Monday 14th November 2011
Good morning. As usual for a Monday, today I’m going to look at last weeks movements for our two most traded currency pairs GBP/EUR & GBP/USD. We’ll also have a round up of the economic data to watch for that may affect rates for the coming week.
In this week’s Report:
• Pound/Euro rates briefly hit 8 month high
• Italy vote through austerity measures
• EU debt crisis continues to drive exchange rates
• 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 relinquished gains against a broadly recovering euro on last Monday, but its downside was limited as investors considered the pound a safer bet versus the single currency due to political instability in Greece and Italy, which are plagued by debt problems. Rates soared last week to an 8 month high, however the gains were short lived.
Some analysts recommended selling sterling citing recent weak UK survey indicators and downside risks to the economy that would hamper efforts to reduce the deficit also adding that they expected more quantitative easing from the BoE early next year, “We do not expect any significant turn in the weak sterling trend until there are meaningful improvements in the housing and banking sector, none of which have been seen yet”.
Some in the market considered this a sign that investors expect the pound to fall further, while some analysts argued the figures show there is room for the pound to rise in the near future. Still, few expect significant gains in Sterling. A much stronger than expected UK house price survey last Monday failed to boost sterling much after previous week’s poor UK purchasing managers’ surveys on manufacturing and services highlighted the risk of recession.
Key Mid-week economic data from the UK turned out a bit of a non-event as the BoE decided to keep record low interest rates on hold at 0.5% and refrained from adding further QE for the time being. Despite domestic economic threats GBP/EUR rates hit an eight-month high as Italy’s growing debt problems continued to hit the single currency. Rates rose to €1.1780, their highest since late February, and analysts suggest sterling’s outlook versus the single currency continued to hinge on developments in the euro zone debt crisis.
To wrap up the week Sterling dropped some of its gains against the euro as focus remained on developments within the euro zone where Italy voted on austerity measures in a bid to convince European officials and bond markets that it can address its fiscal problems. After winning support in the Italian senate, the vote meant Prime Minister Silvio Berlusconi had to step aside for a new unity government. That prospect drove investors to unwind some of their bearish bets against the euro, lifting the shared currency versus Sterling and off the 8 month highs.
By and large last week was pretty good week for Sterling/Euro rates, and those who took advantage of its spike vs. the Euro, however volatility and uncertainty continue to surround the currency pair with developments in the Eurozone debt crisis acting as both friend and foe. At this stage Sterling isn’t too far off the 8 month highs and FWD buying Euro’s could still a viable and prudent option.
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Sterling vs. US Dollar;
Sterling had somewhat of a Jekyll and Hyde week last week. Whilst the Pound saw some major movements on the upside against an increasingly beleaguered Euro, the fortunes of the Sterling against the Greenback were almost exactly the opposite with very little movement all week long – and what little movement there was pushed the pound down against the Dollar.
Whilst the rest of the world focused on Italy and the rest of the Eurozone, the market didn’t seem to notice and react too much that year on year Retail sales in the UK were down 0.6% indicating continued sluggish consumption in the UK, prompting fears that this trend may continue to hinder British economic performance moving forward. However, on the upside for the UK the ‘National Institute of Economic and Social Research’ said on Tuesday that growth in the UK held steady at 0.5% for the 3 months to October calming speculation that the UK is heading towards another recession.
However, concerns about a very fragile recovery remained as data showed industrial output flatlined despite a modest rise in manufacturing. As expected, the Bank of England voted to keep interest rates at a record low 0.5% on Thursday and opted not to raise the amount set aside for the quantitative easing programme. Following the announcement Sterling edged slightly lower against Cable, however this was perhaps more to do with problems in the Eurozone which pushed more global funds out of other currencies and into the Greenback which is universally regarded as the world’s safe haven currency.
This Dollar strength naturally put pressure on Sterling which fundamentally still remains a relatively weak world currency, although perhaps not as weak as the Euro last week. Next week there is a raft of US and Anglo data released throughout the week although it is likely that again all eyes within the market will remain fixed on the Eurozone to see whether the crisis settles with a new Greek Premier in place and the probable exit of Berlusconi and new austerity measures implemented.
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Weekly Economic Data that may affect exchange rates
Monday – A quiet start to the week, with the only data of note coming from the Eurozone in the shape of Industrial Production figures.
Tuesday – UK data today includes the Retail Price Index and Consumer Price index. In the EU we see GDP figures from Germany and the EU, and Economic sentiment survey from Germany and the EU, and EU Trade Balance figures. In the USA we see Retail Prices & Inflation data.
Wednesday – Unemployment figures from the UK today could affect Sterling. EU inflation figures may impact future EU interest rate decisions. In the USA we have various inflationary measures. There are also inflation figures from New Zealand today that could affect GBP/NZD rates.
Thursday – Today the UK releases Retail Sales figures. The US has various measures of jobless claims and unemployment.
Friday – We end the week with Canadian Inflation figures, and Producer Price Index data from Germany.
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