Currency Forecasts

Sterling rises, outlook for December.

The pound gains. Sterling up at the start of December.
The pound rose on Friday ahead of the weekend, after better than expected Non Farm Payrolls data from the USA.

As I outlined in Fridays post, the report is highly volatile. Analysts expected the figure to show a decline of over 100 thousand jobs. However, the actual figure was an astonishing 11 thousand. This is much much better than expected, and has given confidence in the US markets.

How does this help the pound?
Confidence in the US Markets mean investors that have been hoarding US Dollars due to the currencies safe haven status, are now investing into riskier currencies. Sterling is one that is benefiting, and this is the reason the pound rose on Friday.

However, the gains may be short lived over fears of our level of debt. There’s the governments pre budget report next week, and there are rumours there will be some bad news on the amount the UK owe, and the ways in which it’s going to be paid back.

So, this could be the start of a recovery for the pound, or it could be a short term spike ahead of the pre budget report, as if this is bad the pound could fall back below €1.10.

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More updates on where Sterling GBP exchange rates will go throughout December, and into 2010 on Monday.

Pound falls after better news from the EU

The pound fell against the Euro and US Dollar yesterday after weaker than expected UK services sector survey. Also, the European Central Bank detailed steps to withdraw monetary stimulus, which strengthened the Euro and caused rates to fall. We’ve seen some recovery this morning however, and at 08:30am rates are as follows:

  • GBP/EUR 1.1028
  • GBP/USD 1.6623
  • GBP/AUD 1.7951
  • GBP/NZD 2.2957
  • GBP/CAD 1.7558
  • GBP/CHF 1.6617
  • GBP/ZAR 12.219
  • GBP/JPY 146.43
  • EUR/USD 1.5069

News from Europe
The European Central Bank yesterday left rates on hold at 1% as expected, and this news did not really affect exchange rates. The speech afterwards however caused the Euro to strengthen and Pound to Euro rates fell as a result. They announced they would be lifting the stimulus measures, which signalled that the EU economy is recovering. The ECB announcement pushed sterling lower against the euro as it highlighted the market’s view that the Bank of England is set to lag behind other major central banks in terms of exiting measures like Quantitative Easing.

As other economies recover faster than ours, their interest rates will start to rise, giving strenth to the currencies. As the Bank of England have already said that our interest rates will stay at record lows throughout 2010, and so the forecast for next year doesn’t bode well for Sterling.

Poor UK PMI Data
In further negative news for sterling, the Chartered Institute of Purchasing and Supply/Markit activity index was lower than expected. “The UK services PMI was weaker-than-expected which highlights the likelihood of an underperforming UK economy. This sets sterling up for potential disappointment given that so much optimism about the UK economy had been priced in,” said BNP Paribas currency strategist Ian Stannard.

Swiss Franc (CHF)
The dollar continued to probe support levels below parity against the franc on Thursday and hit a low of 0.9960 before rallying back above the 1.00 level later in the US session. The Euro ended little changed against the franc, still significantly below the 1.51 level.

The ECB was slightly more dovish than expected which will provide some near-term franc support. There is still likely to be considerable caution ahead of the quarterly monetary policy meeting next week. Speculation of further National Bank protests against franc strength
will tend to curb Swiss currency support.

Todays Events
All the data today is from the USA. We have employment data, but the most important release to look for is the Non-Farm Payrolls. The report presents the number of people on the payrolls of all non-agricultural businesses. The monthly changes in payrolls can be excessively volatile, and therfore hard to predict. So, any difference to the predicted figure can cause USD volatility. We’re expecting the decision at 13:30pm to show a negative figure of -111k. If it’s more than this, expect GBPUSD rates to climb, and vice versa.

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Important day for GBP/EUR rates

Good Morning. The pound rose against most currencies yesterday, after a period of decline. This morning at 08:30am rates are as follows:

  • GBP/EUR 1.1035
  • GBP/USD 1.6689
  • GBP/AUD 1.7906
  • GBP/NZD 2.2916
  • GBP/CAD 1.7457
  • GBP/CHF 1.6638
  • GBP/JPY 146.44
  • GBP/ZAR 12.117
  • EUR/USD 1.5117

Sterling rose against the USD and EUR yesterday, extending gains made the previous day as possible fallout from Dubai’s debt-related problems eased as it looks like UK banks are not as exposed to the debt problems there as first thought. Risk assets also got a boost after data showed U.S. private sector employers shed fewer jobs in November from October, marking the eighth straight monthly decline in private-sector job losses.

The pound also rose against a broadly weaker yen, traders said. The yen fell in the wake of the Bank of Japan’s emergency policy meeting on Tuesday where it said it provide more liquidity through new fixed 3-month funding.

Today is an important day for GBP/EUR in particular, as we have lots of important data releases from the Eurozone. We have the following releases that will likely affect exchange rates:

EU – Gross Domestic Product. This is is 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. We expect this to show a quarterly rise of 0.4% and an annual decline of -4.1%.

We also have Retail Sales for the EU. This is is a measure of changes in sales of the German retail sector. It shows the performance of the retail sector in the short term. Percent changes reflect the rate of changes of such sales.The changes are widely followed as an indicator of consumer spending. We expect a monthly rise of 0.2% and a decline year on year of -2.4%.

An interest rate decision is also due for the EU. We expect rates to be left on hold for this month at 1%. A little after the announcement, there is a speech by the ECB. This will be more important than the decision itself.

They give a press conference as to how the ECB observes the current European economy and the value of EUR. His comments may determine a short-term positive or negative trend. If the speech seems to indicate rates may rise in the coming months, expect the Euro to strengthen and GBP/EUR rates to fall.

If the releases from Europe are good today, then we will probably see the recent rise in rates come to an end. If however the releases are not as good as expected, then the Euro may weaken. Either way, we’ll probably see some volatility for exchange rates today.

To take advantage of any spikes in the market, you may wish to consider placing a Limit/Stop Loss order. A Limit Order is an order to secure currency at a specific price that may not be currently available. This type of contract is particularly useful when the markets are moving in a positive direction for you.This is one of the two most common types of orders, the other being a Stop Loss Order.

A Stop Loss Order is used when the market is moving in a negative direction for your currency. An order is placed on file with your broker to help ease the stress of adverse market movements.A stop loss order instructs your broker to buy when the currency hits a certain point. The purpose of the stop loss is obvious – you want to prevent any further movement before the currency falls any further.

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We have lots from the US today also, including various measures of unemployment. If figures are good, then we will probably see the dollar weaken slightly as investors take good news as a sign of economic recovery, and diversify their investments to riskier currencies.

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Pound up slightly with house prices

Good Morning. Sterling rose against a broadly weaker dollar on Tuesday, although gains were somewhat hampered as data showed growth in UK manufacturing activity unexpectedly slowed. Rates @ 08:30am are as follows:

GBP/EUR 1.0990
GBP/USD 1.6605
GBP/AUD 1.7884
GBP/NZD 2.2792
GBP/CAD 1.7341
GBP/CHF 1.6569
GBP/JPY 144.74
GBP/ZAR 12.058
EUR/USD 1.5103

UK House Prices
The pound also rose slightly after better than expected UK house price data. UK house prices have risen for the seventh consecutive month, helped by better-than-expected news from the job market, the Nationwide has said. But overall there has been some surprise that prices have continued to rise steadily in the recession.

The Bank of England yesterday said Britain’s economy has probably passed its low point and is likely to recover strongly over the coming years, but inflation was not an immediate threat.

A Reuters poll on Tuesday showed all respondents said the BoE has nearly finished with its quantitative easing programme but won’t raise interest rates from their record low until at least October next year. This is good news in one way, as it indicates that the UK may finally be catching the rest of the world up in exiting recession.

however, the fact that our rates are likley to stay at record lows for nearly another year means the pound will probably remain weak. The EU and USA are likely to start raising their interest rates into next year, and this means more return for investors, and thus more investment into these currencies. More investment strengthens the currency.

With rates likely to remain low in the UK, it wont be an attractive investment, and so other major currencies are likely to rise before ours, and this will hamper a recovery in Sterling Exchange rates.

Weak US Dollar pushes up gold
A weak US dollar has pushed up demand for gold to another record level. Gold struck $1,201.63 (£722.69) an ounce on the London Bullion Market, after striking historic peaks over recent weeks. Demand for gold has been fuelled by moves by central banks to diversify assets.
A weaker dollar makes gold cheaper for users of rival currencies, which stimulates demand for the precious metal. In turn, this pushes up the price in dollars.

A weak dollar is also good for those needing to buy them with Sterling. Rates were as low as $1.30 earlier in the year, and now stand at $1.66. The dollar is weak because as the world exits recession, many investors that had funds in USD as a safe haven are now moving into other currencies weakening the dollar. The pound is not one of the currencies benefiting however due to our low interest rates. The dollar weakness wont last forever, so those with a need to purchase USD should consider doing so sooner rather than later.

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Pound drops after confidence falls.

Good Morning. Sterling hit a one-month low against the euro on Monday after an unexpected fall in British consumer confidence underlined weakness in the domestic economy.

The pound also slipped against the dollar after earlier gaining on the view that Dubai may have avoided the worst of its debt-related problems, prompting some demand for currencies considered to be higher risk. Rates @ 08:30am are as follows:
  • GBP/EUR 1.0945
  • GBP/USD 1.6476
  • GBP/AUD 1.7960
  • GBP/NZD 2.2852
  • GBP/CAD 1.7292
  • GBP/CHF 1.6516
  • GBP/JPY 143.29
  • GBP/ZAR 12.138
  • EUR/USD 1.5045

This week will see the European Central Bank announce its latest interest rate decision, Although it is expected to remain at 1% a rate increase cannot be ruled out with the Euro zone now officially out of recession and building towards full recovery. However, the Euro could find further support if the GDP projections are more optimistic than expected, and if it signals a phasing out of stimulus measures more quickly than previously expected.
Tuesday’s unemployment report will also be closely-watched for evidence on the strength of the current European Workforce. If figures are lower than expected we may see Euro Strength however if figures are higher than expected we will see the reverse and potential Euro weakness.

Last week was generally a reasonably quiet week for Sterling a drop in investors’ risk appetite after Dubai’s request to delay debt repayments gave the Euro a fresh impetus, with Euro zone banks thought to have less exposure to the UAE region than their UK counterparts.

Currently we are seeing a relatively stagnant market with not too much movement either side. What one can do to do combat this is to put in a STOP/LIMIT order; this allows you the client to potentially achieve a rate which is currently not available on the market place.

For e.g. if you are looking to achieve a rate of 1.12 and the market is currently not there you put a limit to try and achieve this over an allotted time frame, and to protect yourself you may place a stop at around 1.08 to safeguard your currency against any pitfalls within the market. (This example is set for those buying Euros)
Pound/US Dollar

This weeks GBP/USD rates showed the full volatility of the markets climbing to above the 1.67 level earlier in the week only to fall to below the 1.63 mark towards the end of the week. Initial losses to the Dollar came as a result of comments from the Federal Reserve that declines would be tolerated so long as such movements are not disorderly, along with comments also coming from the Russian Central Bank that it would diversify its currency reserves.
However, the US Dollar found much needed strength towards the end of the week on the back of its haven status after a sudden deflation in investor’s risk appetite after the breaking news regarding the debt crisis in Dubai.
US GDP during the third-quarter was revised down to a 2.8% annualized pace from 3.5% previously. However, the minutes of the US Federal Reserve’s November policy meeting revealed a more optimistic outlook, which was supported by stronger than expected housing market data and labour market data.
Finally this coupled with Weak GDP results from the UK, GBP/USD ultimately closed down 0.05% at 1.6498, those converting US Dollars into Sterling.
Looking forward to this coming week, risk appetite trends are likely to remain a major influence to the US Dollar’s performance and are especially likely to be influenced by any news form Dubai. Additionally this week also sees the release of the Non-farm Payrolls report which will be watched closely for evidence that the US labour market is close to reaching a turning point.
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