Monday 24th December 2012, Christmas Eve.
Good morning. Firstly I would like to wish everyone including my regular readers a very merry Christmas and a Happy New Year! Today I will take a look at last weeks movements, and what may happen this week.
In this week’s Report:
- Pound/Dollar rates reach fresh 1 year high
- Sterling/Euro is still near lowest since May
- Round up of the week’s other data that may affect rates
Sterling vs. Euro;
A much quieter week last week as expected with the run up to Christmas as investors unwound positions and the markets generally traded flat. On the Sterling v Euro cross we saw only half a cent between the high and low of the week as the mid-market generally hovered around the 1.2275 level.
On the data front there were mixed readings from both sides of The Channel as UK inflation read slightly higher than expected and German IFO Business Climate figures were released slightly higher also.
Wednesday’s main release was the Bank of England minutes from the December meeting where the 9 member MPC voted to hold interest rates at the current all-time low that we have been at since March 2009. The vote on the asset purchase programme (QE) however showed one of the members voting for a £25million increase in the current level which shows that we could perhaps see more QE next year should the current growth levels not be sustainable.
This started to weigh on Sterling and bought it down from a weekly high of 1.2325. Thursday came with a drop in monthly UK retail sales which will probably be better next month with the Christmas period factored in.
Next week will be very quiet with no data released Monday followed by 2 bank holidays and finally some UK mortgage approvals and house price data on Thursday. With this in mind the rate will probably remain pretty flat and over the next fortnight most moves in GBP/EUR will be down to how investors view the current Eurozone crisis and more importantly how the ECB are managing it.
At present they seem to be making all the right noises about keeping things under some form of control which has helped strengthen the Euro over recent weeks but not only do we normally see confidence erode eventually, it could be months or even years before we know the true scale of the crisis in Europe.
Sterling vs. US Dollar;
Things tend to be quieter during the Christmas week due to the fact volumes are down with most traders enjoying their turkey sandwiches rather than worrying about ichimoku clouds and candlestick charts.
The Dollar has weakened against Sterling in the last week giving a nice little gift for all those Brits jetting off to Aspen for a skiing holiday this festive period, mainly due to the impending fiscal cliff in the US. The uncertainty as to whether new fiscal policy will be put in place before 1st Jan to resolve the cliff will mean US politicians may not have as relaxing a Christmas as they are used to with this decision seemingly going to the wire.
Sterling/Dollar rate has surged to the best in over a year, due to continuing uncertainty surround the U.S economy. If you are thinking of buying dollars in the coming months it may be a good idea to consider securing your rate of exchange before President Obama and White House representatives reach an agreement to avoid the looming Fiscal Cliff.
As stated above, if an agreement can be reached before the 1st January 2013, we could start to see rates decline as investor confidence returns.
You can either fix a ‘Spot rate’ which has to be settled within 2 working days, or if your requirement is some time away, you can still fix the current rates for up to 2 years into the future, and only lodge a small deposit to do so.
Next week the back and forth between the democrat White House and the republicans in the house will dictate the course for the Dollar, but I suspect the biggest movement will be the following week when the timeline runs out on New Year’s Eve.
Economic Data that may affect exchange rates
Monday – UK House prices is the only release of note.
Tuesday – Bank Holiday
Wednesday – UK/EU Bank Holiday. The only data release is US Mortgage data and Manufacturing numbers.
Thursday – UK data is House prices and Mortgage approvals. In the EU we see French Consumer Confidence. US Data comprises of Home Sales & Jobless Claims.
Friday – The only data today is French GDP, Spanish Retail Sales, and US Home Sales.
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