Monday 30th January 2012
Good morning. Another Monday, so let’s start the week with a full breakdown of the last weeks movements in the currency markets.
In this week’s Report:
• Pound/Euro hits 4 week low
• Sterling/Dollar rises to 5 week high
• UK headed back to recession, more QE on the way
• 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;
Last week saw the volatility continue in the currency markets as Sterling dropped to a 4 week low against the Euro. With the UK economy shrinking by 0.2% in the last quarter of 2011 and poor UK retail data being released, Sterling fell away from the €1.20 highs we have seen over the last few weeks. One of the only positives for the UK was the news from the BoE (Bank of England) that all 9 members had voted against more QE which lent some valuable to support to the pound. There were also some positive sounds coming from Greece as leaders met Private Creditors to look at reducing Greece’s rising debt levels.
Official Figures released last week showed that the UK economic activity shrank by 0.2% in the last three months of 2011 compared to the 0.6% increase we saw at the end of the third quarter. Chancellor, George Osborne, said the figures were disappointing but not a surprise. “They are not entirely unexpected because of what’s happening in the world and what’s happening in the Eurozone crisis,” he said. “The truth is that dealing with those problems is made more difficult by the situation in the Eurozone.”
Retail sales fell in January as shoppers reined in their spending at the start of the year, the CBI says. Its monthly survey found 44% of retailers said sales volumes were down on a year ago. Ian McCafferty, the CBI’s chief economic adviser, said: “Shoppers have reined in spending across the board at the start of the New Year after taking advantage of early discounting last month, which boosted pre-Christmas sales.” He added that poor sales were likely to lead to further falls in the rate of inflation.
Key talks between Athens and its private creditors took place last week as they try to agree a debt write-off that would dramatically reduce Greece’s debt levels. If an agreement can be reached, Greece is in line to receive 130bn euros in additional bailout funds. Without the latest bailout package Greece would struggle to repay 14.5bn euros of loan repayments that are due in March. The agreement would see Greece’s debts dramatically reduced by half to its private creditors.
With the GBP/EUR rate falling this week we have seen a rise in the number of stop losses placed with our brokers and banks. This is where clients look to protect themselves against any adverse exchange rate movements. E.g. you can place a Stop Loss order to buy your Euros should they drop below a pre agreed level – for example €1.15. In this way you can continue to take advantage of gains in the rate, but have a ‘worst case scenario’ should the market move against you. To put this into prospective if you did not have a stop lose in place and the rate dropped to where it was just a few months ago, purchasing €200,000 would cost you nearly £10,000 more.
Sterling vs. US Dollar;
Last week saw a complete reversal in Cable’s fortunes after GBPUSD rates went from an 18 month low to a 5 week high. The Pound began gaining against the Dollar as talks of a Greek bailout package put pressure on the Greenback as risk appetite increased, although any gains made were moderated by concerns over another round of Quantitative Easing in the UK. It’s expected that the Bank of England will announce that it will buy billions of Pounds worth of gilts as early as next month.
“Sterling/dollar has been weak in the last month, primarily because of the weakness of the euro but also because of evidence of renewed UK economic weakness,” analysts at Lloyds said, adding that the run-up to any announcement of further QE was typically negative for the pound.
Sterling briefly suffered losses against the Dollar midweek as data released showed Britain’s economy contracted in the fourth quarter, shrinking by 0.2%, below the consensus forecast of a 0.1% contraction. Growth for the whole year was just 0.9 percent, less than half the expansion recorded in 2010. The Pound’s losses midweek were only temporary however, as the U.S. currency came under broad selling pressure after the U.S. Federal Reserve announced that it would keep interest rates near zero until late 2014 and may opt for more stimulus.
In light of this, sterling rose to $1.5719 (Interbank), its strongest since Dec. 22.
Although Sterling made gains of around 2% against the Dollar last week, market participants said these gains could be only temporary in nature. “Our view is still that this period of dollar weakness we’ve seen this year will prove temporary so we’re not looking for cable to break back into the $1.60s,” said Lee Hardman, currency strategist at BTM-UFJ. “Maybe the market is getting ahead of itself in terms of anticipating QE3, that does create some scope for disappointment which could help the dollar regain some lost ground in the coming month,” he added.
To put last week’s gains into perspective, a typical purchase of $400,000 would have cost around £3010 less on Friday than if it had been bought on Monday. To take advantage of the recent gains, contact your dedicated account manager at Foremost Currency and take the first step to making the most of your currency.
If you need to buy or sell US Dollar, send me a free enquiry now.
Weekly Economic Data that may affect exchange rates
Monday – There are no UK releases of note today. In the EU however we have German Inflation Data (which can impact interest rates) and Retail Sales (which reflect consumer confidence). In the USA we see Personal Consumption & Personal Income data.
Tuesday – Starting in the UK we have Consumer Credit, Mortgage Approvals and Net Lending. Of more importance will be the EU unemployment figures released at 10am. In the afternoon we see Canadian GDP and Industrial Prices, and in the USA we see inflation data and a measure of consumer confidence.
Wednesday – Today Nationwide releases its house price data for the UK, which reflect the national economy as a whole. In the EU there are various releases of inflation for both Germany and the EU as a whole. In the states there are Mortgage Approvals, Manufacturing data, Employment Numbers and Car Sales data.
Thursday – We’ll start down under today – Australia has Building permits, Commodity prices and Trade Balance figures – if good this could push GBP/AUD even lower than it already is. The UK releases its PPI data this morning also. In the Eurozone there are also inflation figures. In the USA there are some important releases – Jobless Claims, Labour costs and Nonfarm productivity.
Friday – We end the week with more UK House price info, this time from the Halifax. There are also further inflation numbers to add to those released earlier in the week. The Eurozone also has further inflation numbers and Retail Sales. Across the pond, we have Non-Farm Payrolls and Unemployment data – both of which often affect GBP/USD rates.
If you need to buy or sell foreign currency, click below now to send us an enquiry for free. Our exhange rates are up to 5% better than offered by banks. Take the first step to making the most of your currency now.