Monday 25th February 2013
Good morning. I hope you all had a nice weekend. As usual for a Monday morning, today I will have a look back at last weeks movements, look at what might be in store for exchange rates this week, and also look at what I think are the most important economic data releases that might affect currency.
In this week’s Report:
- Bank of England weakens Sterling, again.
- More Quantitative Easing on the horizon
- UK loses AAA Credit Rating
- Round up of the week’s other data that may affect rates
Well, what a week for the Pound, especially against the Euro, with the pair starting and finishing the week trading at mid-market levels over 1.16, but a low on Wednesday of 1.14. Sterling fell also during the weekend during trading in Asia as financial markets reacted to the loss of Britain’s top AAA credit rating. The pound fell to a 31-month low against the dollar and a 16-month low against the euro.
So, let’s have a little look back at what happened last week
The week started off slowly due to Presidents Day in the USA so the markets were quiet and Sterling vs. Euro remained close to 1.16 all day. This however turned out to be the only calm day for the currency pair as Tuesday kicked off with surprisingly good economic sentiment figures from Germany and the Eurozone as a whole which forced the rate down 1 cent, and this slide was exacerbated by the impending Bank of England meeting minutes which were due the following morning.
Bank of England minutes push Sterling lower
The 9:30 am release then fuelled a further sell-off in Sterling over the course of the day, helping the Pound to retain its title of the worst performing major currency of 2013 so far. The minutes showed that since the last time the MPC sat down to discuss the UK interest rate (currently at an all-time low of 0.5%) and asset purchase programme (currently standing at £375billion) 2 more members have started to vote for more Quantitative Easing.
The current 6-3 vote to hold QE where it is means we only need to see another 2 members join the other “Doves” to give a majority, and the fact that one of the new voters is the BoE Governor, Mervyn King, means that kind of majority could even be reached at the next meeting.
Thursday’s data helped to show just how finely balanced both the GBP/EUR cross is, and also both economies as it started to climb off the back of weaker than expected Eurozone manufacturing data and figures which showed that UK public sector borrowing fell by more than forecast. The Pound recovered most of Wednesday’s loss against the Euro and the rate ended the week pretty much back where it had started.
What might affect the rate this week?
This week’s data releases are looked at in more detail in the market data section but the key release will be the 2nd estimate for UK GDP for the fourth quarter 2012. The last reading showed a -0.3% fall and any revision either way could be huge for Sterling. We have bodies such as the CBI & NIESR suggesting that we may narrowly avoid recession, but we will not actually see the initial reading for the current quarter until the end of April, so we expect the Pound to remain on a knife-edge as this reading will be a huge influence on how the Pound will perform over the rest of the year.
Any further news from the Eurozone will also be closely watched, and we are sure to hear more on a potential currency war (discussed in detail in one of last weeks posts) where the ECB & BOE will try to devalue their currency to help keep exports attractive and therefore encourage economic growth.
Weekly Economic Data that may affect exchange rates
Monday – Today’s UK data comprises of House Prices and Mortgage approvals, reflecting the health of this sector. Elsewhere we have Trade Balance data from Germany and Italy. Over in the USA we have a speech by a FED member, manufacturing numbers. Also of note is a speech by the Bank of Canada Governor Mark Carney, the soon to be governor of the Bank of England.
Tuesday – Today we see a speech by BoE member Mr Bean; watch out for any negative comments that could de-value Sterling. Not much from Europe today other than German retail sales. We have a raft of data from the United States: House Prices, Consumer Confidence, Manufacturing figures, Homes Sales and a speech by the FED. Further afield, New Zealand has Trade Balance figures.
Wednesday – An important day for Sterling, as we have the latest GDP figures, in addition to business investment numbers. In the Eurozone we have various measures of confidence: Industrial Confidence, Economic sentiment and consumer confidence. Over in the states we see further Home Sales numbers, another Speech from the FED, and durable goods orders.
Thursday – Nothing of note from Britain today other than a measure of consumer confidence. Eurozone data includes Spanish GDP, German unemployment, French inflation numbers, and EU wide inflation figures. In the USA we have GDP numbers & Jobless Claims.
Friday – UK data today includes inflation numbers, Credit/Money Supply & Mortgage approvals. In the EU we have another host of inflation figures from a number of countries, in addition to EU wide unemployment figures. We end the week with US Inflation, Manufacturing, construction spending and a measure of consumer sentiment.
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