Weekly GBP/EUR & GBP/USD and the weeks data

Monday 5th December 2011
Good morning. So, the start of another week and as usual today I will give a detailed outlook of recent movements in Sterling/Euro, Sterling/US Dollar, and a round up of the weeks economic data that could affect exchange rates.

In this week’s Report:

• Global Central Banks in Co-Ordinated move
• Chancellors budget statement gives Sterling strength
• Riskier currencies benefit from Central Bank move

• 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 saw the volatility of the currency markets continue. At the start of the week we saw Sterling lose ground against the Euro, with markets waiting in anticipation for George Osborne to update the country on the state on the UK economy and the government’s future plans in his autumn statement. Despite Mr Osborne’s announcement of slower growth and tough austerity measures the markets reacted positively and the GBP/EUR was pushing back toward the €1.17 level.

However the gains did not last long, with the sudden announcement that six central banks led by the Federal Reserve made it cheaper for banks to borrow dollars in emergencies in a global effort to ease Europe’s sovereign-debt crisis. This was in response to increased tension in global financial markets. Almost immediately the GBP/EUR rate fell by 1%.

The cost for European banks to borrow dollars dropped from the highest in three years, amid continued concerns about the euro’s worsening debt crisis. Two hours before the Fed announcement, China cut the amount of cash that the nation’s banks must set aside as reserves for the first time since 2008.

“The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” the Fed statement said.

As rates stabilised towards the end of the week, there still seems to be no end in sight for the troubled Eurozone. Friday saw German Chancellor Angela Merkel make a keynote speech and said Europe is working towards setting up a “fiscal union”, in an effort to resolve the Eurozone’s debt crisis. She went on to say an EU treaty was needed to set up such a union and impose financial discipline.

So in summary, rates have continued to trade in a €1.16 to €1.1730 range, as global economic uncertainty continues. It’s worth noting however that rates are still significantly higher than just a few months ago, and not far from a 9 month high.

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Sterling vs. US Dollar;

The start of last week saw disappointing data released from the UK , with CBI reported sales figures for November showing a sharp decline and net consumer credit figures also dropping sharply. Conversely, we had a few positive batches of data released across the pond, with a huge increase in US consumer confidence for November and a slight rise in new home sales in October.

Despite this, the Pound actually made gains against the Dollar over Monday and Tuesday. As is often the case, strong US data influenced investor’s risk sentiment, encouraging a move away from the safe-haven of the US dollar and into riskier assets, weakening the greenback in the process.

Midweek saw the market make sharp moves upon the announcement that the Federal Reserve along with the European Central Bank, the Bank of England and the central banks of Japan, Switzerland and Canada would make it cheaper for the banks to borrow dollars, providing further liquidity in the market and easing the mounting pressure in the Eurozone. Consequently, the GBP/USD showed a good advance with mid-market rates moving up from 1.5567 to close Wednesday at 1.5706. To put this into perspective, a typical purchase of $200,000 would have seen a £1137 variation in price.

Although Sterling had gained against the Dollar it remained vulnerable as concerns increased about the state of the UK economy after data released on Thursday showed that the manufacturing sector contracted for a second successive month. The UK PMI reading fell to 47.6 in November, its lowest level since June 2009. This caused GBP/USD to bounce around and investors were sceptical that the rally on the back of the coordinated central bank action was sustainable.

Positive data out of the US on Friday strengthened the Dollar against Sterling, pushing GBP/USD rates lower, after it was announced that unemployment had fallen by 0.4%. All in all, it was a choppy week’s trading, with investors quick to book profits on sharp spikes for fear of the next negative headline out of Europe.

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Weekly Economic Data that may affect exchange rates

Monday It’s a quiet start to the week in terms of UK data, with only Inflation data being released today. From the Eurozone we have some inflation numbers, Retail Sales figures, and measures of investor confidence. I the USA Durable Goods Orders are released, in addition to manufacturing production.

Tuesday Again very quiet today for the UK, with only Retail Sales being released. Canada and Australia have an interest rate decision. Germany releases Factory Order data, and the USA has measures of economic optimism.

Wednesday Australia has GDP figures released this morning. UK data comprises of Industrial and Manufacturing production. New Zealand announces their latest decision on interest rates.

Thursday Earlier in the week we saw interest rate decisions for New Zealand, Canada and Australia – today is the turn of the UK and EU. They will announce any change in interest rates, and whether they will pursue any Quantitative Easing. It could be a volatile day for GBP/EUR rates. Later in the day, the USA released various jobless and employment numbers.
Friday A busy end to the week for the UK, with Inflation data and Trade balance figures being released. Germany also has inflation data, and the USA releases consumer sentiment measures.

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