Monday 3rd December 2012
Good morning everybody. It’s a new month, and today I’ll take my usual retrospective look at what happened last week, why the Pound/Euro rate fell, and what the month of December may hold in store for Exchange Rate forecasts for the best Pound/Euro exchange rates.
In this week’s Report:
- Pound/Euro rates fall on Bailout news
- New Governor for the Bank of England
- Round up of the week’s other data that may affect rates
Sterling vs. Euro;
Pound/Euro rates dropped to a 5 week low on Friday last week, as the Euro gained further strength due to the fact progress has been made with bailouts for troubled EU countries such as Greece and Spain. The main cause for the strength was the approval of Greece’s next bailout payment, which was uncertain in the early part of last week. As you can see from the chart below, rates have been in decline for some time, which will cause concern for anybody needing to purchase Euros.
Why has the Euro strengthened?
The strength came as the German parliament has approved a Eurozone bailout payment of 44bn euros (£32bn; $51bn) for Greece by a large majority despite unease about the cost. Before Friday’s vote, Finance Minister Wolfgang Schaeuble warned German MPs that the fate of the Eurozone was at stake in Greece, which has had two huge international bailouts in recent years. “A Greek bankruptcy could lead to the break-up of the single currency area,” he said.
Despite the fact that Greece’s government had carried out reforms and passed a harsh austerity budget, the release of the next round of money was delayed for weeks by a disagreement between its lenders – the International Monetary Fund (IMF) and European Central Bank (ECB). The European Commission has set out a timetable for integration, including plans for a separate budget and joint issuance of debt.
In the short term the commission’s chief, Jose Manuel Barroso, envisages a new fund inside the EU budget to speed up structural reforms. The instrument – essentially a fund for struggling economies in the 17-nation currency bloc – would require governments to sign “contracts” similar to the strict conditions demanded for bailouts. Mr Barroso said: “We need a deep and genuine Economic and Monetary Union in order to overcome the crisis of confidence that is hurting our economies and our citizens’ livelihoods.”
The news was welcomed by the markets, and the Euro gained strength as a result, causing it to become more expensive and pushing GBP/EUR rates lower.
New BoE Governor announced, what could this mean for Sterling?
In other news last week, the appointment of Mark Carney as the new Bank of England governor has been generally welcomed. However, with an expanded brief which includes overseeing the health of the country’s banks, it will be a tough job.
The first foreigner to be appointed Governor of the Bank of England in its 318-year history said he was “going to where the challenges are greatest”. He is currently the governor of the Bank of Canada, and will replace Sir Mervyn King next summer after the Chancellor decided against another British candidate for the role.
Mr. Carney, 47, who had previously ruled himself out of the running for the governorship, is credited with helping to protect Canada from the global economic crisis. It is one of the few countries to have recovered fully from the financial meltdown. His appointment came as a surprise to City experts who had predicted that Paul Tucker, the deputy governor, would be promoted.
What this means for the Pound is uncertain. Some say he is more of a ‘hawk’ than outgoing governor Mervyn King, who for some time has been talking the Pound down. However the challenges that Canada faced are very different to ours, mainly as the fact they avoided recession was due to the fact they are a commodities based currency. We will have to wait and see what his approach means, but in general the news has been welcomed by the markets.
Summary for Pound/Euro rates
We have seen rates fall for several weeks now, due to renewed strength in the Euro. Despite UK growth forecasts being revised up, Sterling is failing to make any gains against the Euro. Given there have been warnings the UK may head back to recession, there is every chance rates could continue to drop away, however if we get better growth figures this week, the Pound could make a recovery.
Regardless whether you need to buy or sell Euros, contact us today to discuss the different options you have available to you. It’s free to have a consultation, and in this way you can find out how to protect against the rate moving against you, and make sure you are making the most of your currency.
Weekly Economic Data that may affect exchange rates
Monday – It’s the start of a new month, and the first data release of note is UK House prices from the Halifax. We will also see some UK inflation data this morning. In the Eurozone we have various inflation numbers which could dictate future interest rate movements. Elsewhere we have US Construction Spending, Vehicle Sales, Inflation data and a speech from the FED.
Tuesday – Today’s UK data comprises Retail Sales numbers and Construction figures. The EU wide inflation figures at 10am could affect GBP/EUR prices. From Canada we have an interest rate decision.
Wednesday – We kick off with Australian GDP figures. Later in the morning we have another host of inflation numbers from the Eurozone, in addition to Retail Sales. The UK also releases some inflation figures. Over in the USA we have Mortgage applications, Employment numbers, Factory Orders and Inflation Data.
Thursday – An important day for the UK today. At 09:30am we have Trade balance figures. Later in the morning we have the latest decision on Interest Rates and Quantitative Easing. Both of these have been key to Sterling’s weakness recently. EU data today comprises of French Unemployment numbers, EU wide GDP figures and the latest interest rate decision from the European Central Bank. There are some Jobless numbers from the USA at 13:30pm and in the evening New Zealand announces its interest rate decision.
Friday – We end the week with UK House Prices, Industrial & Manufacturing Production and the latest inflation numbers. There is also a GDP estimate in the afternoon that could affect the value of the Pound. In the EU we will see French Trade Balance data and German Industrial Production. Stateside we have Earnings data, Unemployment, Non-Farm Payrolls and a Consumer Sentiment Survey.
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