Monday 6th August 2012
Good morning. While Gold was been the main focus last week in the UK in the form of Olympic medals, the value of sterling has fallen against the Euro with the pound falling away from recent highs and taking a firm second place while the Euro gains. In today’s report I’ll take a look at what has caused the GBP/EUR rate to drop away, and where rates may head in the coming weeks.
In this week’s Report:
- Pound/Dollar drops on better jobs data
- Sterling/Euro falls again from its 4 year high
- Possible buying of Spanish bonds strengthening Euro
- Round up of the week’s other data that may affect rates
Sterling vs. Euro;
GBP/EUR rates slipped away from the recent near-four year high of last week mainly due to comments from the Euro zone with Mario Draghi announcing that he will do “whatever it takes” to save the Euro.
The ECB said on Thursday it may resume its programme of buying the government bonds of indebted euro zone countries. The terms and conditions are being drawn up for the bond buying programme and a key factor to bear in mind is that Draghi explicitly left open whether the new bond purchases would be sterilised – i.e. whether the ECB would sell other assets, to leave the total money supply unchanged. This means that if the bond purchases are not sterilised, then they would come under the heading of genuine quantitative easing, like the Bank of England.
On Thursday the Bank of England left interest rates and its quantitative easing target unchanged but expectations are growing that the central bank will opt for further monetary easing in the coming months to aid a flagging economy, in addition to the possibility of an interest cut.
Nevertheless, concerns about the UK have been growing since recent data showed the UK economy slumped in the second quarter, marking its third consecutive quarterly contraction. “The expectations are that the economy will rebound modestly in the third quarter but that doesn’t change the picture of growth stagnating,” said Lee Hardman, currency economist at BTMU.
Analysts expect the Euro will edge lower against the pound, taking it back towards a near four-year low if worries deepen about debt problems in Spain and Italy. However if it is agreed that the ECB will buy Spanish bonds to reduce their borrowing costs, this could be taken as a positive by the markets, and cause the GBP/EUR rate to drop further. The chart below shows the declines we saw on Friday as the Pound lost ground against the Euro, pushing rates towards €1.26.
So what next?
Both the Euro and Sterling are not without problems, it remains to be seen what the short term future holds for the currency pairing. What we do know is that timing is key when looking to buy or sell your currency. At the Foremost Currency Group we will arm you with market knowledge and look to make the most of the markets with a variety of different contracts available to you.
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Weekly Economic Data that may affect exchange rates
Monday – Some economic zones have a Bank Holiday today such as Ireland and Australia. There are figures from elsewhere however, with Retail Sales data from the UK. IN the Eurozone we see Greek Inflation data and EU wide investor confidence.
Tuesday – We’ll start in the US today where we have a Speech by the Federal Reserve following last weeks good jobs data. In the UK we see the latest Industrial & Manufacturing production figures, in addition to the latest GDP estimate from the NIESR. In the Eurozone the main releases are Irish GDP & German Factory Orders.
Wednesday – Europe releases lots of Trade Balance data today, including Import and Export measures from Germany and France. There are also Industrial Output measures from Spain and Germany. In the UK we have an inflation report from the Bank of England and some house price data from the RICS. Stateside releases include Non-Farm Productivity and Mortgage Applications.
Thursday – After EU Trade Balance figures yesterday, today is the turn of the UK and we’ll see Imports and Exports released at 9.30am. Wholesale prices from Germany is the only EU release of note. In the USA we have further Trade Balance figures.
Friday – Today is all about inflation numbers. We start in Germany where the latest CPI figures are released. IN the UK the Producer Price Index is the inflation measure released at 9.30. To end the week we have some more Trade balance numbers from the USA and a monthly budget statement from the FED.
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