Monday 12th March 2012
Good morning, and welcome to a new week in the currency markets. As customary for a Monday morning, today I will take stock of last weeks movements in exchange rates, particularly the Pound/Euro cross. In addition, I will look at the weeks data releases that may have an impact on the value of the Pound vs other currencies.
In this week’s Report:
• Euro gains strength on Greek debt swap deal
• No change in EU or UK Interest Rates
• EU debt crisis continues to drive exchange rates
• Round up of the week’s data that may affect rates
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Last week saw another fairly choppy week’s trading for the sterling/euro cross, as once again headlines were dominated by the continuing Greek debt crisis. After dropping into the €1.17’s the previous week, Sterling began a recovery against the euro as recent positive UK data has helped support the pound, as concerns over another round of quantitative easing have been dampened. The British Chambers of Commerce, the largest business lobby group in the UK, revised down its forecast for economic growth in 2012 but said there would be no need for further monetary stimulus by the Bank of England.
Worse than expected house price data on Tuesday did little to affect sterling’s performance against the euro during the early part of the week as investors were more concerned over the mounting uncertainty over Greece’s progress in completing a debt swap deal. A survey by mortgage lender Halifax showed house prices dipped 0.5%in February, compared to forecasts of a 0.3% rise.
The pound lost ground against a firmer euro midweek as the market focused on events in Greece and after European Central Bank President Mario Draghi said there were signs of stability in the euro zone economy.
There was very little else in the way of events or data releases for the UK last week, apart from a Bank of England policy decision on Thursday which resulted in no change to the quantitative easing target or to interest rates. The Bank of England’s announcement marks the third anniversary of the bank’s decision at the height of the financial crisis in 2009 to cut interest rates to a record-low 0.5% and start buying financial market assets with newly created money. As expected, the pound showed little reaction to this.
“Sterling’s movements in the near term will be more the result of euro/dollar … The euro has been rallying as there is a more optimistic feeling about Greece and Draghi was more neutral with no suggestion of an imminent rate cut,” said Audrey Childe-Freeman, EMEA head of currency strategy at JP Morgan Private Bank.
“The Bank of England was a non-event, but the minutes will be very interesting for clues on whether we should prepare for another round of QE or not.”
The pound ended the week trading in the mid 1.1950’s against the euro, slightly down on where it started Monday around the 1.20 level. Even a half cent change in rates can make a significant difference in the return on your sterling, particularly for larger transfers.
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Weekly Economic Data that may affect exchange rates
Monday – It’s a quiet start to the new trading week, with nothing of note from the UK. The main event is in Europe, where EU Finance Ministers are meeting today. There are also German wholesale prices. There is also a monthly budget statement from the USA.
Tuesday – UK data today comprises RICS House Prices & Goods Trade Balance. In the Eurozone there are EU and German confidence surveys. Retail Sales from the USA are released later in the afternoon, in addition to a US interest rate decision coupled with the FOMC minutes in the evening.
Wednesday – Today there are unemployment figures from the UK which could affect the Pound. In the EU we have various inflationary measures in the form of Consumer Price Index. There are also measures of Industrial production, reflecting the state of this sector. In the USA Import prices is the main data.
Thursday – We’ll start in Switzerland today, where there are economic forecasts and an interest rate decision; we expect rates to be left at 0%. In the EU we have a report by the ECB, coupled with Employment and Jobless measures. We also have Jobless data from the USA in addition to PPI inflation data.
Friday – We end the week with Trade Balance figures from the EU. Inflation data is released from the USA later in the day along with industrial production. There are no releases from the UK today.
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