Tuesday 10th April 2012
Good morning. I hope everybody enjoyed the Bank Holiday weekend. In today’s report I’ll take stock of the huge gains seen in GBP/EUR rates last week, and how to take advantage of them even if your requirement is some way off.
In this week’s Report:
- Pound/Euro rates surge into the €1.21’s
- Best way to fix the record Euro rate for the future
- Round up of the week’s data that may affect rates
Sterling vs. Euro;
After the previous week’s constant bad news about the UK economy we would have been led to believe that the national papers had their printers on standby, ready to run off huge spreads about the UK heading back into recession and how we were all doomed.
However last week couldn’t have started any differently with the British Chamber of Commerce contradicting the previous week’s expectations and saying that they felt the first quarter of 2012 had actually been more positive than most thought, and that the UK could avoid a “double-dip” recession.
This view set the tone for the week as we saw manufacturing, construction and service sector PMI all surprise to the upside on 3 consecutive days (Mon-Wed), and even more surprising was the Halifax house price data on Wednesday which showed house prices rising 2.2% in March, up from a drop in February. This really helped to buoy Sterling and forced the rate up from 1.1970 Monday morning to nearly 1.21 by Wednesdays close.
News out of Europe was a little different to say the least. We had confirmation that the Eurozone economy as a whole had shrunk 0.3% in the previous quarter and the data last week didn’t do much to help the Euros prospects for the future. Unemployment rose again to a new high of 10.8% while retail sales fell and German factory orders showed much lower than expected. The Euro fell against most other currencies too (2.3% against the USD) as Eurozone issues were bought back into focus on Wednesday when we saw a disappointing bond auction in Spain and further political rumblings in Greece.
Thursday saw the Pound reach a 2 ½ month high of 1.2137 against the Euro after shrugging off a surprise drop in UK factory output which showed an annual decline of 1.4 present. At lunchtime the Bank of England held the interest rate at 0.5% and didn’t announce any more Quantitative Easing as was expected. The Pound garnered further support as the National Institute of Economic and Social Research (NIESR) released its estimate for UK GDP for the last 3 months and they predicted that the economy grew at 0.1%. Such a small reading would normally be bad news but after the expectations that a technical recession in the UK was just around the corner it may actually be the first sign of further recovery.
Whatever happens over the next few weeks as we move towards the actual GDP reading, the current rate is a perfect time to forward buy currency as I can’t see the rest of the year being anything but uncertain. A Forward purchase is where you can fix a rate of exchange for up to 2 years into the future, but only need to pay a 10% deposit straight away with the balance when you need to complete on the contract.
It is a perfect budgeting tool for property purchases or stage payments, and can also be used by anyone needing to sell currency to avoid potential negative market movements.
Weekly Economic Data that may affect exchange rates
Monday – UK, French, German and Italian Markets are all closed yesterday for Easter. We still some released however including some UK House Prices, EU Investor confidence and Australian Business confidence figures. Trade was very thin and so there was little effect on the markets.
Tuesday – Markets worldwide resume today, and the main data for UK is the BRC Retail Sales, and UK House price data. In Europe we have Industrial Production and German Trade Balance data. Stateside we have wholesale inventories and Consumer Sentiment measures.
Wednesday – Nothing of note from the United Kingdom today. The main data is from the US including Trade Balance Data, The Fed’s budget statement and the Fed’s beige book.
Thursday – Today we see Trade balance figures from the UK. In Europe the main releases are Industrial Production and an ECB monthly bulletin. Again the USA comprises the bulk of data releases today including Jobless Claims, Trade Balance and Inflation data.
Friday – We end the week with UK Producer Price Index & US Consumer Price Index
Getting the best exchange rates
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