Currency Forecasts

Sterling weakness despite strong economic data

This week we have seen continued Sterling weakness, even though economic data has been better than expected. Usually when we see data beat forecasts, it strengthens the currency concerned. That hasn’t been the case this week.

The UK economy is actually performing very well, despite the doom and gloom you hear on the BBC and some other news outlets e.g. despite unemployment falling to it’s lowest levels in more than 40 years, the BBC focuses on wage growth to put a negative spin on it (negativity bias, or in other words, bad news sells!). This week alone we have seen: Unemployment drop to 4%, the lowest since 1975. Inflation sits at around 2.5% which is pretty close to the target level. Retail Sales bounced back growing by 0.7% last month, which was much better than the market had been expecting.

Why then, are we seeing Sterling weakness?

With the economy proving to be robust and resilient to Brexit, why is the Pound so weak? This is all to do with uncertainty. Many such as the Bank of England governor Mark Carney, had warned of a million job losses and a recession due to the vote to leave the EU. We know now that this is not the case. In fact the unemployment rate is the lowest it’s been since 1975, 2 years before I was born! Manufacturing and exports are at good levels, in part due to the weakness of Sterling making UK goods more attractive. But despite the backdrop of a resilient economy, Pound/Euro rates remain close to the lowest they have been in a year, and Pound/Dollar rates are also at 1 year lows of $1.27.

Only part of this is due to Brexit uncertainty and Sterling weakness. The US Dollar has also been gaining in strength due to a flight to safety caused by problems in Turkey, as my colleague Michael mentioned earlier this week. This week has shown that even strong fundamental data is not helping to strengthen the Pound.

Will the Pound go back up?

In the short term, I think that there’s not much hope of the Pound making any gains unless we get any progress with Brexit negotiations. In my view, the EU are putting politics above the best interests of EU citizens. The UK is the 5th largest economy in the world, and the 2nd largest export market for the EU. It is very clearly in their interests to agree a fair deal for trade. If they do, it will likely send GBP/EUR rates back up again as uncertainty dissipates. If however the EU dig their heels in and put ideology before common sense, it will harm both the UK and the EU. In this scenario the Pound could fall by as much as 10%.

Much will depend on whether everyone comes to their senses and make a deal. I don’t expect a recover for the Pound unless this happens.

Avoiding Brexit uncertainty if you have Pounds to exchange

If you need to convert Pounds to another currency, then the current weakness should be a concern. To remove your exposure and protect yourself against the Pound getting any weaker, get in touch today to discuss our currency exchange services. We offer exceptional rates of exchange, and ways to freeze the currency rate for up to 2 years, perfect for budgeting for buying property overseas or to guarantee the cost of importing goods or services.

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Have a great weekend.

Volatility in Turkey pushes GBP/USD to a 12 month low

This week has continued to see some significant volatility in the money markets with events in Turkey the main catalyst.

With sanctions being imposed on Turkey by Donald Trump and his US government over Turkey’s refusal to release a US pastor imprisoned in Turkey, Turkish President Erdogan has swiftly retaliated by sharply raising tariffs on US imports. This includes passenger cars, alcohol and tobacco.

Following the unrest the Turkish Lira fell to record lows on Monday. During this time it lost more than 34% of its value against the US dollar and was to see similar moves against the Pound and Euro. It has since recovered but this volatility has caused some significant market jitters and a “flight to safety” for a number of investors.

What currencies have been affected?

Historically when investors are spooked and risk appetite falls currencies such as the US dollar (USD) and Swiss Franc (CHF) will perform well. This is due to their ‘safe haven’ status. Historically the CHF has been a relatively stable currency with stable interest rates making it a more attractive option for investors, banks and hedge funds. With the US dollar being the most globally traded currency (a number of commodities are prices in USD) investors also see it as a safe bet. In recent days it is this drive which has seen it rally to a near one year high against the pound (1.27) and EUR/USD falling to 1.1330.

With certain currencies benefiting there are obviously those that lose out. Often the currencies to experience a significant loss will be those offering a higher yield, currencies such as the South African Rand (ZAR), Australian and New Zealand Dollar (AUD,NZD). We have seen a devaluation in a number of currencies as a result creating some good buying opportunities if you are in a position to act quickly.

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What could move Exchange Rates this week?

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.

If you need to convert currency and would like to speak to an expert broker about which way rates are moving, make a free enquiry today by clicking here. 

What data could move exchange rates this week?

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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GBP, EUR, USD, AUD, CAD Forecasts

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.

Pound Sterling (GBP) Forecast

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.

Euro (EUR) Forecast

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.

US Dollar (USD) Forecast

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.

Australian Dollar (AUD) 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.

Canadian Dollar (CAD) Forecast

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.

Getting the Best Exchange Rates

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Pound/Euro falls to 9 month low

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.

Why has Pound/Euro been falling this week, and will it recover?

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.

No Brexit progress expected soon

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.

Economic data tomorrow could help the Pound

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.

Do you need to exchange currency?

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.

Typically our rates are 2% to 3% better than banks offer. We have never had an issue beating rates from other brokers, so it’s certainly worth checking what we can offer to see how much you could save.

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