Currency Forecasts

Pound vs Euro

Good Morning. Rates @ 08:30am Tuesday 17th November are as follows:

  • GBP/EUR 1.1257
  • GBP/USD 1.6831
  • GBP/AUD 1.8081
  • GBP/NZD 2.2561
  • GBP/CAD 1.7679
  • GBP/CHF 1.6997
  • GBP/ZAR 12.446
  • GBP/JPY 149.46
  • EUR/USD 1.4948
GBP vs EUR
On Friday morning the Euro zone officially announced it had come out of recession with a growth in GDP of 0.4% just under expectation for a growth of 0.5%. The currency markets had priced in the figures and so we saw little movement in exchange rates between Sterling and Euro.

The German ZEW think-tank’s business survey showed that confidence levels in the Euro zone’s largest economy weakened in November, raising some concerns that the economy’s recovery could be more tentative in the coming months.
One of the reasons why the Euro zone has recovered quicker than the UK is because their financial sectors account for a smaller proportion of their economies. Stronger exports driven in Germany particularly by the car market has contributed hugely to the Euro zone’s recovery.

Only Spain and Ireland remain in recession. These announcements have potential to affect GBP/EUR exchange rates so if you are looking to purchase any of these currencies now maybe the time to contact your account executive to discuss the options available to you.

What you can do
With not much movement on the Market at the moment one may look into a Stop/Limit order, this gives you the option to look at prices which are not quite available on the market at present and also but putting a stop in this protects you against any reverse spikes against you.

For example if you are looking for a better price than is currently available one could put a limit order in to the market place at a price which is above or below interbank. However, on the flip side you may wish to protect your purchase from a market downturn and place a lower stop in case the market fluctuates the wrong way. (This is reversed if selling a currency)

This Week’s Data
This week is a much quieter week in terms of data releases, with nothing to note from the Eurozone aside from any un-announced press releases from European Central Bank officials which may occur.

In the UK, we have Bank of England minutes released on Wednesday. However, these are unlikely to reveal any big surprises, as Mervyn King outlined his view of the economy in last week’s quarterly inflation report. Looking to the USA, we have more data coming out, with Retail Sales, inflation and the leading indicators index as the week goes on.

Please find a full calendar below:

Monday
US – Retail Sales
UK – Rightmove House Prices

Tuesday
UK – CPI & RPI Inflation
US – October PPI Inflation

Wednesday
UK – Bank of England Minues
US – CPI & Real Earnings

Thursday
UK – M4 Money Supply
UK – Retail Sales

For more information on the information contained in this report, contact us today:

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EU GDP figures today. Outlook for GBP/EUR

Sterling hit a 1 week low against the dollar yesterday, staying weak after comments from the Bank of England earlier in the week. Also disappointing U.S. data propped up the safe haven US Dollar. The pound rose against the Euro however, coming off an earlier 2 week low, with traders citing selling of euros versus sterling by corporate accounts. Rates @ 08:30am are as follows:

  • GBP/EUR 1.1190
  • GBP/USD 1.6663
  • GBP/AUD 1.7942
  • GBP/NZD 2.2653
  • GBP/CAD 1.7512
  • GBP/ZAR 12.384
  • GBP/JPY 150.18
  • EUR/USD 1.4886

Analysts said sentiment towards the pound remained negative after comments on Wednesday by BoE chief Mervyn King that suggested the BoE was leaving the door open to more Quantitative Easing, and he highlighted the benefits of a weak currency (again!). Of course a weak pound is good for exports, but the fact is we are not a nation of exporters; we import much more, and so a weak pound is worse for most people.

“The market’s still reading Mervyn King’s comments to be on the dovish side,” said Paul Mackel, director of currency strategy at HSBC. “At the end of the day the Bank of England is still dovish, it is still expanding QE, and although sterling is undervalued versus the euro I can’t see it’s at the key turning point where it’s going to correct just yet.”

So, expect the pound to stay weak against the euro as monetary policy interest rates in the UK are seen staying at very low levels for much longer than rates in the euro zone, as they are expected to raise rates as the exit recession.

Euro zone GDP
Euro zone preliminary data due today is expected to show the Eurozone came out of recession in the third quarter. This would contrast sharply with the UK, where recent data showed GDP unexpectedly still contracting.

We have GDP data today for Germany, by far the largest economy in the Eurozone, as well as GDP for the whole EU. It is a measure of the total value of all goods and services produced by Germany & the EU. The GDP is considered as a broad measure of economic activity and health.

A high reading or a better than expected number has a positive effect on the EUR, while a falling trend is seen as negative.

The German data has already come in lower than expected, boosting the GBPEUR rate due to a weakening of the Euro. The EU figures are out at 10am, and is expected to be +0.5%. Any different, and expect volatility in pound to euro rates.

Other Data Today
Ger – Gross Domestic Product
Swi – Producer Prices
EU – Consumer Price Index
EU – Gross Domestic Product
US – Import Prices
US – Trade Balance
US – Consumer Sentiment

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Pound falls on BoE Comments

Sterling fell sharply against the euro and the dollar on Wednesday after Governor Mervyn King said the Bank of England was open-minded about pumping more money into the economy and highlighted the benefits of a weak pound. Rates @ 08:30am are as follows:

  • GBP/EUR 1.1038
  • GBP/USD 1.6537
  • GBP/AUD 1.7719
  • GBP/NZD 2.2341
  • GBP/CAD 1.7281
  • GBP/CHF 1.6672
  • GBP/ZAR 12.201
  • GBP/JPY 148.30
  • EUR/USD 1.4979

Governor Mervyn King said the UK economic recovery was under way, and signalled that interest rates will remain low at least another year, in a boost to mortgage payers.

But he warned the country has ‘only just started along the road’ towards getting the economy back to business as usual, in the wake of the worst financial crisis in modern history.

Traders pointed out that the outlook was marginally more optimistic than previous projections, while others focused on downbeat comments from Mr King as he released the Bank’s latest Inflation Report. The net result for the pound was a weakening of the currency, and exchange rates fell.

UK Unemployment
The number of people unemployed in the UK rose again in the three months to September, although the 30,000 increase was the smallest since May 2008. The jobless rate edged up to 7.8% from 7.7%, but the youth unemployment rate rose to 19.8%, a record high. Ross Walker, UK economist at RBS Financial Markets, said the latest official figures were “better than expected”.

However, he added: “There is some evidence of stabilisation but it remains to be seen just how durable this proves to be. “It feels both too soon to expect any sustainable increase in total employment and certainly the GDP data suggest that we should still be, under normal circumstances, six or maybe nine months away from that.” The government welcomed the fact that the rise in unemployment had slowed.

“The fact that unemployment is significantly lower than everyone forecast at the beginning of the year shows the support for the economy is making a real difference,” said Work and Pensions Secretary Yvette Cooper.

However, shadow work and pensions secretary Theresa May said the latest unemployment statistics were yet more grim figures for Britain. David Kern, chief economist at the British Chambers of Commerce, said the latest unemployment data indicated the need for the Bank to continue with the QE programme and in conjunction with the government, supplement this with specific measures aimed at stimulating bank lending to credit-worthy businesses.

Summary
So, despite good recovery for the pound over the last 4 weeks, yesterday shows that Sterling is still very fraglie and any negative news can quickly affect exchange rates. As unemployment is up, and the governor of the BoE warning that the government have no plan at all to repay the huge levels of government debt, the outlook is still poor. Couple this with the fact that interest rates are likely to remain low for at least a year, and we are unlikely to see any significant recovery for the pound for some time.

Todays Data
Aus – Unemployment
EU – ECB Monthly Report
EU – Industrial Production
US – Jobless Claims

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UK at risk of losing AAA rating

Good Morning. The pound fell yesterday after the ratings agency said Britain, due to its huge levles of government debt which we’ve talked about here before, was the major economy most at risk of losing its triple-A rating. It hurt the pound, and rates @ 08:30am stand as follows:

  • GBP/EUR 1.1144
  • GBP/USD 1.6755
  • GBP/AUD 1.7948
  • GBP/NZD 2.2545
  • GBP/CAD 1.7510
  • GBP/CHF 1.6828
  • GBP/ZAR 12.272
  • GBP/JPY 150.45
  • EUR/USD 1.5031

UK Rating
As the UK has been borrowing heavily to try and pull the economy out of recession, its weak financial position has hurt the pound, and investors and speculative traders often sell Sterling on any suggestion Britain may lose its top-notch rating.

Only Britain, the US, Germany and France are among the major economies are rated AAA and any change could affect the cost of government borrowing.

Today’s Bank of England’s quarterly Inflation Report could well also negatively affect the pound.

Inflation Report & Unemployment
The Bank of England quarterly publishes a report of the detailed economic analysis and inflation projections on which the Bank’s Monetary Policy Committee bases its interest rate decisions, and presents an assessment of the prospects for UK inflation over the following two years. Watch this closely as it’s the most important data release of the day.

We also have some important unemployment data today. Various measures of unemployment are a leading indicator for the UK Economy. If the rate is up, it indicates a lack of expansion within the U.K. labor market. As a result, a rise leads to weaken the U.K. economy. A decrease of the figure is positive (or bullish) for the GBP, while an increase is negative.

UK Trade Gap
In more poor news yesterday, the UK trade deficit widened more than expected in September, led by a jump in car imports as Britain’s scrappage scheme helped foreign carmakers. The difference between what the UK exports and what it imports was £7.2bn in September, well above analyst expectations of a £6.1bn deficit.

We are a trading nation and this reflects a return to growth for the global economy. The competitive value of the pound makes the UK well-placed to benefit from increased global demand, however it’s also to remember that we import much more than we export, and so the weak pound is bad news for most.

New Zealand
We have Retail Sales from NZ today. This measures the total receipts of retail stores. Monthly percent changes reflect the rate of changes of such sales. Changes in Retail Sales are widely followed as an indicator of consumer spending. An upward swing would help strenghten the NZD and cause GBP/NZD rates to fall.

Economic Growth
Major economies across the world are showing strong signs of recovery, the Organisation for Economic Co-operation and Development (OECD) has said. The OECD’s leading indicators “point strongly” to growth in Italy, France, the UK and China.

The Canadian and German economies are also displaying “tentative signals of expansion”, the organisation said. The report will provide some cheer for the UK, which is still stuck in its longest recorded recession.

While other major economies such as the US, France, Germany and Japan have all started growing again, the UK economy contracted by 0.4% between July and September. But the OECD rates the UK as one of just four major economies indicating expansion.

However, the fact remains that we are the only major economy still in recession, and despite the fact that forecasts suggest we will recover, it’s important to remember that the other major economies such as the EU and US are likely to recover faster. This will reflect itself in rates, as other currencies begin to strengthen before us, Sterling exchange rates are likely to struggle for some time to come.

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Pound starts to fall – gains over.

Good Morning. Yesterday the pound hit 8 week highs against the Euro, and 3 month highs against the US Dollar. However the takeover bid for Cadburys along with continued worry about the UK economic recovery caused the pound to fall back in afternoon trading. Rates at 08:30am this morning stand as follows:

  • GBP/EUR 1.1110
  • GBP/USD 1.6649
  • GBP/AUD 1.7966
  • GBP/NZD 2.2524
  • GBP/CAD 1.7635
  • GBP/CHF 1.6788
  • GBP/ZAR 12.353
  • GBP/JPY 149.31
  • EUR/USD 1.4980

Pound/Euro
Following a hugely important week for the Pound last week, much focus will now be placed on determining what will happen next for the GBP/EUR cross. Surprisingly, following the Bank of England’s decision to increase its Asset Purchase Scheme by £25 Billion, Sterling has held relatively strong, actually gaining strength against the Euro by Monday morning.

This has been attributed to the wide spread anticipation within the market that this £25 Billion will bring to an end the UK’s Quantitative Easing cycle. Confirmation of this could come later this month when the minutes of the Bank of England’s most recent meeting are published, this will be vital for anyone with an upcoming requirement to buy or sell Euros. While for now an end to QE is being viewed as Pound positive news, the long-term effect of £200 Billion of additional government debt remains to be seen.

Looking forward, this week is a relatively busy week in terms of data from both the UK and our European trading partners. From the UK we have Retail Sales data, Unemployment figures and on Thursday a speech by Mervyn King (Governor of the Bank of England) which will give indications as to the bank’s future economic stimulus plans.

From the Euro-Zone key data includes the ZEW economic sentiment on Tuesday but most importantly the week climaxes with EU GDP figures for Quarter 3. Last quarter The Europeans narrowly remained in recession with a quarterly decline of just 0.2% and all eyes will be firmly focused on this release. A positive figure would bode badly for Sterling which presumably is still fundamentally fragile given the poor GDP figures for the UK at the tail end of last month and additional QE last week.

Early forecasts suggest that the EU will officially exit recession and therefore it would probably be sensible to consider booking an exchange rate in advance of the release for anyone looking to buy Euros in foreseeable future. Contact us today about the benefits of Forward contracts to protect against any pitfalls in the market.

For those bringing Euros back to the UK it would also be extremely wise to pay close attention the this release as it could well create some fantastic opportunities to fix a price at unnaturally good levels. Your account manager will be able to explain how Limit and Stop-loss orders will help you to achieve this.

Overall, despite some substantial data releases recently the direction of the cross appears unclear. This week could well help to determine the short-medium term future of GBP/EUR. As always in the currency markets expect the unexpected and be aware that the recent flat trading on the Euro could be replaced by a volatile market creating ideal buying and selling opportunities.

Pound/US Dollar
Last weeks data releases saw the US Federal Reserve maintain interest rates at 0-0.25%, and indicating that it is likely to leave interest rates low for an extended period. As a result the US Dollar was the weakest of all the major currencies last week causing GBP/USD to close 1.02% up at 1.6612, from 1.6445 a week earlier, benefiting those converting Sterling into US Dollars. In fact, yesterday saw a 3 month high for GBP/USD, but has already started to fall this morning.

This was in whole due to improving investor’s risk appetite and stronger global stock markets. The US Federal Reserve expressed greater confidence about the US economic recovery, which was generally supported by the economic data last week. This was also coupled with monthly increases in construction spending, pending home sales, manufacturing activity, service sector activity and factory orders which all rose throughout last month.

The only negative data this week came from the US Non-farm payrolls report which revealed a slightly larger than expected number of job losses for October, coming just after revised data for the previous two months had shown that 91,000 fewer jobs were cut than had been initially reported.

Counter to the dollar, Sterling benefitted this week from positive economic releases. This included Thursday’s Bank of England’s decision to only add a further £25 Billion in to the economy through the Governments Quantitative Easing scheme, instead of the anticipated £50 Billion. With the possibility of early signs of a Sterling recovery, the market is perhaps set to continue to become more hostile for those selling Dollars and perhaps suggests an earlier sale may be more favorable.

After a large number of data releases last week, this coming week is particularly quiet, with only a consumer confidence survey from The University of Michigan on Friday. In light of its safe haven status, this could leave trends in investors’ risk appetite levels to play a major role in determining the US Dollar’s performance.

In conclusion with such an unstable and volatile market it may be beneficial to discuss the possibility of locking into a forward contract with you Account Manager to enable you to take a greater control of finances and protect yourself from any loss.

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