Monday 20th February 2012
Good morning. As always on a Monday, today I will take a detailed look at movements in the last week against Pound/Euro, Pound/Dollar and the forecast for what might happen with exchange rates this week, in addition to the weeks economic data that might move the markets.
In this week’s Report:
- Key deadline on Greek bailout today
- BoE Inflation Report strengthens Pound
- Forecast for GBP/EUR and GBP/USD
- 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;
Sterling finished in a strong position last week against the Euro following better than expected retail sales and nervousness amongst investors over whether the long awaited Greek Bailout will be approved.
The Euro was also on the back foot on Friday following the resignation of the German President Christian Wulff. He was forced to resign after prosecutors asked for his immunity to be lifted as part of a corruption investigation. Whilst Chancellor Merkel played down the significance of his departure, it was significant enough for her to cancel a trip to meet the Italian Premier today ahead to the Greek bailout decision on Monday – which incidentally is deeply unpopular and controversial in Germany.
Movements in sterling have been dominated by developments in Greece recently, with the pound outperforming the Euro. Greece now expects Euro zone finance ministers to approve a deal on Monday that will pave the way to a debt swap with private bondholders, seen as crucial if the country is to avoid a disorderly default.
Earlier in the week the Pound drew support from the Bank of England’s decision to keep interest rates on hold again and also the latest inflation report which dampened expectations of further monetary stimulus. But gains were limited as BoE Governor Mervyn King said there were still downside risks to a UK economic recovery given the tight fiscal conditions at home and weakness in Britain’s major trading partners such as the Eurozone.
The BOE raised its two-year inflation forecast to around 1.8 %, higher than the expectation of most economists. The lower inflation expectations had been keeping alive prospects of it further quantitative easing. More QE usually has an adverse impact on the strength of the currency and so therefore this news bolstered the Pound.
All eyes will be on Greece heading into the new week and whether the bailout will be approved. An approval, despite its austere implications to the people of Greece will offer the markets some certainty and may see the Euro strengthen against the Pound. Send me a free enquiry now and discuss your options to protect yourself against any unwelcome market movement. A ‘Stop-Loss’ order can limit any losses to you in a falling market yet keep your position open for you to capitalise should the market do the opposite and move in your favour.
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Sterling vs. US Dollar;
It was a choppy week for the GBP/USD cross with rates moving between the $1.56 level and reaching highs of just below $1.59 on the mid-market.
The main factor behind the early week lows was the threat of a downgrade of the UK’s AAA credit rating by the credit rating agency Moody’s. This was due to a combination of weak growth and also due to the UK’s exposure to the Euro zone debt crisis. There was also key data released which showed that unemployment rose by 48,000 to 2.67 million in the three months to December, official figures have shown, the smallest rise in almost a year.
However, the number of claimants was nearly double the forecast. The rise in unemployment had been forecast because there is simply no growth. With this in mind, Sterling still took a hit pushing down into the $1.56 region against the Dollar.
The pound gained momentum after comments from BOE Chief Mervyn King regarding the interest rates being kept on hold and prediction of no further stimulus in the UK. This positive news for the pound was also coupled with a rise in retail sales which rose 0.9% in January compared with December, according to the latest figures from the Office for National Statistics (ONS). The figure was much stronger than forecast as many economists had expected sales volumes to fall.
Everything surrounding the future of where rates are heading depends on the outcome in Europe. With an announcement on new bailout due to be released today, it will be interesting to see what the outcome holds for Sterling and the Dollar.
If approved it could well see a flight from safety and see the dollar strengthen against the pound. A flight to safety is when global investors worry about economic uncertainty and flock to the ‘safe haven’ status of the US Dollar. This in turn strengthens it and makes it more expensive to buy, pushing the exchange rate lower. This could be reversed should a bailout be agreed today, and this in turn may push GBP/USD lower.
With so much movement between the GBP/USD timing is essential when buying or selling currency. By clicking here and making a free enquiry you can have a free consultation to help you make an informed decision as to when you make your move.
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Weekly Economic Data that may affect exchange rates
Monday – Markets will be very quiet for fundamental data today as the US is closed for President’s Day. This by no means mean the currency markets will be stagnant however, as today we expect the Greek bailout vote to be agreed by the EU, which is likely to have a big impact on exchange rates. The only fundamental data of note is UK House Price info and the RBA minutes from Australia.
Tuesday – Markets will continue to react to yesterday’s Greek bailout decision. We also see UK Public sector borrowing, Consumer Confidence measures from the EU, and Retail Sales from Canada.
Wednesday – A key day, as we will see the BoE minutes from the recent decision to increase QE. The discussion notes and votes often impact GBP. In the EU there are various inflation numbers from Germany and the whole EU. In the USA, Home Sales and mortgage applications are the main releases.
Thursday – Today in the UK we see the latest mortgage approval numbers showing the health of the housing market. There is also a UK Industrial Trend Survey. In the Eurozone there are some German Confidence measures. Stateside we have Housing Prices and Jobless claims.
Friday – Another key day for the currency markets. There is the G20 meeting which could affect exchange rates. Germany and the UK both release Gross Domestic Product figures; these often have a big impact on the value of a countries currency. In the USA we see home sales and consumer sentiment.
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