Tuesday 8th May 2012
Good morning. Markets in the UK re-open today after the Bank Holiday break. As is usual for the first trading day of the week, this morning I will take a look back at market movements over the last 7 days, the effect on exchange rates, and the forecast for where rates may go throughout 2012.
In this week’s Report:
- EU instability keeps GBP/EUR at 22 month high
- Sterling remains supported due to safe haven flows
- Round up of the week’s other data that may affect rates
(For currencies other than GBP & EUR contact us for a consultation)
Sterling vs. Euro;
Last week saw continued volatility within the Eurozone, which has continued to weaken the Euro. Earlier in the week saw the Pound fall with poor economic data releases as I outlined in my last post; however it was soon to recover to see the GBP/EUR cross trading at a 22 month high. One of the hardest questions to answer is what is expected of the Euro for the coming months?
Let’s start with what has happened in the Eurozone. A week ago we saw Euro zone unemployment rates rise to 10.9%, the highest since the Euro was formed in 1999 with 17.4 million now looking for work and more than 3 million of those under 25.
Spain and Italy are in recession and have seen borrowing costs rise. This has increased the chances that they may need help or even bailouts resulting in Euro weakness pushing the GBP/EUR exchange rate higher.
Staying in the EU, Interest rates remained unchanged at 1% as ECB President Mario Draghi stated “We have to put growth back at the centre of the agenda”. Economic growth across the Euro zone is desperately needed to stimulate struggling economies and prevent further contraction and the need for more bailouts.
Also the political uncertainty has worried investors, and this has also gone some way to weakening the Euro. All of the above are the main reasons the GBP/EUR rate remains so good.
Pound remains supported by good economic data
In the UK, the Pound remains quite strong, despite the fact we are in recession. Recent figures have been quite positive, and the fact is that the Pound is now becoming a safe haven currency, helping exchange rates remain high.
With many countries facing credit rating downgrades, AAA rated UK government bonds are seen as a safe bet, and with volatility across the globe this has increased the demand for Sterling, helping keep the Pound relatively strong.
Also helping the Pound are the austerity measures. Regardless of your political persuasion and views over whether cuts are a good thing or a bad thing, as far as the currency markets are concerned they are welcomed and viewed as a necessity, and good for reducing the deficit. Because they have now been in place for some time while other countries still argue over levels of cuts required, the UK should be resilient and well placed to recover faster than other economies, helping the Pound outperform the Euro.
The combination of a weak Euro and Strong pound, as outlined above, are the reasons exchange rates to buy Euros are the best in nearly 2 years. UK and EU political decisions and economic data will influence how the GBP/EUR reacts in the coming weeks and months; strong data from the UK seems to be supporting the highs we have seen recently. Continued uncertainty across the EU can cause the Euro to weaken even further which is great if you are buying Euro’s but not so good if you are selling.
For those needing to sell Euros – A forward contract is an excellent tool to take advantage of if you feel that the Euro will continue to weaken. It means you can secure your currency and lock into today’s rate for up to two years in advance, protecting your funds against any adverse movements in the rate.
If you are looking to buy Euro’s – it is best to contact us to have a consultation on the options available to you. Rates are of course at a very good level at the moment, with some forecasting it will go higher, and others convinced a fall is just around the corner.
Some analysts are forecasting between €1.15 and €1.32 for the next 12 months, and this really demonstrates the uncertainty that is currently driving exchange rate movements. If you need Euros in the next 12 months, then there are various ways we can help you take control of your requirement to try and help you avoid any potential loss if rates move against you. It is free to make an enquiry, no obligation involved, and you can then make an informed decision on the best way forward for you.
Weekly Economic Data that may affect exchange rates
Monday – UK Markets were closed for Bank Holiday, but we saw Australian Retail sales releases, along with German Factory Orders and EU Investor Confidence measures. Very late in the evening UK House Prices were released, but there was little effect due to the closed UK markets today.
Tuesday – Despite the UK opening again today there is no major UK data today. From the Eurozone all data is from Germany: Wholesale Prices & Industrial Production. Further afield we have Trade Balance figures from Australia. In the United States there are Economic Optimism measures, along with speeches by some FED members which could affect GBP/USD rates.
Wednesday – Yet again a very quiet day for the UK. Germany leads the Eurozone data again with Trade Balance figures. Other data today is from the USA – Mortgage Applications, Wholesale Inventories and another speech by the FED.
Thursday – Finally some UK data, and we have a lot of it today! Goods Trade Balance, Industrial Production, Manufacturing Production, a BoE interest rate decision, a BoE QE decision, and a GDP estimate. It’s likely to be a very interesting day for Sterling with so much economic data being published. Other data is from the US including a monthly budget statement and the most recent Trade balance figures.
Friday – We end the week with a whole host of inflation data from around the world including UK, German and US Producer Price Index measures. There are also some unemployment measures from Canada, and a consumer sentiment survey from the USA.
Getting the best exchange rates
You want the best exchange rates, of course you do. That’s why you’re reading this blog to try and gauge your timing. Take the next step and send us a free enquiry and have a consultation on all the options available to you.It’s free, it doesn’t obligate you, and you may be surprised how much you can save by using us to get exchange rates that are up to 5% better than offered by banks. Click below to send your free enquiry now, and get a response the same day.