Currency Forecasts

Pound & US Dollar forecast

EUR
The Euro initially strengthened against the pound last week, despite contradicting evidence about the German economic recovery. A surprise 0.9% decline in German industrial production in July was countered by a stronger than expected 3.5% rise in German factory orders over the same month.

European investor confidence data released this week helped to suggest that the Euro zone economy is beginning to see a steady improvement as a result of the better than expected business conditions throughout August. However, most of the Euro’s gains against Sterling were pared later in the week following the Bank of England’s decision not to expand QE measures.

Rates stand as follows as at 08:30am 15/09/09:

  • GBP/EUR 1.1375
  • GBP/USD 1.6621
  • GBP/AUD 1.9286
  • GBP/NZD 2.3622
  • GBP/CAD 1.7990
  • GBP/ZAR 12.371
  • GBP/JPY 151.47

This week will see the release of the German ZEW research institute’s survey of investor sentiment on Tuesday and Euro zone international trade data on Thursday. Better than anticipated results supporting the Euro zone’s economic recovery could lead to further strength for the Euro.

The current pressures facing Sterling look to increase this week with the looming prospect of poor inflation data being released on Tuesday. This coupled with the increasing stability of the Euro would suggest any GBP/EUR exchanges would be best completed earlier in the month rather than later.

Finally, last week GBP/EUR closed 0.24% down at 1.1433, compared with 1.1460 a week earlier leading to a positive outlook for any clients wishing to sell.

USD
The US Dollar weakened against all the major currencies, including Sterling, towards the end of last week, as rallying global stock markets lowered the demand for the Dollar as investors pulled money away from the safe-haven of the U.S to fund investments around the world.

Support for the currency was also undermined by a report that the United Nations would like a new reserve currency to replace the US Dollar. This has also been regularly suggested by the Chinese and given the substantial holdings the Chinese government have of US$ Reserves, it is becoming a growing concern and will almost certainly have some impact on the value of the dollar.

The fear in the U.S is that theoretically if a global reserve currency were introduced and the Chinese were to move their holdings away from the Greenback then there would be an immediate and substantial weakening of the $. In further damaging news, consumer credit across the pond fell for a sixth consecutive month, whilst the US trade deficit widened as the rise in imports outpaced exports. While this news paints a negative view for the $, there was more positive news, the latest mortgage approvals data and consumer confidence data recorded a better than expected improvement.

At present the direction of the dollar is subject to a great deal of debate and if factors continue in the same manner as last week with stock-markets rallying and the U.S economy struggling to sustain a prolonged recovery then the dollar could continue to weaken favouring those with a need to purchase $’s. However, it is important to keep in mind that up until last week there had been much sentiment that the U.S had reached the end of the recession, if so there may be further dollar strength to come.

US data releases this week include retail sales data (Tuesday), consumer price inflation data (Wednesday) and housing construction starts data (Thursday). Even if the data reflects positively on the US economic outlook, the overall impact on the US Dollar could be uncertain if it raises investors’ tolerances towards risk.

To ensure you are protected in what promises to be another volatile week of trading, contact us today about the benefits of Limit and Stop-Loss Orders.

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This weeks data, and the effect on GBP rates.

Sterling hit a 1 month high against the US Dollar on Friday, buoyed by a rally in higher-risk currencies and by the view the Bank of England’s decision to keep monetary policy unchanged suggests the UK economy may be stabilising. Pound rates at 09:00am are as follows:

  • GBP/EUR 1.1393
  • GBP/USD 1.6589
  • GBP/AUD 1.9335
  • GBP/NZD 2.3732
  • GBP/CAD 1.7968
  • GBP/CHF 1.7227
  • GBP/ZAR 14.422

The reason we saw gains, is that the bank kept rates on hold, and also decided no further Quantitative Easing is required at the moment. As markets had expected further QE, Sterling strengthened towards the end of last week, giving some brief opportunities for clients to buy at healthy levels.

A rise in European share prices also boosted appetite for risk, which helped keep sterling demand intact, while a slightly better than expected rise in UK producer prices suggested that inflation risks have not completely disappeared.

“As the risk of a rate cut and negative announcements from the BoE have disappeared … all we need is for global sentiment to be OK and nothing bad to happen” said Peter Frank, currency strategist at Societe Generale in London.

“The data doesn’t have to outperform, it just has to be in line with expectations, and then we’ll see sterling go higher as specs close out existing state shorts out there.” So, some positive noises from some analysts, however others dont see the pound in such positive light. As outlined in Fridyas report, David Blanchflower, who used to be a policy maker at the BoE, signalled that he expects more QE in the future, and so this dampened any further recovery for Sterling.

The pound also drew strength from a small rise in weekly UK department store sales announced on Friday, which added to signs domestic consumer demand may be recovering. Data on Friday showed UK producer input prices rose by 2.2 percent in August, much more than expected, which pushed up factory gate inflation 0.2 percent higher on the month. Forecasts had been for a 0.1 percent rise.

Also helping the pound was the BoE’s announcement on Thursday it would hold its lending rate at a record low 0.5 percent and keep its 175 billion pound asset-buying programme unchanged, while not implementing other policies to stimulate the economy and lending.
The decision reassured some in the market who had been bracing for the possibility of additional measures, such as cutting the rate it pays banks for holding reserves with it.

So, some restbite for Sterling as better news helps exchange rates rise. With uncertainty however on what the BoE will do next month, rates are still very volatile. Markets will look to data releases to see how well the economy is recovering, and the data released over the coming weeks will sway these BoE decisions.

This Weeks Data
The data releases this week are extensive, and we see some major news from the UK, EU and US. Today is fairly quiet, with some house price data for the UK, and employment data for the EU. The real fun starts on Tuesday, with UK data showing the state of the retail market and housing prices, in addition to some inflation data.

Later in the week we have unemployment data for the EU, UK and US. We also have interest rate decisions by Japan and Switzerland.

Monday
EU – Industrial Production
EU – Employment Change
UK – RICS House Price Data

Tuesday
Aus – RBA Minutes
Swi – Industrial Production
UK – Consumer Price Index
UK – DCLG House Prices
UK – Retail Price Index
EU – Labour Costs
Ger – ZEW Economic Sentiment Survey
EU – Growth Forecasts

US – Producer Price Index
US – Retail Sales

Wednesday
Aus – Westpac Leading Index
Swi – Retail Sales
UK – Average Earnings
UK – Claimant Count
UK – Unemployment
UK – Jobless Claims
EU – Consumer Price Index
US – Consumer Price Index

Thursday
Jap – Interest Rate Decision
UK – Retail Sales
EU – Construction Output
UK – Trade Balance
Can – Consumer Price Index
Swi – Interest Rate Decision

US – Jobless Claims

Friday
Jap – Leading Economic Index
Ger – Prodcuer Price Index
Eu – Current Accounts
Can – Wholesale Sale





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Sterling gains, but outlook for Oct & Nov unstable

Sterling gains against Euro, US Dollar, AUD & NZD
Sterling hit a one-month high against the dollar yesterday, and climbed against other major currencies including the Euro after the Bank of England kept interest rates unchanged, reassuring traders who had braced for the possibility of additional quantitative easing measures.

As we’ll see shortly though, analysts dont expect the pound to keep rising. Rates at 08:30am stand as follows:

  • GBP/EUR 1.1428
  • GBP/USD 1.6711
  • GBP/AUD 1.9345
  • GBP/NZD 2.3683
  • GBP/CHF 1.7306
  • GBP/ZAR 12.610
  • GBP/JPY 151.69

Bank of England
The BoE held its benchmark lending rate at a record low of 0.5 percent for the sixth month running and said it would keep its 175 billion pound asset-buying programme in place, with no further money to be created, at least for this month. Most participants had been expecting rates to be kept on hold, but some strategists had seen an outside chance it would increase the amount of assets it has been buying in an attempt to boost liquidity in the market.

We thought this would be the case, and the currency markets had priced in the chance of this also. This had weakened the pound earlier in the week, and because there was no further QE, Sterling bounced back straight after the decision.

Speculation had also been brewing this week that the BoE may cut the interest rate it pays banks for holding reserves with it to encourage them to lend rather than park money at the central bank.

So, is the pound now set to keep rising?
Even as the BoE kept policy unchanged on Thursday, some expectations remain that the central bank may soon increase its asset-buying plan to help boost the UK economy. So, it may just be that the BoE were holding for a month and will announce more measures next month.

Former BoE MPC member David Blanchflower said Mervyn King, who had voted to increase the plan beyond the 175 billion pounds decided last month, could probably persuade other board members to vote for more quantitative easing by November.

Blanchflower said “Unless some very strong positive UK data is released soon, then in my view King cannot, and will not, continue to vote in the minority for very long, as his credibility with the markets would be threatened,” He continued, “My bet is that he will get his way and the MPC will approve further quantitative easing by November at the very latest. He may even manage to get rates down below 0.5 percent.”

So, the markets are in limbo, and the QE measures along with other data releases will be driving the pound one way or the other in the coming 4 to 8 weeks.

So, should you buy your currency now, or wait?
Impossible to say, but there are steps you should take if you have a requirement to buy or sell a foreign currency.

If you are buying currency with Sterling, then you will be pleased with the BoE decision, and hope that rates will climb. If we see more QE however, then the recent gains will be short lived, and your currency will cost you more. Therefore, consider a Stop Loss order. This is where you place an order to buy should markets fall to a certain level. This way, you can still hold out for a higher rate, but if things move against you, then you wont be caught out.

If you are selling currency to be converted back to Sterling, then the recent upsurge in Sterling’s value will be making your conversion more expensive. So, holding out for more QE could mean things move in your favour, but if the economy is indeed recovering and we dont see any further measures by the BoE, then things will get worse and worse for you. So, consider placing a Limit Order, so that if markets bounce back then a rate will be automatically locked in for you. At the same time, a Stop Loss can be placed so if things dont move your way, then the cost wont spiral out of control.

Stop Loss and Limit Orders allow you to take control of a volatile market, and not simply hope the market moves in your favour. Rates could move dramatically either way in the coming months, and so buyers and sellers should open an account with us today, and have a free consultation on the best way forward for your particular requirement. Don’t just leave it to hope and chance – make sure you control the markets, and dont let them control you!

9/11
All here at FCG will of course remember the terrible attacks today which don’t seem that far in the past, however today marks the 8th anniversary of the terrorist attacks in America. Remembrance services are to be held in the United States to mark the day when nearly 3,000 people died when the four planes crashed in New York, at the Pentagon and in a Pennsylvania field. President Barack Obama will speak at the Pentagon site and Americans have been encouraged to contribute to a national day of service.

Todays Data
For the UK, we have Producer Price Index, which is a monthly measurement of the rate of inflation experienced by the UK manufacturers when buying goods and services. It captures changes in the average price of a fixed basket of goods and services purchased by the UK Manufacturers

Canada releases New Housing Price Index. This is a monthly series that measures changes over time in the contractors’ selling prices of new residential houses, where detailed specifications pertaining to each house remain the same between two consecutive periods.

For the US, we have consumer sentiment, Import Prices, and a monthly budget statement.

Have a great weekend.

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Quantitative Easing & Currency Exchange Rates

Pound climbs, but doesn’t last
Yesterday the pound climbed against the dollar, but fell against the Euro. This morning, the pound has retracted it’s gains and is falling again. All this on the backdrop of the headline news that the FTSE broke through 5000 for the first time in nearly a year.

However, the currency markets took a different view to the headlines proclaiming that we are now in recovery. Now, if that was the case, surely the pound would be getting stronger, not weaker?!

Today we’ll look at whether the BoE will announce further Quantitative Easing, how this may affect exchange rates, and whether the economy is indeed recovering. Pound Exchange Rates as at 08:30am 10th September are as follows:

  • GBP/EUR 1.1331
  • GBP/USD 1.6510
  • GBP/AUD 1.9241
  • GBP/NZD 2.3745
  • GBP/CAD 1.7833
  • GBP/CHF 1.7172
  • GBP/ZAR 12.457
  • GBP/JPY 152.13

Bank of England Interest Rates and Quantitative Easing
The Bank of England will announce their decision on interest rates and Quantitative Easing at lunchtime today. We expect them to hold interest rates at 0.5% for the sixth month in a row, when it announces its decision later.

It is also likely to maintain its programme of pumping money into the economy – called quantitative easing – but is not tipped to extend it. However, there is an outside chance that the amount of money being created and pumped into the economy will be raised.

Last month, they announced a further £25 billion, and it later transpired that 3 members wanted an extra £50bn. So, markets are in limbo awaiting this news. Recent data has suggested that the UK has begun to climb out of recession, but the Bank has warned recovery is not assured and that it will take months for its policies to have full impact.

3 of the 9 member committee, including the Bank’s governor Mervyn King, voted last month for an increase, to £200bn.The aim of quantitative easing is to encourage individual banks to expand their balance sheets – moving their reserves into something that offers a higher return, such as making new loans – and so increasing the supply of money in the economy.

A recent member of the MPC recently turned on the bank, criticising it for not spotting the recession and then not acting decisively enough to avoid it. Read more here.

If we do see further Quantitative Easing, then expect the pound to be hit hard and for exchange rates to fall. For those that need to buy currency with Sterling, consider locking in rates prior to the announcement to protect yourself against adverse movements. Those selling foreign currency back to Sterilng may wish to wait and see what the Bank says.

Bear in mind however that no-one can accurately predict which way rates will go, so ultimately it has to be your decision when to fix your rate.

Recessions Compared

Here we can see how recent recessions compare. You can see the depression on the 30’s has been the worse, but the charts also clearly show the W shaped recession, where you get recovery, only for things to get worse again before recovery proper.

The danger as you can see from the black line showing the current downturn, is that we could be in for a W shaped recession.

You can see the signs of recovery, but no-one knows if this will continue to move this way. We have had some more positive figures recently for the UK, but fundamentally the problems remain – lack of lending, high unemployment, low interest rates, and the governments insane policy of throwing billions of pounds at the problem in the hope it will go away.

Finally, some regular readers could not view our recent appearance on CNBC. If you couldn’t view it, then watch it here on You Tube now. We have a regular 3 weekly session on CNBC, so I will post the video every fortnight as it gives an interesting insight into the currency markets.

Todays Data
EU – ECB Monthly Report
UK – Halifax House Prices
UK – BoE Interest Rate Decision & QE
US – Jobless Claims
US – Trade Balance
Can – Interest Rate Decision
Ger – Wholesale Price Index
NZ – Food Price Index
Jap – Gross Domestic Product

Get in touch to discuss your requirements today. Be fully armed with all the information you need to make sure you control your position in the market, and dont let the market control you!

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Currency Markets discussed on CNBC

Today for something a little different, we’ll watch our Director of Foreign Exchange discuss the currency markets on CNBC. First as usual, a quick look at where rates stand…

GBP/EUR 1.1385
GBP/USD 1.6478
GBP/AUD 1.9224
GBP/NZD 2.3741
GBP/CAD 1.7821
GBP/ZAR 12.419
GBP/JPY 152.41

The pound fell away in trading yesterday, with markets reacting poorly to the forecast UK budget deficit, as already discussed here on the blog. Alastair Darling said that spending would need to be cut, but will actually be spending more in the near term. This attempt to spend the UK out of the financial mess we’re is is alarming analysts, as it stores up further problems and is keeping Sterling fragile.

We now wait for tomorrows BoE announcement to see which way Sterling will move.

Watch our Director of Foreign Exchange :

UK Jobs
The UK jobs market is starting to show signs of recovery, according to a survey of recruitment agencies. The research, produced by Markit Economics, finds “marginal increases” in both permanent and temporary appointments in August. For permanent staff, this is the first increase since early 2007.

“This is first time we have seen really positive news for the UK jobs market in 17 months,” said Bernard Brown from KPMG, co-sponsor of the survey. Despite this, it’s still expected unemployment will rise above 3 million, which will put further pressure on the pound.

Todays Data
We have already had German Consumer Price Index, that came in exactly as expected.

At 09:30am we have Trade Balance Data, which is a balance between exports and imports of goods A positive value shows trade surplus, while a negative value shows trade deficit. It is an event that generates some volatility for the GBP.

10:30am sees the UK Shop Price Index which measures price changes in the popular retail outlets in the UK. The changes in the SPI are widely followed as an indicator for inflationary pressures.

Elsewhere we have Canadian Housing Starts, an Interest Rate Decision from New Zealand where we expect rates to be held at 2.5%.

At the end of the day, we have the GDP estimate report that comes out a month before the official announce. The report is highly reliable and would influence the UK monetary policy.

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