Monday 19th November 2012
Good morning. Another Monday morning, so let’s take a retrospective look at what happened with exchange rates this week. In today’s post I’ll also look at some of the tools you can use to protect against exchange rates moving against you.
In this week’s Report:
- Bank of England warns of triple dip recession
- Greek bailout casts shadow over Eurozone
- US Dollar strengthens
- Round up of the week’s other data that may affect rates
Sterling vs. Euro;
After a crazy week on Sterling/Euro last week, many people will be looking at this week a little unsure as to how their own requirements will play out. Many thought sterling would start to stretch its legs against the single currency as it started the week by pushing up to a 6 week high on the cross by Tuesday.
This bullish run for the pound was, as often is these days, more of a dash than a marathon as BoE Governor Mervyn King poured his customary glass of icy water over the hopes of strong UK economic growth. By predicting that growth will follow a long and winding road, and saying there could be scope for further QE as it is only assessed every month and not forecasted; King and his MPC colleagues moved the market down over a point in a single trading session on Wednesday after their inflation report.
It should come as no surprise that the pound fell on the back of Kings’ speech, as it is certainly not the first time. It is also no coincidence either; throughout the financial crisis a tenet of BoE policy has been to keep the pound weak to aid UK exports to both boost economic growth and support the UK’s payments deficit. We will find out even more detail from the central bank when they release their minutes of the last meeting, on Wednesday.
The effect of the Eurozone crisis on Pound/Euro rates
What Mervyn King cannot control however, is the performance of the much maligned Euro zone economy. Figures at the end of last week showed that the 17 nation currency area returned to recession and gave the weekly graph a kick in its tail with the rate forced up on Friday, just not quite as high as it got to on Tuesday.
One of the reasons the rate did not drive further and may not do so is the closeness and interdependent nature of the UK and Euro zone economies. Although the Euro zone appears to be teetering on the edge of disaster and the UK has posted good growth for the last quarter, the short-term forecasts still do not expect a sustained sterling rally.
Every bail out of sovereign states strengthens the Euro as investors take it as a signal of solidity in the euro zone and the threat of a Spanish bailout, an economy which dwarfs Greece’s, would potentially see a large swing in the Euros favour.
How to protect against rates moving against you
So going forward, if you are looking to buy Euros you should consider placing a Stop Loss order.This is where you can instruct us to purchase your currency should it drop below a pre-agreed level.
For example, if you have set your budget at 1.22 you can then take a bit of a gamble on rates getting better, but have a safety net in place should rates fall. This is a good way to approach the current market, as it means you don’t lose out on all the recent gains and can still trade at a reasonable level.
Weekly Economic Data that may affect exchange rates
Monday – Rightmove releases the latest UK House Prices this morning showing how that sector is performing. Eurozone data includes Italian Industrial Sales & EU wide construction output. We may also see news on Greeks latest bailout. Over in the United States we have House prices.
Tuesday – There are no UK releases today. In the EU we have German inflation data and the EcoFin meeting. Further afield we have the latest minutes from the Reserve Bank of Australia.
Wednesday – Quite an important day for the UK as we have the BoE minutes from the latest MPC meeting, which will show the discussions regarding Quantitative Easing. There are no EU releases of note. USA data today comprises of Jobless Claims, Mortgage Applications and a Consumer Sentiment survey.
Thursday – Fairly quiet in the UK today with only a minor industrial trends survey being release. There is a host of inflation numbers from across Europe that could affect GBP/EUR rates however. There is also an EU consumer confidence survey.
Friday – Mortgage approvals is the only notable release from the UK this morning. In the EU we have German GDP figures and a European Council meeting. There is nothing of note from the US.
Getting the best exchange rates
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