Governor Mervyn King suggested that monetary policy would remain ultra loose with interest rates being kept at a record low of 0.5 percent for some time as the global economy is slowing. It is widely expected that interest rates will be kept on hold now until the end of next year.
Mervin King went on to say that adding to the BoE’s asset-buying programme would be a possibility if the economic outlook deteriorated, but suggested that more quantitative easing may not be imminent. Despite the markets ending the week more stable than they started and with the stock market recovering somewhat, the global market’s future is far from predictable. Gold remains at near record levels and this is for good reason – no one is quite sure what will happen next.
Will we will drop from this seeming precipice into another full scale recession or will we be able claw our way slowly back to growth? All this uncertainty leaves the Cable notoriously difficult to predict. UK retail sales and US inflation data are just two of the releases this week which have the potential to see Cable move significantly – Speak to your FCG account manager for up to the minute market data and ensure that you capitalise on your gains whilst protecting yourself against negative market movement.
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Weekly Economic Data that may affect exchange rates
Monday – There is no data of note from the UK or EU. There is some trade flow data from the US, which is looked at as an indicator of the trade deficit.
Tuesday – We start in the EU, where we have GDP figures from Germany, Europe’s largest economy. There are also GDP figures for the EU as a whole, in addition to EU Trade Balance. From the UK we have inflation data (Consumer Price Index). From the USA we will see the latest measures of Industrial Production and Housing Starts.
Wednesday – Various unemployment measures are released for the UK today, and we also have the minutes to the latest Bank of England (BoE) decision to hold interest rates. Any mention of Quantitative Easing could weaken Sterling. From the Eurozone, there are Consumer Price Index figures, which if high could strengthen the Euro. From the US there are also inflation numbers released in the afternoon, along with mortgage approvals.
Thursday – Today’s UK data is Retail Sales, which are a barometer of consumer confidence. From the USA we have unemployment figures, Jobless Claims and Home Sales. There are no major releases from the EU today.
Friday – We end the week with Public Sector borrowing from the UK, and further inflation figures from Germany.