Monday 7th November 2011
Good morning. As regular readers will know, every Monday I take a detailed look at what has happened to exchange rates over the last week, in particular the GBP/EUR cross and GBP/USD cross, and also a detailed outline of economic data releases I think will affect exchange rates.
In this week’s Report:
• EU debt crisis dominates G20 Summit
• Greek turmoil continues – referendum or no referendum?
• ECB in surprise interest rate cut
• 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;
There were fireworks in the currency market last week following the announcement of a Greek referendum on the latest aid package to solve its debt crisis. With a bailout package agreed, the Euro had gained strength against the pound and at the start of the week GBP/EUR was hovering in the high 1.13’s. With the news of the referendum taking place as early as December the gains did not last long, GBP/EUR rocketed back the highs we saw a few weeks ago and for the remainder of the week we saw the rate trading around 1.16:
There was sense of relief last week as EU leaders emerged from late-night talks, hammering out the deal which would write off half of Greece’s debt and give another €100bn to the country in new bailout funds. But in one stroke, that relief turned to panic as the whole agreement was threatened with disaster and markets worldwide plummeted. This was all thanks to the astonishing announcement by Greek Prime Minister Papandreou that a public referendum would be held on whether Greece should accept this latest debt deal.
The announcement was coldly received by German Chancellor Angela Merkel and French President Nicolas Sarkozy, bringing accusations the move would intensify the euro zone crisis.
On Thursday there was news the referendum had now been scrapped, amid calls for Mr Papandreou to resign. The developments have overshadowed a key G20 meeting in Cannes. Eurozone leaders fear that failure to solve the Greek debt crisis could risk it spreading to other vulnerable economies, particularly Italy.
Germany had said a referendum would essentially be a vote on whether Greece wanted to be part of the EU and that the stability of the Eurozone was more important than Greek membership. Last week’s events saw a rise in the number of forward contracts being booked as clients look to take advantage of the unexpected rise.
As we have seen over the last few weeks, the continued volatility in the foreign exchange markets has provided huge swings in the exchange rate. With all the economic uncertainties across the Europe exchange rates are likely to remain extremely unstable over the next few weeks, therefore if you are buying or selling Euros in the next 6 months, contact us today for a free consultation.
Sterling vs. US Dollar;
GBP/USD rates dropped off from what was almost a seven week high on Tuesday with Greece’s shock decision to hold a referendum on an EU bailout. This news pushed investors towards the relative safety of the US Dollar which strengthened causing GBP/USD rates to fall away.
Much of the attention is back at home in the States as Obama’s Democrats battle Republicans to agree deep deficit cuts amid high U.S. unemployment – something that could hold the key to his hopes for re-election next year. For this reason President Barack Obama has ruled out any grand financial gesture for Europe at the moment but backs were raised at the White house during last week from comments made at the G20 summit.
There is a suggestion that U.S. power within the G20 has diminished with the budget woes back home and Europe appear to look toward an economically self-confident China for help. White house aide Michael Froman went on the defensive saying that “Our ability to contribute, our ability to lead and our ability to influence the outcome of these sorts of issues is not tied necessarily to having the American taxpayer pay for every problem,”
Washington has made no suggestion that it might come to Europe’s aid. Instead, the White House argues Europe has the resources to help itself and whilst the U.S economy is the largest in the World, it means that Capital Hill’s views still carry great weight.
Key data was released on Friday with Non-farm payrolls and Unemployment figures published. The U.S. added 80,000 new jobs in October and the unemployment rate fell to a six-month low of 9% from 9.1%. Even though the data was positive for the economy it was less than had been forecast. These figures caused the dollar to only make minimal gains against the pound and analysts agree that job creation needs to be a lot faster to make a dent in the unemployment rate
Last week ended with GBP/USD rates hovering around $1.60 (interbank).
Worries about the fragility of the UK economy continued to weigh heavily on the cross with Sterling unable to gain any real momentum against the dollar. Lee Hardman, currency economist at BTMU said – “It is difficult to envisage it breaking higher when the UK looks like it may be on the verge of recession,”.
The situation continues to hang in the balance with both the U.S and U.K. economies tied in to any sort of resolution in Europe. It is difficult to know what will happen, but what we do know is that timing is essential to making the most of your currency. If you are looking at purchasing or selling currency in the coming weeks, months or years click below to open a free, non-obligation trading facility and let a currency specialist talk you through these volatile times.
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Weekly Economic Data that may affect exchange rates
Monday – EU Retail Sales are released today which reflect how confident consumers are about the economy. Other than that there are some German industrial Production figures. There is no UK data today.
Tuesday – Pretty busy for UK data: Retail Sales, House Prices, Manufacturing Production, Industrial Production and a GDP estimate. So lots today that could affect Sterling exchange rates. Australia releases Trade Balance numbers. From the Eurozone the only release of note is German Trade Balance figures. There are no significant US releases today.
Wednesday – A few bits to watch for from the UK today: BRC Shop Prices, Trade Balance and Goods Balance. The Trade figures in particular could affect the value of the Pound. Not much else of interest today other than some Inflation data from New Zealand.
Thursday – The busiest day of the week for data. Today the Bank of England announces their latest decision on interest rates. They are likely to be left on hold again, but some in the market predict there is a risk they will embark on another round of Quantitative Easing – if so expect GBP rates to fall. In Australia we have employment figures. Germany releases inflation numbers which could drive EU interest rates. In the USA we will see Jobless numbers, a budget statement from FED.
Friday – US Markets are closed for Veterans Day. The UK releases various measures of inflation.
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