Monday 3rd October 2011
Good morning. As always on a Monday, I have my weekly round up of GBP/EUR and GBP/USD. Let’s find out why Sterling vs Euro rates are going up October 2011, and when to get the best exchange rates for purchasing property abroad.
In this week’s Report:
• Euro weakens on EU debt crisis, pushing GBP/EUR rates up
• Sterling vulnerable to fall due to possible QE this week
• Sterling dollar rates hit 1 week 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;
Last week we saw GBP/EUR trade comfortably above the €1.16 level (Interbank), its strongest for the past two weeks. This was due to the continued trouble in the Eurozone with Greece and the continued talk of a rescue package dominating the news. On Friday afternoon rates climbed above €1.16 and are now quite close to the best in 6 months.
The reason for the weak Euro is the ongoing debt crisis. A Greek default “now seems unavoidable”, according to analysts. Quarterly Eurozone Forecasts also show that the chance of recession in the euro bloc has increased sharply. The key question is when will Greece default and how it will be managed.
Authorities have been slow in trying to tackle the problems facing Greece, Ireland and Portugal. It was hoped that the rescue package for Greece announced in July would bring to an end the long period of indecision and uncertainty.”
The Eurozone sovereign-debt crisis also shows no sign of improving. As well as a Greek default, it has been reported there is a 35% chance of the Eurozone economy slipping back into recession. Experts have predicted that gross domestic product in the euro area may rise by 1.6% this year, instead of 2% forecast previously, before slowing to 1.1% growth rate in 2012.
So with uncertainty continuing to cloud the Eurozone, the single currency has weakened and helped drag GBP/EUR rates up. However it’s important to note that the issues in the EU are now mostly priced into the market, so a continued upwards trend in the GBP/EUR rate seems unlikely, especially as analysts are warning that Sterling could weaken this coming week.
With the Bank of England meeting this week to discuss Interest Rates it continues to be a volatile time for Sterling. If talk of more Quantitative Easing (QE) is seen at the meeting on Thursday this week, we could see the Pound lose ground against the Euro. QE would flood the market with Sterling and weaken the currency, pulling Sterling exchange rates back down.
So if you need to buy Euros now could potentially be a good time to fix a rate. Even if you don’t need your currency for some time, you can use a forward contract to secure your rate for up to two years in advance. This will allow you benefit from the six month high and protect you against adverse exchange rate movements, and only lodge 10% of the total you want to convert.
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Sterling vs. US Dollar;
Weakness in the US dollar and a recovery in risk appetite aided sterling during the course of last Monday, as markets mulled over the results of the latest meeting in Washington, with another batch of poor economic data released from the world’s largest economy. The Sterling Dollar exchange rate climbed steadily throughout the day, ending the day at 1.55. This all came despite further dovish comments from MPC board member Broadbent, saying that the bank’s previous tolerance of high inflation was justified, and that more asset purchases would, even now, help the banking system and boost nominal growth.
Tuesday saw the release of September’s CBI reported sales number, reporting a drop from -14 to -15. However, this did little to weaken the Pound and, for the second day running, Sterling closed higher against the Dollar, as the Greenback still faced strong headwinds after the release of poor economic data on Monday.
In converse to the previous days’ trend, Sterling fell slightly against the Dollar mid-week, the Dollar making a slight pull-back after three days of losses. This was despite very disappointing durable goods orders numbers for August, which showed a huge drop in the index reading. The US Dollar may have benefited from the lack of agreement to a decision for refinancing in Europe, to aid the debt woes in Greece and other struggling nations, its status as a safe-haven currency helping it in times of market panic.
The Pound ended Thursday practically unchanged against the Dollar in the foreign exchange market, before falling away through the night. There was some positive economic data released from the UK on Thursday, with August’s mortgage approvals showing a good increase. Net consumer credit figures also showed a positive increase, suggesting that borrowing conditions for consumers are more favourable, and should benefit economic growth with more money able to flow through the economy; albeit it borrowed.
Despite positive figures released in the UK on Thursday, the Pound ended Friday slightly down on the dollar. After opening at 1.5676. the Pound closed at around the 1.56 mark. However, sterling was up on last Friday’s closing figure, gaining nearly 1% against the Greenback over the course of the week.
Do you need to buy US Dollars? Send me an enquiry now.
Weekly Economic Data that may affect exchange rates
Monday – Inflation data is released for the UK and Eurozone today, which can impact future interest rate movements and affect exchange rates. In the USA figures are released showing manufacturing and construction, and there is a speech by the Federal Reserve.
Tuesday – House price data is the only UK release of note. In the EU we have another round of inflation data. There are also Factory order numbers from the USA.
Wednesday – Yet another round of inflation data, this time for Germany and the UK. We also have UK GDP numbers, which will show how the economy is faring and is likely to affect Sterling exchange rates. In the Eurozone there are Retail Sales numbers. USA mortgage approvals and Employment numbers are released at lunchtime.
Thursday – Interest rate day for the EU and UK. We don’t expect any change to interest rates, but markets will be watching very closely indeed for any Quantitative Easing for the UK. If so expect a sharp decline in Sterling exchange rates. There are also some jobless numbers from the USA.
Friday – Another round of inflation numbers for the UK today, this time the Producer Price Index. We will also see the latest non-farm payrolls data from the USA. These numbers are usually quite different than forecast and so can cause volatility for GBP/USD.
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