Monday 22nd August 2011
Good morning. As regular readers will know, on a Monday we take stock of the last weeks movements in Pound vs Euro and Pound vs US Dollar. In this week’s Report:
• Sterling hovers near 12-week high vs. struggling euro
• Scope for Sterling gains seen as limited due to weak UK economy
• GBP/USD rates close to 2 year 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;
Sterling hovered near a 12-week high against the euro towards the end of last week, as concerns about a worsening euro zone debt crisis dented the single currency. Mounting fears of a global recession and concerns about stresses facing some European banks caused European stocks to fall 2.6 %, extending a steep decline that continued throughout the week.
Analysts said sterling has benefited to an extent from the troubles besetting the euro, though its scope for gains was expected to be limited due to recent evidence of a sluggish UK economy. The euro was down 0.1 % by Thursday last week, which placed it not too far from the August 5 low, below which would mark its weakest position since late May.
“Given the renewed demand for safe-haven currencies, sterling has fared quite well,” said Michael Derks, strategist at FXPro. “Sterling is the least bad of the big currencies, but economically the country is still completely stuck in neutral”. These comments highlight the fact the gains may be limited.
Data on Thursday showed British retail sales barely grew in July as cash-strapped consumers cut back on spending, underscoring the risks for the UK’s already fragile economic recovery. However, public finance figures on Friday showed that the UK government’s harsh austerity measures are helping to bring down UK debt as intended, which is a welcome sign of progress for the UK economy, albeit only a small glimmer of hope in an ocean of neutrality.
Higher unemployment and rising inflation are expected to continue to restrain consumer spending and, together with signs key British export markets are slowing, increase the risk the UK economy may still fail to pick up. In spite of stubborn inflation, markets expect the Bank of England to keep interest rates on hold until the end of 2012, with possible calls for further quantitative easing to stimulate growth. This will mean that although the economy may be quietly strengthening, it may not be reflected on the currency markets for quite some time, with further QE likely to be interpreted by investors as a sign of weakness for Sterling.
So, with exchange rates close to a 3 month high, and fears Sterling could slip back away due to poor economic conditions in the UK, those that need to purchase Euros within the next 6 months should contact us now to discuss how we can help protect against the market dropping.
Do you need best exchange rates to buy or sell Euros? Send us a free enquiry now.
Sterling vs. US Dollar;
Last week the GBP/USD got very close to a two year high which was mainly due to a batch of poor US data showing a plunge in factory activity in the U.S. mid-Atlantic region. Concerns about the UK recovery and the chance of monetary easing are expected to keep the pound in check. The poor data from the US made the dollar cheaper to buy, and this is why rates climbed against the USD despite dropping against the Euro.
Traders said markets were thin and declining risk appetite was pushing investors back to the dollar in the near-term, but the pound was gaining some support from the perception it was the best of a bad bunch of currencies.
Last week markets across the World dropped, with the biggest fall on the FTSE since the financial crisis began. We saw a flight from risk, where investors were jittery and moved their funds to perceived safe havens. Usually this means the US Dollar and Swiss Franc, however with problems in the US and the Swiss keeping their currency weak, Sterling benefited.
“Despite negative data coming out of the UK suggesting there’s quite a significant cyclical downturn taking place, global investors see the UK as relatively stable from a political and ratings perspective against Europe and the U.S.,” said Ian Stannard, head of European FX strategy at Morgan Stanley.
So Sterling is gaining support from the perception it is the best of a bad bunch of currencies. We have stable credit ratings, political calm and a deficit reduction plan in place. The government’s fiscal austerity programme is also expected to hamper demand in the economy, leaving sterling vulnerable to weakness in the medium term.
Many are questioning the Pounds buoyancy at the moment, as the UK economy is far from healthy. Just last week we had poor Retail Sales figures, higher than expected unemployment, and dovish minutes from the Bank of England. Due to this, many analysts think that these gains will be short lived.
So in summery Sterling vs USD rates got very close to the best they have been in two years, however many analysts do not expect these levels to last for long.
Do you need to buy or sell US Dollars? Send us a free enquiry now.
Weekly Economic Data that may affect exchange rates
Monday – There are no scheduled economic releases today.
Tuesday – UK Mortgage Approvals are released today, showing the health of the UK housing market. Rom the Eurozone we have Inflation Data from Germany, and also Economic Sentiment Surveys from Germany and the EU. Also from the EU, we have measures of consumer confidence that may affect the value of the Euro. In the USA, Home Sales figures are released. Trade Balance figures and Inflation data are released from New Zealand.
Wednesday – Today’s UK data is Nationwide Housing Prices. In the EU we have Industrial New Orders, and Business Climate assessment figures from Germany. In the USA, we have Mortgage Approvals. New Zealand releases Retail Sales.
Thursday – The most important release today are German GDP figures. If poor these could weaken the Euro. In the USA we see Jobless Claims and Unemployment Data.
Friday – After yesterday’s German GDP figures, today is the turn of the UK. This will show at what pace the economy is growing, and is likely to have an impact on the value of Sterling. GDP is also released in the USA in the afternoon, followed by a speech from FED chairman Ben Bernanke.
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