Monday 8th October 2012
Good morning everybody. As always for a Monday, today I will take a detailed look at the currency markets, have a look at why the Pound/Euro rate fell so much last week, and where rates may head in the coming weeks and months.
In this week’s Report:
- Pound/Euro rates in decline due to poor UK data
- Sterling dollar rates also plateau around $1.62
- Global Trade Balance figures main data of the week
- Round up of the week’s other data that may affect rate
Sterling vs. Euro;
There was nothing but bad news for Sterling at the start of the week as PMI data, houses prices and mortgage approvals were all worse than expected, with the drop house prices especially disappointing after a strong reading in September.
The key release however was on Wednesday when UK services PMI (the UK’s most important sector) was weaker than forecast and help force the GBP/EUR rate, which had already dropped a cent since Monday, to break below the 1.25 barrier. Eurozone data over the first few days of the week was slightly better than expected but even with the results of the Spanish banks stress test there seemed to be nothing that could support the Pound.
Thursday was the key day of the week with early afternoon monetary policy announcements from both the Bank of England & European Central Bank. There were no rate cuts or forms of monetary easing from either which was widely expected but market analysts are still expecting the Bank of England to further loosen policy at the November meeting with another round of Quantitative Easing (QE), and some even suggest that we could see the UK interest rate cut a quarter point from its current all-time low of 0.5%. ECB President Mario Draghi’s statement helped the Euro as he reassured the markets that the ECB’s policy stance was appropriate, while insisting that there would be no further rate cut this year.
Friday had nothing of importance from the UK or Eurozone yet the rate fell nearly a cent over the course of the afternoon. This was all down to slightly better than expected Non-Farm Payrolls figures from the US which is a leading indicator of the state of the World’s largest economy and can have a huge bearing on the attitude of the financial markets.
With only one of the last six readings showing better than expected this positive announcement caused a swing in risk appetite as investors start putting faith in perceived riskier currencies. Understandably, the Euro falls under this heading, and the rate slipped from 1.2465 to 1.2390.
All UK data releases this month will be heavily scrutinised as on Friday 26th October we will see the initial reading of UK 3rd quarter GDP. If this is negative then we will have been in recession for an entire year and the knock on effect could be that we see a move from the Bank of England a fortnight later as mentioned above.
Any more QE or a further rate cut could mean a huge drop in the value of the Pound as we move towards Christmas, whereas if the GDP is 0 or positive, or Spain seek a financial bailout in the meantime we could see the Euro weakening back towards the highs seen over the Summer.
As always the GBP/EUR rate could move quickly and will also be influenced by outside factors so get in touch with us today by clicking here, and discuss your requirements at your earliest opportunity as there are many options at your disposal whether buying or selling currency.
Weekly Economic Data that may affect exchange rates
Monday – US Markets are closed today for Columbus Day. We have a raft of data from Germany, Europe’s largest economy: Imports and Exports, Trade Balance, Industrial Production and Investor Confidence data. In the UK the only data of note is the latest House Price info from the Royal Institute of Chartered Surveyors (RICS), and the British Retail Consortium (BRC) Sales monitor.
Tuesday – An important day for GBP/EUR rates. Starting in the UK we see Trade Balance figures in addition to the latest Industrial and Manufacturing Production numbers. In the EU we have the French Budget in addition to their Trade Balance numbers. In Greece there are inflation numbers. US markets reopen however the only data of note is an economic optimism survey.
Wednesday – There is no data of note from the UK today. The only EU data is French and Greek industrial production numbers. Most data today is from the United States: Mortgage Applications, monthly budget statement, wholesale inventories and the Fed’s beige book which gives an overall picture of economic optimism.
Thursday – There are no UK releases today, but we do have a busy day in Europe. To start with we have the G7 finance ministers meeting. We then have Inflation numbers from Spain, Germany and France, following by unemployment figures from Greece. The ECB also gives its monthly report today, and is then followed by Industrial production numbers. Over in the United States we have Import and Export numbers, Jobless Claims, Trade Balance figures and a bond auction.
Friday – The only UK release today is the CB Leading Economic Index. This looks at future trends of the overall economic activity including employment, average manufacturing workweek, initial claims, permits for new housing construction etc., and therefore it’s a good measure for overall economic stability. The only other significant data releases are from the US: Inflation data and a consumer sentiment survey.
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