Monday 28th May 2012
Good morning. The volatility in the currency markets continues, with wild swings in the exchange rate on a daily basis. On Friday alone the GBP/EUR rate fluctuated from 1.2430 to 1.2530 within 4 hours. Today as usual for a Monday I will look back over what has affected the exchange rate in the last week, and where rates may go in the coming weeks and months.
In this week’s Report:
- Greek worries continue to weaken Euro
- BoE & IMF warn on UK Growth
- USD strengthens due to its safe haven status
- 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;
Last week we saw the pound falling off the top of a three and a half year high against the euro. During the middle of the week the pound slumped against a basket of currencies, with the Bank of England (BoE) and International Monetary Fund (IMF) concerned over growth within the UK. However towards the end of the week the pound had made a slight recovery, as you can see in the graph below.
There is still a lot of uncertainty surrounding the position of Greece within the Eurozone. The uncertainty is causing the euro to weaken significantly against worldwide currencies as we have seen with the EUR/USD cross drop below 1.26 and the EUR/JPY drop below 100.00 throughout the week. However the effect on GBP hasn’t been as large, due to concerns over UK growth keeping Sterling in check.
Greece recently announced that they were to hold a re-election on the 17th on June which will further prolong the uncertainty surrounding Greece remaining within the Eurozone. Many political and financial experts are predicting that Greece will leave the Euro, some even predicting that this will happen before the start of 2013. Despite this the European Monetary Union (EMU) will do whatever they can to keep Greece in the Euro as a default on Greek debts would be a disaster for the Eurozone and may even prompt Spain, Portugal and Ireland to attempt to do the same.
The main reason that Sterling has not seen the same strengthening against the Euro as most other currencies is due to two main factors. During the middle of last week the bank of England announced that UK growth will be strongly affected by the Eurozone debt crisis, this then lead to the BOE and the IMF suggesting that more quantitative easing (QE) may be required to protect the UK economy from the crisis in the Eurozone. The UK retail sales data was also released. Sales figures fell by 2.3% in April though some analysts feel the figures were distorted by April’s record rainfall and the sale of fuel dropping by 13.2% on the back of drivers panic buying in March over the threat of strike.
With speculation about more QE, the pound weakened against the Euro after revised GDP figures from the UK were released and showed a further 0.1% decrease to -0.3% due to the construction industry being weaker than first expected. However towards the end of the week, concerns surrounding the Eurozone came back into focus following the predictions of Greece abandoning austerity measures and leaving the euro before 2013, and the fall in German bonds and manufacturing figures. This led to a slight recovery for the pound pushing the rate back up over the €1.25 mark having dropped down to mid €1.23’s earlier in the week.
As was mentioned in posts last week, there are very contrasting forecasts regarding market movements with Deutsche Bank forecasting €1.16 in the next few months and Barclays capital forecasting that rates will reach €1.32 within the next year. As we have seen with the markets this week, there has been a very large fluctuation sometimes over the course of just a few hours.
Of course changes in the exchange rates can have a big impact on the cost of your currency purchase, so to discuss the options available to protect you, get in touch today.
Weekly Economic Data that may affect exchange rates
Monday – US Markets are closed for Memorial Day today and so markets are very quiet. There are no data releases of note.
Tuesday – In the UK today we will see Nationwide House Prices and an Industrial Trends Survey. In the Eurozone markets will look to the latest German inflation figures and Retail Sales. In the USA there are measures of consumer confidence and Home Prices.
Wednesday – Starting in the EU today we have Money Supply, Economic Confidence, Consumer Confidence & Industrial Confidence. In the UK we will see Consumer Credit, Money Supply, Mortgage Approvals and a measure of consumer confidence. We end with Home Sales data from the USA.
Thursday – Germany releases its latest unemployment data. Staying in the EU we also have some inflation data. Over in the USA we see the latest GDP figures, Unemployment and Jobless Claims. There are no UK data releases of note.
Friday – German and EU inflation data is released this morning, closely followed by EU unemployment. In the UK we also have some inflation data. We end the week in the USA with average earnings, inflation data, Non-Farm payrolls and employment data.
Getting the best exchange rates
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