Monday 23rd January 2012
Good morning. As always for a Monday, today I will take a retrospective look at last weeks movements in the currency markets, and what this week may hold for the Pound Sterling Forecast against the Euro & US Dollar. Also included is a list of the most important data to watch our for that might affect rates this week.
In this week’s Report:
• Pound/Euro remains range bound at €1.20
• Sterling recovers against weaker US Dollar
• BoE Minutes could signal further QE in February
• Round up of the week’s data that may affect rates
(For currencies other than GBP, EUR and USD, contact us for a consultation)
Sterling vs. Euro;
The start of the last week saw GBP/EUR rates trading around the 1.20 (Interbank) level as all eyes were still on the Euro zone. High UK unemployment figures and the hint of more Quantitative Easing could see a very volatile week ahead of us.
Tuesday’s key data showed a rise in unemployment within the UK and indicated that it had increased steadily through 2011. The number of Britons out of work hit its highest level in more than 17 years, but a much smaller than expected number of new benefit claims in December provided some hope that the labour market downturn may be levelling out.
With the UK government cutting hundreds of thousands of jobs as part of its five-year budget deficit reduction programme, unemployment is expected to keep rising. The private sector is picking up only some of the slack. “While the increase in headline unemployment this month is a negative sign, the strength of the claimant count measure provides evidence of some resilience in the labour market,” said economists at Credit Suisse.
As the cost of living has continued to rise at more than twice the rate of underlying wage growth in the UK more pressure is put on households, hindering and slowing economic growth. The Nationwide have predicted that slowing inflation would help to ease the squeeze on household budgets and aid growth.
BOE minutes this week leave the door open on whether more Quantitative Easing will take place and what was and will be discussed in subsequent meetings. The last time QE was announced Sterling fell significantly and exchange rates dropped across the board. Due to the prediction of QE, it will be partly priced into the market prices already, and the EU debt crisis will also have an impact on the value of the Euro, Pound and US Dollar.
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Sterling vs. US Dollar;
The Pound started last week close to an 18-month low against the US dollar with the news that a handful of countries in the Eurozone had their credit ratings downgraded several days previously.
Britain’s economy has remained fairly stagnant over the past five months. A survey showed UK consumer confidence dropped close to its lowest level in seven years in December, adding to worries about a fragile UK economy. Recent weak UK data, including lower inflation numbers, have added to expectations the BoE will increase asset purchases under its quantitative easing programme next month. Caution will persist until news emerges from Greece, where the government and private bondholders are locked in negotiations about the size of any haircut on Greek debt.
This is the main reason that the dollar is so strong against the pound and the rates are sitting where they are. As stated above rates to buy Dollars are currently around an 18 month low, as the US currency appears very strong at the moment. This is nothing to do with any positive US economic data – it’s simply the case that the USD is a safe haven currency, and with all the well-publicised problems in Europe and the UK, it’s an attractive option at the moment.
The Pound pushed a little higher against the US Dollar at the end of the week, with gains after solid demand at a Spanish debt auction. Spain sold 6.61 billion euros of government bonds which was more than its announced target, in an auction that analysts said went well. This caused flows away from the US Dollar, weakening it and pushing rates up slightly, as the chart above shows.
US jobless claims released at the end of last week dropped to a new four-year low, which slightly dented the greenback’s safe-haven status and boosted the pound. The rates ended the week around 1.5520 on the interbank. This is a swing of around 1.5% throughout the week; meaning that you’re currency would have cost significantly more had you bought on Monday, instead of Friday. It is important to keep in touch with your account manager at the FCG so that they can give you the benefit of their experience and help you make the most of your currency.
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Weekly Economic Data that may affect exchange rates
Monday – We have a very quiet start to the week, with no UK data of note. The only EU release is a measure of consumer confidence at 3pm. The other data is from Australia where we will see the latest measure of inflation.
Tuesday – Today is a little busier, with figures showing the latest UK Public Sector borrowing. In the Eurozone there are some inflation measures, and data showing Industrial New Orders. Across the pond we will see US Manufacturing data, and Canada releases Retail Sales which show how confident consumers are about the economy.
Wednesday – This will be the most important day of the week for Data. At 09:30am we will see the latest BoE minutes from their recent decision to hold rates and QE. These will show what was discussed, and who voted for what. Should this indicate further QE is likely next month Sterling could be affected. At the same time, UK GDP figures are released, which will show if the economy is growing, and at what pace. We also have the FOMC minutes from the USA, followed by an interest rate decision in both the USA and New Zealand.
Thursday – Today Germany releases its latest consumer confidence measures. In the USA there is a host of data including Jobless Claims & New Home Sales. New Zealand releases Trade Balance figures in the evening.
Friday – We end the week with Consumer Confidence figures for the UK, Money Supply data from the Eurozone, and the USA releases its latest GDP figures in addition to a measure of Consumer Sentiment.
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