Currency Forecasts

Pound vs US Dolllar

Good Morning. The pound rose yesterday after figures showed inflation in the UK rose. Rates @ 08:30am stand as follows:

  • GBP/EUR 1.1274
  • GBP/USD 1.6801
  • GBP/AUD 1.8046
  • GBP/NZD 2.2534
  • GBP/CAD 1.7681
  • GBP/ZAR 12.510
  • GBP/JPY 149.78
  • EUR/USD

UK Inflation
A key measure of UK inflation has risen for the first time since February, official figures have shown. The Consumer Prices Index (CPI) climbed to 1.5% in October, up from 1.1% in September. Meanwhile the Retail Prices Index (RPI) inflation measure, which includes mortgage interest payments and housing costs, rose to -0.8% from -1.4%.

Inflation accelerated mainly because fuel prices fell by a lot less than they did in the same period a year ago. Analysts had expected the rate of inflation to rise, so the figures came as no surprise to the City. “I don’t think this is anything that will worry the Monetary Policy Committee [of the Bank of England] too much,” said Amit Kara at UBS.

“The MPC has highlighted that inflation is going to be very volatile in the near term.” Given the serious risks facing the UK economy and the dangers of a double-dip recession in 2010, it is important for the MPC to persevere with an aggressive QE programme, and to consider special measures aimed at boosting bank lending to businesses,” said David Kern, chief economist at the British Chambers of Commerce.

So, with little chance of interest rate hikes, and more QE likely, we’ve seen yesterdays gains already pull back, as the pound is likely to remain weak well into 2010.

US Dollar
As global stockmarkets generally performed strongly, improving investor sentiment undermined some support for the US Dollar. However, the University of Michigan consumer confidence index, released on Friday, was weaker than expected and fell to the lowest level for three months, adding to US Dollar weakness late in the week.

This was balanced by earlier employment data showing that US jobless claims in the latest week fell to the lowest level since January, boosting some expectations that the US labour market could be stabilising.

Consumer price inflation data on Wednesday will be closely watched for signs that inflationary pressures are building (Inflationary pressure is when the price of goods and services in general increase at a higher rate than wages, thus causing a financial strain). A larger than expected rise could potentially offer support to the US Dollar on expectations that the Federal Reserve will eventually need to raise interest rates as the inflation risks intensify. However, global trends in investors’ risk appetite levels are likely to remain an important influence on the US Dollar’s overall performance.

The potential threat of Inflationary Pressure on both GBP and USD could force both the BoE and the Fed to take action sooner than expected. Taking advantage of the current gains made by GBP against USD should be considered as the potential to increase interest rates by the FED to counter inflationary effects would make USD a more attractive investment. On the flip side this would also affect those wishing to sell their Dollars as Dollar strength is undesirable.

Queens Speech Today
Written by the government and delivered by the reigning monarch, it sets out the legislative agenda for the year ahead and is the centrepiece of the state opening of Parliament. The government will promise a bill obliging it to halve its budget deficit within four years when it announces its planned new laws in the Queen’s Speech.

This will be interesting to see how they plan to do this, as the huge deficit the UK has is one of the reasons the pound is so weak. Analysts have no clue as to how the government plan to reduce this, so this may give clues as to the plan. Wooly comments will simply cause further Sterling weakness.

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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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