Weekly GBP/EUR & GBP/USD round-up, and weekly data

Monday 19th September 2011

Good morning. It’s Monday morning, so let’s take stock of movements in GBP/EUR and GBP/USD over the last weeks trading, in our Monday weekly round-up. In this week’s Report:

• Central Banks in Co-Coordinated move
• GBP/EUR falls from 6 month high
• GBP/USD remains near 8 month low
• 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;

Monday morning saw the GBP/EUR reach a six month high of 1.1720 (interbank). As the week progressed, trading rates returned to a more familiar level of around 1.14+ as we have seen over the last couple of weeks.

Speculation of the possible downgrade of French banks at the beginning of the week saw the rates increase. This was shown when the Credit Rating agency Moody’s downgraded two French banks after reviewing their exposure to Greek debt. Credit Agricole was cut from Aa1 to Aa2 and Societe Generale from Aa2 to Aa3. A third bank, BNP Paribas, is being kept on review for a possible downgrade.

You would assume that this news would weaken the Euro, but as we are so closely tied to the single currency, it has seen the GBP get caught up in the problems.

Confidence in the Eurozone was further shaken by the resignation of Jurgen Stark the chief economist of the European Central Bank. Stark resigned over his opposition to the ECB’s bond-buying program, representing turmoil in the ECB with one of their key members walking out.

As the week progressed five of the World’s central banks announced a move to help resolve the Eurozone financial situation. The Federal Reserve, Bank of England, European Central Bank, Bank of Japan and Swiss National Bank will provide additional lending, and follows the fears about the exposure of banks in the EU and the potential collapse of the Eurozone during the debt crisis.

The leaders of France and Germany met late in the week and in put some confidence back into the Euro stating that Greece is an “integral” part of the Eurozone. Mrs Merkel and Mr Sarkozy said in a joint statement: “Putting into place commitments of the (bailout) programme is essential for the Greek economy to return to a path of lasting and balanced growth.”
This strengthened the Euro and pushed rates back down from the highs we saw at the beginning of the week.

As we have seen over the last few weeks, the continued volatility in the foreign exchange markets have provided huge swings in the exchange rate. With all the economic uncertainties across the world, exchange rates are likely to remain extremely choppy over the next few weeks, therefore if you are buying or selling Euro’s in the next 6 months, contact us today for a free consultation.

Do you need to buy or sell Euros? Send us an enquiry now.

Sterling vs. US Dollar;

As the chart belows clearly shows, rates to buy US Dollars have been in steep decline over the last month. This reversed slightly last week, when we saw the world’s main central banks announce joint action to provide Dollar liquidity, aimed at securing the funding needs of banks struggling to meet them in the market.

Sterling slipped against the Dollar on Friday to trade within sight of 8 month lows, hit by signs that Bank of England officials were edging closer to more UK monetary stimulus, as investors watched events in the Eurozone closely. “The QE discussion is gaining momentum in the UK and is likely to keep GBP under pressure,” said Morgan Stanley analysts in a note.

Sterling was down on Thursday in reaction to the co-ordinated central bank announcement. Markets expect interest rates to remain around historic lows at least until the end of 2012, with some further easing of policy also being factored in.

Manufacturing data from the US yet again disappointed to the downside with Empire state manufacturing and the Philly fed both posting negative readings in August. The data was virtually ignored by equity markets but with unemployment remaining persistently high in the US, traders cannot be too confident of a global recovery getting back on track. Not a single job was created in August and this is the first time that has happened since 1945.

A story of note from last week revealed that more than £4 billion was wiped off UBS shares as losses of $2 billion were uncovered stemming from trades put on by a trader in their London office. After Nick Leeson and Jerôme Kerviel, it seems that another ‘rogue’ trader is about to enter the banking history books. This time it’s the turn of the Nottingham University educated, Kweku Adoboli.

The bank has not announced where the losses were made, but there is speculation that it could have stemmed from trades in the Swiss Franc which moved over 10 cents in a matter of minutes after the SNB announced it was pegging the currency to the Euro. UBS profits will be all but wiped out in Q3 but as the revelation was more company specific, other financial stocks still performed well.

Do you need to buy or sell US Dollars? Send us an enquiry now.

Weekly Economic Data that may affect exchange rates

MondayA very quiet start to the week, with only Nationwide House Prices for the UK. There is also some housing data from the US later in the afternoon.

TuesdayAgain quiet for the UK, with no data of note. In the EU, we see lots of figures from Germany including inflation data, and German and EU economic sentiment surveys. In the US we have an interest rate decision & the FOMC minutes. We also see RBA minutes which could affect GBP/AUD rates.

WednesdayPublic sector borrowing is released today for the UK. This shows the deficit and can affect the value of the Pound. More importantly, we see the BoE minutes to the recent interest rate decision. Watch carefully for any mention of Quantitative Easing being discussed. If so, it could knock the pound significantly. Nothing from the EU today, but from the US later in the day we see various housing figures.

ThursdayCanadian Retail Sales are released at lunchtime, followed by Jobless numbers from the USA. There are no releases from the EU or UK today.

FridayThere is no data of note today.

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