Monday 1st September 2014
Good morning and welcome to a new month. Pound/Euro rates have started quite strongly at €1.2650 due to a weakening Euro, but Pound/Dollar remains low at just above $1.66. In today’s report I will outline what has pushed GBP/EUR rates higher, the forecast for September, along with this week’s data releases that could affect exchange rates.
Pound/Euro up to €1.2655
After a few weeks of decline in the GBP/EUR rate, this morning we saw it recover back close to 2 year highs. This is partly due to the crisis in Ukraine and the risks this presents to the EU recovery.
The main reason why the Pound has risen against the Euro is weakness in the single currency. Low inflation means that the pressure is on the European Central Bank to provide further stimulus which could take the form of Quantitative Easing. They will announce whether they will do so at a meeting on Thursday. If they do announce stimulus, expect the Euro to weaken and Pound/Euro rates to rise.
However, Analysts at Barclays said it was too soon for the ECB to announce new policy measures, given that the two most powerful policies announced in June are not yet deployed. So there are mixed views on whether anything will be announced on Thursday. If so, exchange rates will probably go up. If they don’t say anything, then the rate will probably drop.
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Pound/Dollar remains low at $1.66
The US economy is also recovering well, and they have been winding up their stimulus programme. So like the UK, the USA is recovering and this is being reflected in the strength of the respective currencies.
The UK and US economies are doing well; the Dollar and Pound are strong as a result. The EU economy is doing badly, and they are likely to have to take measures to boost the economy. This is weakening the Euro.
The geopolitical situation in Ukraine and the middle-east is also causing problems for the EU economy, and causing the safe haven US Dollar to gain in strength and become more expensive. All of the above means GBP/USD is low, GBP/EUR is at a 2 year high, and there are various economic releases (detailed below) this week that could keep the currency markets quite volatile.
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This week’s economic data releases.
Monday 1st September – Today has been very quiet due to a market holiday in the United States. We did have slightly worse than expected UK Mortgage Approval and inflation numbers this morning, pulling the Pound slightly lower.
Tuesday 2nd September – Overnight Australia will have released its latest interest rate decision which I expect will stay at 2.5%. The only UK data of note today is PMI construction released at 09:30am. US Markets open again today with figures showing the latest Construction and Manufacturing.
Wednesday 3rd September – Further UK inflation figures today could affect the Pound. GBP/EUR could also be affected by the latest UK Retail Sales figures. Elsewhere we will see Australian growth figures, an interest rate decision from Canada, and the latest US Factory Order numbers.
Thursday 4th September – As always for the first Thursday in the month, the EU and UK release their latest decision on interest rates. They will probably leave them as they are, but there is a chance as I outlined above that the EU could announce stimulus measures. Expect exchange rates to rise if this is the case. Over in the USA we have the latest Jobless numbers and Trade Balance figures.
Friday 5th September – The only UK data of note is a consumer inflation report. The EU releases its latest GDP figures. Canada has some unemployment numbers. Over in the states we have earnings and non-farm payroll figures. These are often very different to forecast to expect a choppy day for Pound/Dollar rates.
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