Currency Forecasts

Sterling pushes higher, but may not last

Sterling July 2009
The pound has pushed much higher this morning following corporate earnings data yesterday, and better than expected house price information for the UK early this morning. As you can see from the snapshot below of rates at 08:30am, we have significantly better levels than yesterday:

GBPEUR 1.1710
GBPUSD 1.6467
GBPNZD 2.5220
GBPAUD 2.0041
GBPCAD 1.7877
GBPCHF 1.7901
GBPZAR 12.892
GBPJPY 156.15

House Prices
The UK’s largest building society believes there is a reasonable chance that house prices could end the year higher than they started 2009.

Such an outcome was unthinkable a few months ago, the Nationwide’s chief economist said.
The Nationwide’s latest house price survey showed prices rose by 1.3% in July compared with the previous month. The result was alot better than anaylsts predictions, meaning it has helped push the pound through 1.17 against the Euro.

Eurozone
Another reason for the rise is German consumer prices – they fell for the first time in 22 years in July, official figures have shown yesterday. Prices fell 0.6% in July from a year earlier – the first fall since March 1987, when they declined by 0.3%.

The decline was largely due to falls in energy prices, which peaked in summer 2008, and analysts said Germany was unlikely to see a deflationary spiral.

As Germany is the largest economy in the EU, these negative figures have weakened the Euro, and combined with Sterling strength has given an opportunity to Euro buyers to buy at very close to the highest rates all year.

Will it last?
Hard to tell. Most eyes now will be on any further comments by the Bank of England next week. If there is any further news of more Quantitative Easing which many are predicting, then expect a weaker pound.

So, for Euro buyers, consider taking advantage of a Forward Contract to fix these rates now while they are here. You only have to pay a 10% deposit, and you can then draw the funds up to 2 years into the future.

For Euro Sellers that need to convert funds back to Sterling, then it’s also important to note the medium term forecast for the pound. This says that things will continue to go up in the medium to long term, and so again a Forward contract will allow you to remove any risk of rates going the wrong way.

Get in touch today to discuss how we can help you achieve the best possible exchange rate for your transfer.

Today’s Data
We have already had Nationwide House Prices for the UK, which were much better than expected, helping push the pound higher against Euro and US Dollar. Later on we have the GFK Consumer Confidence at midnight tonight. It is a leading index that measures the level of consumer confidence in economic activity. A high level of consumer confidence stimulates economic expansion while a low level drives to economic downturn.

Just before 9am we have unemployment data from Germany. Consumer Confidence for the EU comes a bit later this morning.

From the US we have core personal consumption, Employment Cost, Gross Domestic Product and the Chigao Purchasing Managers Index.

This US Data will be very important due to risk sentiment. If figures are good, then it can help boost the pound which is seen as a high risk currency, and in bouyant times it increases demand, so watch this data closely.

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Pound falls. Lots of UK data today

Market Snapshot, 30 July 2009 @ 08:30am :

  • GBPEUR 1.1560
  • GBPUSD 1.6375
  • GBPNZD 2.4932
  • GBPAUD 1.9950
  • GBPCAD 1.7778
  • GBPCHF 1.7596
  • GBPZAR 12.924
  • GBPJPY 153.91

Trading Yesterday:

Sterling fell yesterday, retreating from earlier gains made earlier this week against both EUR and USD. It was as Britain’s main stock index turned negative and data showed UK retail sales fell faster than expected in July that caused the fall.

Adarsh Sinha, a currency analyst at Barclays Capital said the pound slipped in line with equities but was more generally struggling to keep in step with gains in other pro-cyclical units following a strong performance earlier in the summer.

“Sterling has sort of been underperforming the other more risky currencies in general,” he said. “What really matters for sterling is what happens in banking stocks.”

The currency edged down a touch after data from the Confederation of British Industry showing British retail sales fell faster than expected in July but slower than in June. Overall, the pound’s reaction to the data was limited. Sterling came under further pressure after weaker-than-expected U.S. consumer confidence data.

There was some recovery however, after a senior UK Treasury source told Reuters inflation could become a problem once again when the global economy recovers, adding the threat of deflation has receded.

Australia gives the pound a heling hand…
Despite sterling’s slide, the currency was supported by a climb in the Australian dollar after comments early on Tuesday from the governor of the Reserve Bank of Australia. He suggested that interest rates in the UK may rise.

Higher rates mean a better return for investors, and so more of these investors purchase Sterling, pushing the value higher. It’s the recent cuts and low rates here in the UK that have helped to weaken the pound so much over the last 9 months.

Todays UK Data
As I pointed out on Monday, today has lots of UK data, most released at 09:30am. Expect rates to change from the snapshot above, as investors move Sterling depending on how good or bad the figures are. Let’s take a detailed look at what this data actually is…

M4 Money Supply – measures all the sterling in circulation, encompassing notes and coins as well as money held in bank accounts. It is considered as an important indicator of inflation, as monetary expansion adds pressure to the exchange rates. An acceleration of the M4 money is considered as positive for the GBP, whereas a decline is negative.

Consumer Credit – is an amount of money that individuals borrowed in the previous month. It shows if consumers can afford large expenses, which can fuel economic growth. However, a high figure may also indicate that the economy is overheating, as consumers borrow in order to live beyond their means

Mortgage Approvals – The Bank of England presents the number of various Mortgage Approvals. It is considered as a leading indicator of the UK Housing Market. A Mortgage growth represents a healthy housing market that stimulates the overall UK economy.

Elsewhere, we have some info from the USA this afternoon; Mortgage Applications, Durable Goods Orders & Crude Oil Stocks.

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Pound makes gains against Euro and USD

Sterling (GBP) to Euro (EUR)
Sterling edged up against the Euro yesterday as confidence in the strength of corporate earnings continued to support world equities and helped Sterling recover losses after poor growth data on Friday.

Some analysts said the healthy run in the pound against the dollar and euro, largely motivated by the currency’s cheapness after long declines during the credit crunch, was showing signs of vulnerability, which is due to concerns about the UK government’s weak fiscal position.

Minutes from the Bank of Englands July meeting released last Wednesday signalling muted optimism about Britain’s economic prospects provided the impulse for sterling buying.

But Friday’s UK GDP data suggested recovery could be slower than previously thought and added fuel to speculation over new stimulus measures from the Bank of England, which has already embarked on a 125 billion pound quantitative easing programme – this is what’s the main cause of the volatility in the pound right now.

With a light data schedule this week, investors will be focus on consumer credit data from the Bank of England on Tuesday, and CBI distributive trade on Wednesday.

Analysts said the pound might well tread water until next week when the BoE announces its decision on whether or not to extend its programme of quantitative easing.

Sterling GBP to US Dollar USD
The GBP/USD rate traded close to the highest level this year last week, reaching a high of $1.6580 on Thursday, following better than expected retails sales and mortgage approval figures in the UK.

The figures prompted speculation that the recession in the UK is nearing an end and that the Bank of England will look to hike interest rates into the not to distant future, (Some analysts forecasting that the base rate will reach 1.5% by the middle of 2010.)

Sterling’s progress was temporarily halted by considerably worse than expected GDP figures for the UK last Friday, but despite this damaging news the GBP/USD trading levels have remained relatively stable, highlighting the vulnerability of the Greenback on Global Currency Markets in the present climate.

In what is expected to be a more volatile week for Cable there are a number of economic releases which could have an impact on those either buying or selling Dollars. The Chairman of the Federal Reserve (Ben Bernanke) will be making a number of speeches in a week which climaxes with the Q2 GDP figures for the U.S.

Ultimately, whether the figure is good or bad for the U.S economy, the release will have much wider reaching global implications. While, there are a number of leading analysts forecasting that trading levels on the dollar will continue to rise, there is a risk to those buying $’s that the U.S, which was the first major economy to enter recession will indeed be the first out of it, potentially damaging the Pounds value against it’s American counterpart.

All things considered, the direction of Cable is currently the subject of much debate amongst investors as well as analysts and with a plethora of factors pulling the dollar in different directions the outcome remains unclear.

To maximise your gains in a difficult to predict and volatile market speak with your FCG account manager about the benefits of Stop-Loss and Limit Orders.

Todays Data
The only data of note for the UK today is the CBI Distributive Trades Survey. Released by the Confederation of british Industry, it’s an indicator of short-term trends in the UK retail and wholesale distribution sector. This survey tend to have an impact on the formulation of economic policy at the Bank of England and within Government, and as this is a big factor in sterlings value right now, it’s one to watch out for.

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Outlook for the pound against Euro and Aussie

Welcome back to regular readers, as daily posts from FCG now continue as normal. Today we’ll have a quick look at the pound and where things lie after poor GDP data last week, and also the data releases from Australia that are due this week.

Sterling and UK Economy
Sterling fell against both the US Dollar and Euro on Friday, as UK GDP growth figures for the second quarter came in weaker than expected, dampening hopes for a quick economic rebound while global stock market falls added to the downward pressure on sterling.

While an improvement on the previous quarter, the figures may indicate that the recovery could take longer than previously had been thought. The contraction was much less than the 2.4% seen in the first quarter but was still above analysts’ 0.3% prediction. The latest figures take the annual rate of decline to 5.6%, the biggest fall since records began in 1955.

The data suggested recovery could be slower than previously thought and added fuel to speculation over additional stimulus measures from the Bank of England, which has already embarked on a 125 billion pound quantitative easing programme.

“The big issue for the market continues to be what happens to quantitative easing, that is the 125 billion pound question — what kind of exit strategy the BoE will propose,” said Robert Minikin, senior strategist at Standard Chartered.

Analysts said the Sterlings fall was limited partly by the fact that second quarter GDP data was backward looking, while the real focus was on the outlook for inflation. Also, new GDP forecasts and upcoming moves from the Bank of England will likely have an effect.

The pound’s healthy run last week put it on track for a 0.5 rise against the dollar which would be its second straight weekly gain and its best weekly performance on a trade-weighted basis since mid-June. Earlier in the week, minutes from the BoE’s July meeting signalling muted optimism about Britain’s economic prospects provided the impulse for sterling buying.

Wednesday is the main day for UK data releases, with Consumer Confidence and Mortgage Approvals.

Australian Dollar
The economy is forecast to begin to grow from late 2009, although the recovery is expected to be gradual, partly reflecting the slow recovery in global demand, the Reserve Bank said in its quarterly policy statement.

Australia’s recession will be “less severe” than in many other countries, helped by lower borrowing costs for home buyers and businesses, the nation’s healthier financial system, a decline in the currency and the recent recovery in the Chinese economy. Investors expect Australia’s benchmark interest rate will be higher in a year.

Currently rates to buy AUD hover around the $2 mark, which is great for converting funds back to Sterling, as this is very close to the lowest it has been in the last 12 months. This week sees some significant data from Australia this week, read below for what we expect to see. The fact that the economy is forecast to continue to climb, means that we could well see rates fall below the $2 mark.

This Weeks Data
We have some significant data from Australia this week, that could well affect GBP/AUD rates. Business Confidence is released on Tuesday along with a speech by the Reserve Bank of Australia. Wenesday sees Home Sales, Thursday Building Permits and on Friday we will see the interest rate decision. If you have any requirements to buy or sell AUD, get in touch to discuss the implications of this.

Elsewhere, Wednesday is the main day for UK data, with Consumer Confidence and Mortgage Approvals. Data is light for the EU as a whole, however Germany (the biggest economy in the EU) does have significant releases that will likely cause GBP/EUR rates to be volatile. See below for a list of the main data releases, and if you have any questions about how this may affect you, get in touch and we will be happy to help.

Monday
UK – Nationwide House Prices
US – Home Sales
US – Fed Speech
NZ – Trade Balance

Tuesday
Aus – Business Confidence
UK – Trade Survey
US – Consumer Confidence
US – Fed Speech
US – House Price Index
NZ – Building Permits

Wednesday
Ger – Consumer Price Index
Aus – Home Sales
UK – Consumer Confidence
UK – Money Supply
UK – Mortgage Approvals
US – Durable Goods
US – Feds Beige Book

Thursday
Aus – Building Permits
Ger – Retail Sales
Ger – Unemployment
EU – Consumer Confidence
US – Jobless Claims
UK – Consumer Confidence

Friday
Aus – Interest Rate Decision

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Sterling remains under pressure

The pound remains under pressure this morning, and GBP/EUR has dropped into the 1.15’s. There was very little data yesterday, so the main reasons for the fall are likely to be the poor unemployment figures released on Wednesday:

Market Snapshot @ 08:30am

  • GBPEUR 1.1584
  • GBPUSD 1.6320
  • GBPAUD 2.0406
  • GBPNZD 2.5309
  • GBPZAR 13.268
  • GBPJPY 152.78

This week’s IMF report was also of importance, as they warned that the pound could be at risk from uncertainty and urged Prime Minister gordon Brown to set out a clear path for reducing national debt.

IMF
The International Monetary Fund has delivered its sharpest rebuke yet on the ‘dramatic deterioration’ in Britain’s public finances. In a major blow to Gordon Brown, the Washington-based fund warned the UK is ‘testing the limit of the market’s confidence’ by pushing the national debt towards 100 per cent of gross domestic product – or close to £1.5trillion.

If Britain does not do more to tackle public spending, faith in the Government’s ‘solvency’ could be damaged, it said in an economic health check. This means that for the short term at least, we expect the pound to continue to be pressured.

Health
The government has also warned that deaths from swine flu this winter could be between 19,000 and 65,000 in the UK. Experts said it was impossible to predict exactly, but with a third of the population perhaps becoming infected in the coming months the death toll could rise to such numbers. The World Health Organisation has also described the pandemic as the fastest-moving one ever, adding it was now pointless to count every case.

Even Cherie Blair has the virus, which I am sure is causing you as much concern and worry as it is me.

The figures have been critised as inducing panic amongst the general population, given that in ’99/’00 there were 21,000 flu deaths. Regardless, the fact that the NHS and government spending on this will increase pressure on the public purse, the net result can only be further weakness for the pound, as investors become risk averse.

Todays Data
EU – Construction Output
EU – Trade Balance
CAN – Consumer Price Index
US – Housing Starts
US – Building Permits

Site Maintenance
Now, many regular readers will be aware that from time to time, due to site maintenance, this blog goes through occasional periods where it is not updated.

Well, next week there will be site maintenance all week long, which I will be carefully monitoring from the sunshine island of Mallorca 🙂

On Monday, a weekly report for all of next week will be published here on our main site. Ensure you quote ‘Blog’ when you get in touch.

Of course, daily reports will continue from the 27th July onwards. Enjoy your weekend.

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