Currency Forecasts

Pound Euro Rates 10th August 2009

Market Snapshot

  • GBPEUR 1.1716
  • GBPUSD 1.6617
  • GBPAUD 1.9810
  • GBPNZD 2.4700
  • GBPZAR 13.301
  • GBPCHF 1.7995
  • GBPJPY 161.74

Pounds Gains short lived
The pound had a very strong run in the first part of last week, hitting 1 year highs against the US Dollar and close to year highs against the Euro. The gains were due to increased confidence in the UK economy, amid positive data releases showing the UK economy is rising.

The gains were short lived however, as is often the case. As outlined in Fridays Post, the pound plummeted after the Bank of England increased their asset buying programme, and pumped another £50bn into the econonmy.

Sterling fell further on Friday, hitting a one-week low against the dollar in volatile trade due to a broad rise in the U.S. currency following a stronger-than-expected reading of U.S. non-farm payrolls.

The UK currency struggled a day after the Bank of England surprised markets by extending quantitative easing measures to boost the nation’s economy, while poor first-quarter earnings results at Royal Bank of Scotland also stung the pound.

Traders continued to sell the pound after it fell more than two cents against the dollar on Thursday following the BoE announcement, and had all but snuffed out big gains made early this week.

Some analysts said more quantitative easing would hurt sterling, adding that UK interest rates at a record low 0.5 percent for a prolonged time would do no favours to the currency. It would also be haunted by the need for future fiscal tightening to pay for the asset-buying programme, he added.

“Sterling will lose big-time support from the Bank of England’s rate view,” said Hans-Guenter Redeker, chief currency strategist at BNP Paribas in London.

So, this shows that even amid confidence of a revival of the economy, and data releases to the contrary can weaken the currency very quickly indeed. It is for this reason that blindly hoping rates will continue to move in your favour can backfire. Dont leave it to chance, Open a free trading facility, and you can then discuss the various tools we have available such as Forward Contracts, Stop Loss and Limit Orders. Make sure you take control of the markets, and don’t let them take control of you!

This Weeks Data
Economic Data releases have a big impact on foreign exchange rates. Analysts will already have predicted what the results of the data below will be, and investors may well have already moved funds in anticipation of these announcements. If figures come out better or worse than expected, then the currency for the country concerned will generally strengthen or weaken acccordingly.

A good example is the Quantitative Easing measures announced last week by the Bank of England. Most analysts expected no further money would be pumped into the economy, and Sterling was strong as a result. When the announcement came on Thursday that in fact a further £50bn would be created to pump into the economy, the news came as a surprise to the markets. The pound fell straight away and all the gains it made through the week were wiped out as the view of the UK economy deteriorated. So, data releases are very important and can change rates very quickly.

So, what should we look for this week? For the UK, we have some Trade Balance figures on Tuesday, but Wednesday sees a raft of UK releases. Watch for the various measures of unemployment for the UK, as any increase in unemployment will likely weaken Sterling.

For the EU we have Trade Balance data, in addition to the quarterly GDP figures. This will give a measure of the total value of all goods and services produced by the Eurozone. The GDP is considered as a broad measure of the Eurozone economic activity and health. A rising trend has a positive effect on the EUR, while a falling trend is seen as negative.

A full list of data is below, but of course do get in touch to discuss the implications of this on your specific requirement.

Monday
Aus – Home Loans
EU – Investor Confidence
UK – BRC Retail sales
UK – RICS House Price Balance

Tuesday
Jap – BoJ Interest Rate Decision
Aus – NAB Business Confidence
Ger – Consumer Price Index
Ger – Wholesale Price Index
UK – House Price Index
UK – Goods Trade Balance
UK – Total Trade Balance
US – Non-Farm Productivity
US – Consumer Confidence

Wednesday
UK – Average Earnings
UK – Claimant Count
UK – Unemployment Rate
UK – Jobless Claims
UK – BoE Inflation Report
EU – Industrial Production
US – Trade Balance
US – Fed Interest Rate Decision

Thursday
Ger – GDP
EU – GDP
US – Import Prices
US – Jobless Claims
US – Retail Sales

Friday
EU – Consumer Price Index
US – Consumer Price Index
US – Industrial Production

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Quantitative Easing, Bank Results and Exchange Rates

Increased Quantitative Easing Weakens Sterling
Sterling fell across the board yesterday after the Bank of England said it would pump more funds into the banking system than was expected, citing subdued inflation and fragile financial conditions.

The central bank stunned market players by extending its quantitative easing programme to 175 billion pounds from 125 billion, beyond a previous limit of 150 billion pounds. It also held interest rates at 0.5 percent, as expected.

Economists had been evenly split on whether the BoE would effectively choose to print more money to buy assets such as government bonds and corporate debt.”That they expanded quantitative easing by 50 billion pounds is more dovish than expected, so sterling is weakening accordingly,” said Daragh Maher, senior currency strategist at Calyon in London.

Weak Pound good for UK recovery
“Since the BoE has frequently addressed the positive impact of currency weakness in stimulating the economy, it is unlikely to close the door on quantitative easing,” said Ashraf Laidi, chief market strategist at CMC Markets.

The central bank said it expected the increased asset buying programme to take another three months to complete, and the scale of the scheme would be kept under review.
It also said past sterling depreciation continued to put upward pressure on prices, although spare capacity in the economy was likely to keep inflation low in the medium term.

“The BoE must be well aware of sterling’s resurfacing positive response to improved risk appetite,” he added.

UK Bank Results
Sterling extended its slide on Friday, hitting the day’s low against the dollar after Royal Bank of Scotland posted losses during the first half of 2009 and said it anticipated tough times in the next two years.

The statement from RBS was downbeat, highlighting the £1bn loss after paying tax and dividends to the government and describing the results as “poor”.

Summary
So, we’ve had some positive figures from some parts of the UK economy, which helped the pound make significant gains against both Euro and US Dollar. However due to very poor bank figures, and a surprise increase in Quantitative Easing the pound is under pressure again.

The UK is likely to be the last economy to see light at the end of the tunnel in terms of coming out of the recession, and due to the enormous levels of debt, which are forecast to get to over 100% of GDP, it’s unlikely that the pound will continue rallying.

Contact us if you have a requirement, and we can discuss the various tools we have on offer to help you get the best exchange rate possible. We have seen demand for Forward Contracts increase massively, helping clients limit their loss and give certainty over what their currency will cost them.

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Pound to Euro & US Dollar Rates very good.

Pound to Euro
Last week saw Sterling continue to march back towards the 1.20 mark, moving up as high as 1.18 on the mid-market. The run continued yesterday, however now seems to have leveled off in anticipation of the data releases from the UK…

This week sees a very active calendar, with major releases on every single day. Yesterday morning saw the manufacturing PMI from the UK and Eurozone, which saw all figures higher than expected, with the UK figures a massive 6% better than forecast. This supported sterling and we briefly saw highs of 1.1815 shortly after the release, extremely positive news for anyone buying Euros.

Tuesday sees PPI inflation data for the Eurozone from June, which is likely to provide a further indication of their position in the current economic cycle, and how soon they are likely to see recovery. On Wednesday we see the services side of the PMI data released, with forecasts suggesting that again, the UK will be stronger than the Eurozone, and also Retail Sales figures from the continent for the month of July.

These are more indicative of consumer confidence in the economy, and an increase would indicate a shorter timescale for recovery on the high street.

Thursday sees interest rate announcements for both the UK and the Eurozone. Whilst both central banks are highly likely to hold base rates at their current levels, it is the prospects of further Quantitative Easing which is likely to move the markets.

Any further QE announcements are likely to undermine their currencies, and opinion is split on the likelihood of further easing from both banks. Most participants favour no further action from either the BOE or ECB, however, it is unquestionable that we will see some market movement if there are any surprises.

Friday morning sees PPI inflation from the UK, which has read negative in previous months, but is likely to be fractionally positive, showing a slight increase in prices, suggesting the economy may be starting to improve.

Pound to US Dollar
GBP/USD cross hits highest levels of 2009 (since 23rd October 2008) on Friday and looks to continue rally.

On Friday we had the release of Quarter 2 US GDP figures which showed the economy contracted by 1.0%, but was better than the expected 1.5% decline. This was closely followed by the Chicago Purchasing Managers Index (a monthly measure of US business conditions) which was better than expectations.

This caused a rally in global risk appetite amongst investors and helped Cable to reach a Mid-Market level of 1.6733 before European markets closed. Monday has seen better than expected manufacturing data from both sides of the Atlantic, and more importantly some very encouraging figures from UK banks with Barclays announcing a profit increase of 8% to £3bn, and HSBC reporting a rise of 5.1%.

Couple this with an equity market rally which has helped the FTSE hit it’s highest level since October, and it’s hard to see the rally in risk abating.

What does this mean? As we see signs of a global economic recovery, the US Dollar will suffer as investors move their money out of the Greenback (seen as a safe-haven currency or somewhere investors will keep funds in times of market turmoil) and into riskier assets.

The Pound is currently seen as a high risk currency and therefore as UK and US figures get better, GBP/USD will move twice as quickly as funds are moved from USD to GBP, hence the jump from 1.63 last week to a high if 1.6930 today.

Later this week the Bank of England will announce its decisions on interest rates for this month which will most likely be to hold them again at 0.5%. They are then expected by most analysts to announce a halt to its quantitative easing program and a slightly higher inflation projection than before which will help to further underpin Sterling.

Finally on Friday all eyes will be on the release of Non-Farm Payrolls data for July, with the forecast for a further decline from -467K to -345K, which although is slightly reduced, still indicates a slowing US economy.

Non-farm payrolls is the most closely watched indicator in the employment situation in the US and is considered the most comprehensive measure of job creation in the US. With all of the above releases in mind there is a distinct possibility that we could see Cable trading above 1.70 for the first time in over 9 months.

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Sterling Euro Exchange Rate Outlook August 2009

Last Weeks Trading
Very interesting week last week, with the pound surging against the USD, EUR and most other major currencies. The rise can be mainly attributed to better than expected house price data, which helped push GBP/EUR to 1 month highs. It may have even gone higher, but the pound was pulled back slightly after Fitch ratings agency confirmed its ‘AAA’ rating with a stable outlook on the UK and warned on UK’s high levels of debt.

Market Snapshot @ 08:30am

  • GBPEUR 1.1768
  • GBPUSD 1.6735
  • GBPAUD 2.0010
  • GBPNZD 2.5218

UK Debt

Fitch said Britain “faces one of the most serious post-crisis fiscal adjustment challenges among ‘AAA’ governments” and warned fiscal policy needs to be more aggressive in aiming to bring down the deficit.”The Fitch statement focused attention on the deteriorating UK fiscal situation,” BNP Paribas currency strategist Ian Stannard said.

However, investors took some encouragement from the latest GfK/NOP survey showing UK consumer confidence held steady in July, with Britons taking a more upbeat view of the economy as a whole.

This Weeks Data

This week, we have an extremely busy one in terms of data releases. it’s also a very important one for any client with an imminent need to convert currency…

For the UK we have house price information, GDP Estimates, Consumer Confidence, and of course the Bank of England Interest Rate decision. Watch these releases closely, as we may well see Sterlings current strength come to an end. If the BoE make any further announcements with regards to Quantitative Easing, then expect the pound to suffer. If they decide to shelve the asset buying scheme, then the markets may look on this positively.

Sterling could go either way, so in order you maximise your exchange rate and dont be caught out of rates move suddenly, then contact us to discuss Stop Loss and Limit Orders.

For the EU we also have an interest rate announcement, and also various inflationary measures. Also watch for Retail Sales which gives an indication of consumer confidence.

For the US we have expenditure information, confidence data, Jobless info, and Output measures. Watch these closely, as even if your requirement is for AUD or EUR for example, US economic information is very important, as it is this that drives risk sentiment – if US data is good, and investors feel confident and are happy to take a risk, then currencies like GBP and AUD can benefit, and vice versa.

Summary

This will be a very important week for the currency markets, with some important data releases and announcements. If you have a requirement, then let the experts guide you through the sometimes complex world of foreign exchange. We have various tools available to help you get the best rates from the market – dont just leave it to chance and blind hope that rates will move your way! Get in touch for a free consultation on how we can help.

Monday
Ger – Retail Sales
Ger – Purchasing Managers Index
UK – Halifax House Prices
EU – Purchasing Managers Index
US – Construction Spending

Tuesday
Aus – House Price Index
Aus – RBA Interest Rate Decision
NZ – Commodity Prices
EU – Producer Price Index
US – Personal Income
US – Consumption Expenditure
UK – BRC Shop Price Index
UK – Nationwide Consumer Confidence

Wednesday
UK – Services PMI
UK – Industrial and Manufacturing Production
EU – Retail Sales
EU – Services PMI
US – Factory Orders
US – Energy Stocks

Thursday
UK – GDP Estimate
UK – Interest Rate Decision
US – Jobless Claims

Friday
UK – Producer Price Index
UK – Input and Output
Ger – Industrial Production
US – Payrolls & Unemployment
US – Consumer Credit

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Sterling 1 month high against Euro

Sterling’s gains…
We have seen a good run for the pound all week, and this morning rates seem stable. At 08:30am rates are as follows:

  • GBP/EUR 1.1724
  • GBP/USD 1.6558
  • GBP/NZD 2.5227
  • GBP/AUD 1.9980
  • GPP/CAD 1.7874
  • GBP/CHF 1.7972
  • GBP/ZAR 12.834
  • GBP/JPY 158.21

The pound is at 1 month highs against the Euro and US Dollar, and not far away from the highest rate all year. The rise is after data showing rising UK house prices suggested property prices have stabilised from a steep fall, as outlined in yesterdays report.

Broad losses in the dollar also helped to prop up sterling, which recovered from two days of losses as a rise in UK share prices helped to stoke demand for currencies considered to be higher-risk.

It recovered from losses over the past two days when a pause in risk demand had stung the currency. Despite Thursday’s gains, sterling is on track to end the month more or less flat against the dollar and the euro, and some analysts are sceptical about whether the UK currency will significantly extend its rally from earlier in the year.

Others in the market point out that the UK’s weak fiscal position will haunt the currency, while the dollar may appreciate later this year as speculation heats up regarding the timing of an exit policy to the Federal Reserve’s quantitative easing measures.

US Dollar
As I have mentioned several times here, we often see data from the US and US Dollar movements directly affect Sterling. Why is this? Well, USD is seen as a safe haven currency. When investors are worries about the global economy, or when there is bad news, we see investors flock to the dollar, which strengthens it and weakens other currencies such as Sterling.

When risk appetite returns, and there is good news from the US, you would expect it to strengthen the dollar. However, in turbulent times like we have now, good news from the states increases risk appetite among investors, and we see more move towards higher risk currencies such as the pound.

So where are rates headed?
In the short term, we may see the recent run in Sterling come to an end as more data is released by the Bank of England next week. If you have a requirement in the next 3 months, consider fixing rates now as the market is very uncertain.

Longer term, investors do expect the pound to continue rising, and rates should steadily climb to year end. this is medium to long term however.

If you are trading up to £10k, then you should open an online trading facility. You can view rates and purchase currency yourself 24 hours a day 7 days a week, and it’s very simple.

If your requirement is above £10k, then a normal trading facility will be best for you. This is where you place your order over the telephone, and we source commercial rates for you and you can lock in rates in just a few minutes.

Opening an account is free, does not obligate you, and give you the opportunity to have a discussion with a senior trader to help you get the best possile exchange rates. Get in touch today to find out more.

Todays Data
EU – Consumer Price Index
EU – Unemployment Rate
Canada – Gross Domestic Product
US – Gross Domestic Product
US – Personal Consumption Expenditures
US – Purchasing Managers Index

Enjoy your weekend…

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