Monday 23rd April 2012
Good morning, I hope everyone had a lovely weekend. As usual for a Monday morning, today I will look back over last weeks events that pushed Sterling up to new highs against the Euro and Dollar. I will also analyse the exchange rate forecast for Euros and Dollars, in addition to what economic data is out this week that I think could affect exchange rates.
In this week’s Report:
- Pound Surges through €1.22 / $1.60
- Positive BoE report and unemployment strengthen Pound
- UK GDP figures this week key to future rate movements
- Round up of the week’s other data that may affect rates
(For currencies other than GBP, EUR and USD, contact us for a consultation)
Sterling vs. Euro;
Euro purchasers celebrated last week after Sterling extended gains against a beleaguered Euro as investors scaled back expectations of further stimulus from the Bank of England, putting the Pound on course to allow it to rise against the euro to levels not reached since the middle of 2010.
Pound gains very well against Euro
The pound rose to its highest weekly average in over 3 years against the single currency and a five-month high against the U.S. dollar, which helped it to climb to a 20-month peak on a trade-weighted basket of currencies, data from the Bank of England showed.
Minutes from the BOE’s policy meeting released on Wednesday showed the committee voted 8-1 against further stimulus, with one policymaker Adam Posen who had consistently voted for more stimulus moving away from a dovish to a more hawkish stance.
How is the debt crisis in Europe affecting things
Analysts and Traders commented that while sterling was potentially poised for more gains, a lot would depend on how the euro zone debt crisis panned out. The Spanish 10 Year bond auction went through smoothly but with limited success and borrowing costs have been rising as investors remain sceptical about whether other countries in the Eurozone can solve their fiscal problems without seeking more aid from agencies like the IMF. While a steady erosion of confidence in the euro zone supports sterling against the euro, the pounds gains can be limited to a certain extent, given the UK’s large exposure to the crisis-hit euro zone.
What about further UK data? How could that affect exchange rates?
Furthermore the UK’s labour market is at best sluggish at the moment, domestic demand patchy and the economic recovery uneven. So while the signs of a slight recovery lessen the need for further stimulus, a rapid deterioration in the euro zone crisis could actually worsen the UK’s outlook and drive the BOE towards quantitative easing again.
On Thursday, BoE’s Posen said he is worried that underlying inflation pressures have not eased in recent months and added if last month’s pick-up in inflation persists, the central bank would need to rethink policy.
Whilst the Pound’s performance against the Euro can be welcomed by those people in the UK buying a property abroad, a degree of care should be taken. It is certainly true that Sterling has benefited from negative Euro sentiment recently, however the Pound shifted this week on reasonably indifferent news. The news that further QE is unlikely for the time being, acted merely as a trigger to push the cross in Sterling’s favour, although it certainly wasn’t a green light to indicate that all is well within the UK economy.
Next week sees a host of data releases including preliminary GDP figures that could potentially push Sterling back and undo that gains that we have seen this week.
In order to ensure that you remain in control of your currency purchases in order to capitalise on positive market movement and protect yourself in the event of the market moving against you, you should speak to us about our exchange rates.
Sterling vs. US Dollar;
Last week saw the Pound continue its bullish start to 2012 against the Dollar, with the enticing level of $1.60 tangibly close as a trading level to buy. A string of positive data releases in the UK allowed the pound to flex its muscles throughout the week, with several choppy trading sessions representing fantastic buying opportunities as well as a few selling opportunities for those who got their timing right.
Many people had wondered whether the surge in rates would continue in the back drop of an improving US economy, thinking, and not illogically, that the Dollar would strengthen with economic growth. Perhaps however, US growth is exactly what is supporting the Pound in its rise against the Dollar?
Regular readers of this report will be keenly aware of the phrase ‘safe haven currency’. The US Dollar has benefited from this throughout the global recession, with investors seeking low risk investments where their money would at least be safe, even if it wouldn’t grow.
Risk sentiment drives investment away from the US Dollar
With the US economy still the largest in the world people ploughed funds into the Dollar through cash and low yield bonds to see out the storm and subsequently the Dollar strengthened massively; remember the 1.36 ‘s back in 2009? Indeed even through the mildly positive 2011 we entered this New Year with the pound struggling in the low 1.50’s with the real changes seen amid the positivity in the US economy in 2012. Droves of previously risk averse investors have sold their bonds and got out of cash and back in the hunt for yield, unsurprising then that the Dollar is now testing levels in the early 1.60’s.
So, great news then if you are looking to buy Dollars. As always though, in the most volatile markets in the world a cautionary note should be heeded. Next week sees the official GDP figures released for the UK in Q1 2012.
Have we all got ahead of ourselves? Will the OECD’s prediction of a second UK recession come true or has the UK Chamber of Commerce correctly predicted growth, however small, in the UK last quarter? Wednesday could be a key day to see whether the pound surge kicks on and continues these great buying opportunities but may still prove a sting in the tail for those looking to squeeze that little bit more out of the market.
If you are looking to buy Dollars, now is obviously a great time to talk to us given that it went to a 5 month high on Friday.
Weekly Economic Data that may affect exchange rates
Monday – UK Nationwide House Prices are released today, which reflect the health of this sector and is a barometer of overall economic activity. In the Eurozone, inflation data from Germany will be closely watched as it could affect EU interest rates in the future. Elsewhere the only data of note is Producer Price Index info from Australia, which is an inflationary measure.
Tuesday – Today the only UK data is Public Sector net borrowing, released at 09:30am. EU Industrial New Orders are released at 10am, along with some further EU inflation data. Across the pond we have US Home Sales, Consumer Confidence numbers, and Canadian Retail Sales.
Wednesday – A very important day for Sterling, as we have the latest UK GDP figures. This could move the Pound either way depending on the results showing growth or contraction. This is the most important release of the week. In the USA we have Mortgage Approvals, an Interest Rate decision and a press conference from the FED.
Thursday – Quite a lot from the EU today, including Economic Confidence, Consumer Confidence, Industrial Confidence and Retail Sales for Germany. There is nothing of note from the UK. The USA has some jobless numbers and Home Sales, and in New Zealand we will be privy to their latest interest rate decision.
Friday – We end the week with German Consumer Confidence and a US GDP data. Also in the US is consumption expenditure data and measures of Consumer confidence.
Getting the best exchange rates
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