Good morning. In today’s post I’ll take a look at the key economic data releases for the week ahead, and how they could affect Exchange Rates. In addition to the economic data releases listed below, any progress with Brexit negotiations are also likely to have a significant impact on GBP exchange rates. If there continues to be a perceived lack of progress with talks, the Pound could continue to fall. Some reports say that the Pound could drop by 10% should the UK leave with no deal. If however, the EU decide to make some concessions to allow the negotiations to progress, then it’s likely the Pound will recover some of the ground it has lost in recent weeks.
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Monday 13th August – there is little in the way of economic data today. The Pound is therefore likely to move on any developments with regards to Brexit.
Tuesday 14th August – Today the UK will release its latest unemployment and earnings data. I expect the unemployment rate to remain at its record low of 4.2%. Earnings data will also be in focus. The markets expect earnings to have grown by 2.7% in the last quarter. If the actual number matches or exceeds this, then it could lend some support to the Pound. Elsewhere, Germany and the EU as a whole release their latest GDP numbers, which could also affect Pound/Euro rates.
Wednesday 15th August – At 09:30am we’ll see the latest UK Inflation numbers. Inflation can influence interest rate movements, but given the BoE have already said any further rate hikes will be limited, it might not have much of an effect. There’s also some US data in the afternoon that could affect GBP/USD rates including Retail Sales and Industrial Production numbers.
Thursday 16th August – Today’s key UK release is the 09:30am Retail Sales numbers. They are a very good barometer of how the economy is doing. If the result is better than 0.4% then the Pound could gain, however a disappointing number could easily send the Pound lower. The US releases jobless claims at lunchtime that could move GBP/USD lower.
Friday 17th August – There’s nothing from the UK today, so GBP/EUR rates will be influences by the EU’s inflation numbers at 10am. A higher than expected reading would strengthen the single currency, pulling GBP/EUR rates lower. GBP/CAD will also be in focus as markets react to the latest Canadian inflation figures.
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It’s the end of a week that has not been particularly favourable for the Pound. The threat of a no deal Brexit has dragged the Pound lower across the board, pushing Sterling to an eleven-month low against the US Dollar and its worst levels against the Euro since September 2017.
In today’s post, we’ll take a detailed look at the forecast for the major currency pairs that we trade for our clients, including: Sterling (GBP), Euro (EUR), US Dollar (USD), Australian Dollar (AUD), Canadian Dollar (CAD). To speak to a currency specialist and get a free quote, get in touch today.
Speculation over the prospect of the UK leaving the EU in March 2019 without any deal in place has weighed heavily on the Pound in recent weeks. Comments from international trade secretary Liam Fox prompted GBP exchange rates to slump sharply as he warned that the chances of a no deal Brexit stand at 60-40. This overshadowed the Bank of England’s (BoE) decision to raise interest rates from 0.50% to 0.75% at its August policy meeting.
Until investors see signs that the UK and EU are progressing towards an agreement, the mood towards the Pound is likely to remain generally negative.
However, if July’s UK inflation data shows a fresh uptick in price pressures this could offer support to GBP exchange rates. As higher inflation may spur the BoE to tighten monetary policy again sooner rather than later, the Pound could strengthen on the back of the data.
Eurozone data has proved largely disappointing in recent weeks, highlighting the currency union’s struggle to regain its lost economic momentum. A slowdown in German inflation was particularly discouraging for the Euro, with the monthly consumer price easing from 0.5% to 0.1% in June.
As the European Central Bank (ECB) highlighted intensifying downside risks to the global economy, this suggests that the central bank is likely to leave monetary policy on hold for longer. While German exports held steady on the month in June concerns remain that mounting US trade tensions are weighing on economic growth and will continue to do so in the months ahead.
Unless the Eurozone economy can demonstrate greater signs of resilience, though, EUR exchange rates may struggle to find any significant gains.
Although concerns remain over the negative impact that the escalating US-China trade dispute could have on the US economy, this failed to prevent USD exchange rates strengthening. Demand for the US Dollar strengthened in the wake of the Federal Open Market Committee’s (FOMC) August policy meeting.
As policymakers paved the way for a September interest rate hike this encouraged investors to pile into the US Dollar, in spite of some signs of weakness in recent US data. While US protectionism is likely to boost market risk aversion, benefitting the safe-haven US Dollar, this could damage the domestic outlook if further tariffs are imposed.
If August’s Fed meeting minutes raise the odds of a September interest rate hike further USD exchange rates could remain on a bullish run, even if subsequent domestic data falls short of forecast.
While Reserve Bank of Australia (RBA) Governor Philip Lowe maintained a rather upbeat tone on the domestic outlook this failed to benefit the Australian Dollar. As the RBA still looks set to leave interest rates on hold for the foreseeable future AUD exchange rates took little encouragement from Governor Lowe’s commentary.
Although the Chinese economy demonstrated signs of resilience this was not enough to prevent a fresh bout of risk aversion as trade tensions between the US and China continued to escalate. Fresh volatility is likely for the Australian Dollar with the release of July’s Australian labour market data, which may see the unemployment rate push higher once again.
Focus will also fall on the second quarter wage price index, with any softening in wage growth set to weigh heavily on AUD exchange rates.
As the Canadian inflation rate saw an unexpectedly strong uptick on the year in June this offered support to the Canadian Dollar. With price pressures continuing to mount and the latest retail sales figures showing a solid increase, confidence in the health of the Canadian economy improved. CAD exchange rates also benefitted from market hopes that NAFTA re-negotiations could successfully conclude in the weeks ahead.
Fresh US sanctions on Iran helped to boost oil prices, meanwhile, even as US stockpiles failed to diminish as forecast. If Canadian inflation shows signs of falling back the appeal of the Canadian Dollar could weaken, especially if market risk appetite deteriorates further.
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The Pound has continued to fall all week, however today seems to have stabilised slightly. We have seen Pound/Euro fall to a 9 month low, and GBPUSD rates fall to a 1 year low . Today however Sterling has bounced back ever so slightly as you can see in our live graphs page.
The reason Pound/Euro has been dropping is continued concerns over Brexit. As I touched on in my last post, with little economic data for the markets to digest, all focus has been on the lack of progress with Brexit. The increased chances of the UK leaving with no deal has increased uncertainty, causing investors to dump the Pound.
We’ve seen a slight recovery today. This could be due to rumours that the EU may finally allow the UK to remain in the single market without accepting free movement. However it’s also rumoured that the EU would seek concessions such as the UK having to accept adopting things like environmental and social protections. This would limit the UK’s ability to strike free trade deals elsewhere, which many would argue is the main benefit of Brexit. Certainly the EU will want to protect things like France’s agricultural and Germany’s Industrial dominance.
I’m not expecting any progress with Brexit negotiations for at least 4 to 6 weeks. In the meantime, there are 2 things that will affect Sterling exchange rates. As we saw last week, it was comments from Mark Carney the BoE governor, and Liam Fox the International Trade secretary that were the catalyst for the Pound dropping. Their comments of an increased chance of ‘No Deal’ are what caused Sterling to fall to lows this week. Any further comments could move rates either way depending on their tone.
We also have some important economic data from the UK tomorrow in the form of the latest growth figures (expected at +0.4%). We’ll also see Industrial and Manufacturing numbers, expected at 0.4% and 0.3% respectively. The numbers are released at 09:30am tomorrow morning. If they are better than forecast then it could help the Pound recover. If however they are disappointing, then the appeal of the Pound is likely to diminish further, which might mean the Pound resuming its downward trajectory.
If you need to convert currency, then simply watching the rates and hoping they will get better is not recommended. Hope is not a reliable economic tool. If you need to convert currency and are keen on getting the best exchange rates, then the first step should be to get in touch with one of our currency experts.
We can discuss your requirements, timescales and attitude to risk. You can find out more about what is moving the rate, and discuss your options to help protect you against the rate moving the wrong way. You can also get a free quote to see what exchange rate we can offer you.
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Good morning. The Pound has fallen this week, as markets reacted to increased chances of a No Deal Brexit. Last week, after the Bank of England interest rate decision, governor Mark Carney gave warnings of the impact of the UK leaving the EU with no deal. Over the weekend, the Trade Secretary Liam Fox also said that he now believes the likelihood of no deal is now as high as 60/40.
These comments were picked up when markets opened yesterday morning. The Pound fell against all major currencies including the Euro and US Dollar. GBP/EUR has dropped into the €1.11’s. GBP/USD has dropped below $1.30.
I think that for the most part, Sterling will be driven by any further comments or developments with Brexit. You can read my views here about how a No Deal Brexit could affect Sterling exchange rates. There’s little in the way of economic data released from the UK for the markets to digest. In fact, the next key release isn’t until Friday morning. We’ll see the latest UK GDP figures, along with Industrial and Manufacturing production data. These are good indicators of how the economy is faring, and could impact the value of Sterling if the actual result differs from the expected.
With an increased risk of no deal with the EU, there is a real chance the Pound could collapse in value. Some forecasts are suggesting GBP/EUR could drop to parity, and GBP/USD to drop to $1.15. There’s still plenty of time for a deal to be made however. It’s in everyone’s interest for this to happen. However, if Barnier sticks to his red lines and continues to be unwilling to make any concessions, then both sides may sleep walk into a situation that would be catastrophic for the economies of the UK and 27 EU member states.
The risk of no Brexit deal translates directly to the currency markets. If you need to convert Pounds to another currency, to purchase property abroad for example, then your costs could increase significantly. If GBP/EUR rates did drop to parity in the event of a No Deal, then a €300,000.00 property overseas would increase in value by more than £30k.
This illustrates how important exchange rates are when converting large sums. At currencyforecasts.co.uk we have various ways to protect our clients against sudden movements in the rate. To find out more about our foreign exchange services, get a quote or simply discuss currency market movements, get in touch today for a free consultation.
Pound Drops: We have seen the Pound drop across the board this afternoon, despite the expected interest rate hike by the Bank of England. All 9 members voted for rates to go up to 0.75%. As we predicted in our last post, this caused a slight gain for the Pound. The gains were limited however. We pointed out a few days ago that a rate hike would likely push Sterling a little higher, but that when Mark Carney gave his speech it was likely to drop back away again. That’s exactly what happened today as the chart below illustrates:
Today’s rate hike was widely expected by the markets. When it happened, the Pound rose a little, and this was because all 9 members voted for the hike, which was unexpected. It was Mark Carney’s comments in his press conference that caused the Pound to fall again, as we forecast earlier this week. He stated that there would only be gradual increases in interest rates, which he expected to be at 1%-1.25% by 2020. This means there is no chance of another rate hike any time soon.
Investors sold Sterling on the back of these comments, causing it to lose all it’s gains and actually end up lower against the Euro and US Dollar than where it started the day.
With this expected rate hike now done and dusted, many clients will want to know if the Pound will go up or down for the remainder of the year. Our view is that all focus will now shift back to Brexit related uncertainty, and at the moment the outlook for Sterling is negative. Very little progress has been made with Brexit negotiations. If the UK ends up leaving the EU with no deal, then we think it’s likely that GBP/USD could drop as low as $1.15 and GBPEUR could drop to parity.
There is still time for the UK and EU to make a deal however. If they can do so in the next 6 to 9 months then there is scope for Pound/Euro rates to recover to €1.20. At present however, a no deal scenario is looking more likely. If the EU can make some concessions before the end of the year, a deal could still be struck. If not, we can’t see anything that will stop the Pound plunging against the Euro, USD and other currencies.
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