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

Monday 5th March 2012
Good morning. Last week the Pound surged against the Euro, close to a 19 month high. As usual for a Monday, today I will take stock of what moved the market last week, the outlook and Pound Sterling Forecast for Pound Euro rates March 2012. Today I will purely focus on this currency pair, in addition to a breakdown of the weeks data that I think will affect exchange rates.

In this week’s Report:

  • Bank of England comments strengthen Sterling
  • ECB Start LTRO; find out what this means for rates
  • Pound/Euro forecast for March/April 2012
  • Round up of the week’s data that may affect levels

(For currencies other than GBP, EUR and USD, contact us for a consultation)

Sterling vs. Euro;

The Pound had a very good run against the Euro last week gaining over 2 cents from where it started on Monday morning due to the scaling back of expectations of more Quantitative Easing (QE) from the Bank of England, and the European Central Bank pumping more cash into their banking system. The data earlier in the week was pretty mixed and the Sterling/Euro pair traded in a very tight range of around ½ a cent.

It was Wednesday when the rate started to increase as the ECB started a liquidity operation known as a LTRO (Longer-Term Refinancing Operation) that enabled Eurozone banks to borrow an unlimited amount of medium term debt at a subsidised rate. Also earlier in the day we heard that Standard & Poor’s, one of the big ratings agencies, had downgraded Greece’s credit rating.

The figures from the LTRO showed that 800 Eurozone banks took advantage of the subsidised debt on offer by borrowing EUR 529.3bn up from the last auction in December when only 523 banks went in for funds. For the Eurozone this will hopefully mean that participating banks will be able to cover their funding needs in the short term and relieve some pressures on the EU banking system.

We also saw that the Euro area unemployment rate had edged up slightly in January which put more of a squeeze on the single currency but it wasn’t all plain sailing for the Pound either. We have seen mixed data from the UK over the last few weeks and on Thursday UK manufacturing PMI dropped to 51.2 in February (50 is the level that divides expansion from contraction) showing that the recent improvement in manufacturing may be losing pace. While this isn’t disastrous, if the more important service sector PMI due on Monday follows suit then we could see the Pound come under some pressure.

There is expectation that the Greek bailout package is close to being approved and according to press reports, officials are expected to meet again on Friday to give a final sign-off so that may give the Euro some support.

What will move exchange rates in the coming months?

All in all there are a multitude of factors that will continue to affect the GBP/EUR cross over the coming months; the “will they/wont they” argument about QE in the UK, whether or not the UK economy is really back on track, further Eurozone downgrades for economies and banks alike, and the continuing debt crisis in Europe to mention but a few of the main ones.

Whatever happens over the next couple of weeks, we still expect mid-market rates to remain range-bound between 1.175 & 1.205 which may not sound like much of change but when put into perspective on a €250,000 purchase, it can make a difference of over £5,000.

Getting the best exchange rates

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Weekly Economic Data that may affect exchange rates

Monday Today’s UK data comprises Halifax House prices and Inflation data. In the Eurozone there are also inflation numbers that may affect future interest rate movements. We also see EU Retail Sales showing how confident consumers are about the economy. Elsewhere, there are some Factory and Manufacturing numbers from the USA.

Tuesday The only UK data today is the BRC Retail Sales Monitor. If more importance will be the latest EU GDP figures, so expect a choppy day for GBP/EUR rates. In Australia there is an interest rate decision; no change is expected but the RBA has surprised us in the recent past.

Wednesday More GDP figures today, this time from down under. Staying with the antipodean currencies, there is a New Zealand interest rate decision. The only EU data of note are German Factory Orders. Most data today is from the states: Employment, Productivity, Mortgage Applications and Consumer Credit.

Thursday As always for the first Thursday in the month, both the UK and EU decide on Interest Rates, with no change expected. The BoE will also decide whether to expand the QE programme, but this is highly unlikely. Elsewhere, in the USA we see some Jobless Claims, and there is also an interest rate decision for Canada.

Friday We end the week with a host of UK data including the latest GDP estimate, Trade Balance, Industrial Production, Manufacturing Production and Producer Price Index figures. Germany also releases Trade Balance numbers and inflation data. Stateside there are unemployment data and more trade balance figures.

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