Weekly GBP/EUR 2012 forecast, and the weeks data

Monday 13th August 2012
Good morning. Pound/Euro rates recovered last week after the BoE dampened expectations of an interest rate cut. Today I’ll take a look at what caused the gains, and look at the data this week that could affect exchange rates going forwards.

In this week’s Report:

  • Pound gains on Euro after BoE Inflation report
  • Pound/Dollar rates remain in the 1.55/1.56 range
  • Lots of data from Europe this week that could affect GBP/EUR
  • Round up of the week’s other data that may affect rates

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Sterling vs. Euro;

Last week saw an interesting week on Sterling/Euro with Rallies in both directions, creating decent opportunities for both buying and selling the single currency. The early part of the week saw the pound in general decline with Mario Draghi’s Euro positive rhetoric ringing in many traders’ ears. It was then his counterpart Mervyn Kings turns to move the markets later in the week.

At Wednesdays Bank of England quarterly inflation report, King poured cold water on the widespread rumours that a UK base rate cut was imminent. His read on the situation is that a cut would further hamper financial institutions’ ability to lend and would in fact be counterproductive to economic growth in the UK.

With the already low interest rates unlikely to be cut investors rallied to the Pound, safer in the knowledge that their yield would not be reduced and thus the exchange rate moved up, as you will see in the graph below.

It appears then that the UK with its expectation of zero growth and no apparent movement on rates or quantitative easing, it is unlikely to be the main driver on the GBP/EUR cross in the short term. The storm clouds that still hang over the Euro Zone seem a much more likely cause of market movement.

Al though this week has seen no real negative news from the single currency area; the effect has realistically seen a sideways drift rather than any real strength. The fact that King saying there will be no rate cut can move the market a whole cent in one afternoon session is testament to how weak the Euro is.

The weakening in UK economy will probably keep the rate in check and potential prevent enormous rallies back to pre-2008 levels but in the here and now, a near 4 year high should still be seen as attractive if you need to purchase this year; fixing a forward rate in the mid 1.20’s would suit most budgets when compared with last year when rates were as low as 1.13.

This week there are lots of data releases that could affect GBP/EUR rates further, including the BoE minutes, and a host of GDP releases from the EU; see below for more detail.

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Weekly Economic Data that may affect exchange rates

Monday It’s a relatively quiet start to the week. The only UK data of note is the latest House Prices from the Royal Institute of Chartered Surveyors showing the health of this sector. In the Eurozone there are some minor Wholesale Prices. Elsewhere there are some Retail Sales numbers from New Zealand.

Tuesday Lots of data today compared to yesterday. In the UK we have: Inflation Numbers (CPI and PPI), Retail Prices, House Prices, and the BoE Inflation letter by Mervyn King. In the Eurozone we have: French Inflation data, French GDP, German GDP, Spanish Inflation Data, Portuguese GDP, EU wide GDP, Industrial Production and surveys on Economic Sentiment. So much that could affect GBP/EUR rates. Stateside we have the latest inflation numbers, Retail Sales, and a measure of Economic optimism.

Wednesday Again a very busy day, but this time all from the UK and US. Starting in the UK we have the all important Bank of England minutes. This is followed by a speech by BoE governor Mervyn King. In addition we will see various jobless measures including the Claimant Count & Unemployment Rate. Over in the states we have another round of inflation numbers, Mortgage Applications, Industrial Production and numbers on the Housing Market.

Thursday Today we will see the latest UK Retail Sales, which are an overall barometer of economic activity. In the Eurozone there are some inflation numbers which could dictate interest rates. Stateside we have Building permits, Jobless Claims, and the Philadelphia Manufacturing Survey. We end the day with more inflation numbers from New Zealand.

Friday There are no UK releases today. In Europe we see the most recent Trade Balance numbers and some German inflation data. We will also see the latest Canadian Inflation numbers. Over in the states we have the latest measure of consumer sentiment.

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