Monday 20th August 2012
Good morning. So as usual for Monday mornings, here’s my outline of what has been happening to the Pound/Euro rate in the last week, with a full analysis of what is causing the movements. In addition I will look at where rates may head in the coming weeks, and also list a run down of the weeks economic data that could affect rates.
In this week’s Report:
- Pound climbs to 2 week high against US Dollar
- Events in Eurozone continue to drive rates
- Thin trade in holiday season creating peaks and troughs
- 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;
After the excitement of the previous week and the comments made by Mario Draghi’ s and Mervin King – last week failed to produce any real excitement. The Pound broadly maintained its strength against the single currency, trading in a very narrow range throughout the duration of the week despite a number of important data releases made on both sides of the channel.
On Tuesday Sterling gained marginally over the Euro as UK inflation surprisingly rose for the month of July, whilst at the same time figures released showed that the Eurozone economy shrank in the second quarter of 2012. Although positive news for the UK economy the market didn’t react too much as the general view was that the Bank of England’s stance on monetary policy is unlikely to change any time soon, and therefore the results to a certain extent remain irrelevant for now.
The week continued in a similar fashion as the market showed indifference when, as expected on Wednesday, the Bank of England produced the minutes from the Interest rate setting meeting from the beginning of the month. This reported a 9-0 vote to keep interest rates on hold and no further Quantitative easing.
As surmised in previous reports, with UK rates firmly on hold and further QE off the table in the near term, Sterling is unlikely to play a dominant part in driving the cross for the time being. The focus is firmly set on the performance of the Eurozone. This was evident on Friday when the Pound began to lose some ground against the Euro following comments from the ECB and Angela Merkel of decisive action expected to reduce the borrowing costs for Spain and Italy.
So if the ECB take action could this lower GBP/EUR rates?
Any action by the ECB early next month to lower borrowing costs for Spain and Italy could well give the euro a lift against the Pound. But equally, now that they have outlaid an expectation, any lack of any bold action especially at a time when worries about Greece are resurfacing could send the euro lower across the board.
The status quo is likely to remain for the time being as markets remain quiet in part due to the holiday season. However there also seems to be somewhat of an undercurrent of disquiet as the problem in the Eurozone seems once again to be coming to the surface.
On the face of things the key members of the Eurozone are all singing from the same hymn sheet and claiming that they will do ‘whatever it takes for the euro to survive’ and thus far have managed to keep the markets subdued. However, cracks in the armour seem to be getting larger after Finland’s outspoken Foreign Minister last week claimed that the country was preparing for a ‘full blown currency crisis’ and the possibility of the Euro breaking up.
So it certainly looks like the EU debt crisis will continue to drive the Pound/Euro rate for the short to medium term. In uncertain times such as these, it’s important to know your options and not just hope rates will go in your direction. Make sure you make the most of your currency, and use all the tools at your disposal to ensure that you maximise your position within the currency markets.
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Weekly Economic Data that may affect exchange rates
Below we list the main economic data releases of the week. It should be noted that as August is the holiday season in much of the world and Europe in particular, we are very quiet indeed on the data front. This does not necessarily mean there won’t be movements in rates however. Often when trade is thin in quiet periods we see larger swings in exchange rates than usual so if you have an imminent exchange to make, contact us today to have a free consultation.
Monday – There is little data of note today. The only scheduled releases are Construction data from Europe and a report from the FED in the states about Economic Activity.
Tuesday – On the whole another very quiet day for data. The UK releases its latest Public Sector Borrowing data at 09:30am. In New Zealand we see the latest inflation report from the Reserve Bank of New Zealand. Australia publishes its most recent Bank minutes. In the USA the FED gives a speech.
Wednesday –The only thing to watch out for is the FOMC minutes from the states that might affect GBP/USD rates.
Thursday – The markets have been saving all the data for today. UK: Mortgage Approvals & a CBI Trades Survey. EU: German GDP, German Imports & Exports, German, French & EU wide Inflation Data, EU wide investor confidence. US: Housing Prices, Homes Sales. New Zealand: Imports Exports & Trade Balance.
Friday – A little busier today with GDP figures from the UK in addition to a measure of business investment. In Europe the Greek and French leaders meet, which could mean an announcement about the Greek bailout. Over in the States we have durable goods orders.
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