Currency Forecasts

Could Sterling reach parity with the Euro?

The pound rose yesterday after the Bank of England minutes, but the gains were very short lived indeed. This morning rates have already tumbled close to new lows:

  • GBP/EUR 1.1028
  • GBP/USD 1.6279
  • GBP/AUD 1.8624
  • GBP/NZD 2.2515
  • GBP/JPY 147.30
  • GBP/ZAR 12.094
  • GBP/CHF 1.6675
  • GBP/CAD 1.7490

Bank of England Minutes
You can read the full minutes here. The pound rallied after they showed no policymakers voted to increase its asset buying plan and that cutting the interest paid on bank reserve deposits was not discussed.

They gave no indication the MPC had considered cutting the interest rate on funds banks hold, which was an issue raised by Governor Mervyn King last week in testimony that the currency markets took as offering a grim view on the UK economy.

In summary, the minutes showed MPC members were cautious on the economic outlook, while noting that recent strong data may lead to an upward revision to second-quarter growth. Some analysts said traders had taken that as a sign to buy sterling, which is why the pound went up straight after the release.

Despite its gains yesterday however, the pound continues to suffer on perceptions the BoE will lag other central banks in ending its ultra-loose monetary policy. It fell on Monday, when traders seized upon an article in the BoE Quarterly Bulletin that said sterling’s long-run sustainable exchange rate may have fallen due to an increased focus on Britain’s economic imbalances.

GBP/EUR Summary
It’s a very volatile market right now. Earlier in the year analysts were saying rates would reach €1.20 by the Autumn. Recent Articles published yesterday though say that the pound will keep falling and possibly reach parity. It all depends on how the UK economy recovers, and of course the levels of debt the goverment have saddled the country with.

If you need to buy Euros, then dont leave it to chance, as if the reports are true and the pound does fall, your currency will cost significantly. Stop and Limit Orders are perfect for this type of market, as you can manage your risk.

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Fed and US Interest Rates
The Euro and Yen have strengthened this morning also, on Fed’s announcement of stimulus withdrawal, however they left their interest rates unchanged at 0.25% as expected.

G20 Meeting
The G20 (Group of Twenty Finance Ministers and Central Bank Governors) meeting is the meeting of the seven industrialized nations (G7),the European Union, and the emerging economies. The meeting takes place to discuss international economic and financial issues. Traders should pay close attention to this event as it might bring a new dimension to the markets. This starts today in the US.

Other data today
Aus – New Homes Sales
Ger – IFO Business Climate
US – Housing Starts
US – Jobless Claims
Jap – Bank of Japan Minutes

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Bank of England Minutes & Effect on Exchange Rates

Pound makes small gains
Sterling rose against a broadly weaker dollar yesterday, and very slightly against the Euro. The pound remained under pressure however against the euro on wariness ahead of Bank of England policy meeting minutes which we will see later today. Rates at 08:30am:

  • GBP/EUR 1.1055
  • GBP/USD 1.6355
  • GBP/AUD 1.8697
  • GBP/NZD 2.2541
  • GBP/JPY 148.73
  • GBP/ZAR 12.048
  • GBP/CAD 1.7482
  • GBP/NOK 9.5343

The dollar weakened after rallying on Monday as traders took profits on short dollar positions before a Federal Reserve policy-setting meeting and a Group of 20 summit later this week.

“Sterling’s rise is a reflection of dollar weakness,” said Christian Lawrence, currency analyst at RBC Capital Markets. “A general tone of dollar weakness seems pretty strong.”

The market was awaiting minutes, due Wednesday of the BoE’s September policy meeting for any signs of further monetary easing.

Bank of England Minutes
Perceptions the Bank of England will lag its counterparts in ending an ultra-loose monetary policy were also expected to keep downward pressure on sterling. With that in mind, markets will keep a close eye on the BoE minutes which are released at 09:30am this morning.

We will be looking for any discussion of a cut in the remuneration rate (the interest commercial banks receive on their reserves with the BoE) which Bank of England Governor Mervyn King has said may be considered in a further move to boost lending by banks.

If the minutes show there was no discussion of a cut to the remuneration rate, that would probably mean it is off the cards for the foreseeable future, putting the focus back on any suggestion of a further expansion in quantitative easing, something King was keen on last month.

If there is an expansion, then the pound is likely to remain weak. Also hindering any recovery for sterling, is the forecast for UK economic recovery.

UK Economic Recovery
The UK economy has begun to emerge from recession but growth next year will be fragile, a forecast by business group the CBI has warned. It predicts UK GDP will grow by 0.3% between July and September from the previous three months, and will rise by 0.4% between October and December.

The CBI also predicted that continued job losses would see unemployment peak at about 3 million in the second quarter of 2010. Worries about job security and weak rises in wages would mean that households opted to save more and pay-down debt, rather than spend, it said.

The sharp fall in business investment and the state of public finances were also a “big concern”, Mr Lambert said, adding both would “affect UK economic prospects in the years to come”.

Summary
So, the pound has not moved much against the Euro due to markets waiting for the all important BoE minutes today. Watch this closely, as the pound will likely move very quickly at 09:30am as the minutes are released.

If you are worried that the news will be bad and markets will fall, then you should either fix a rate in advance with a Forward contract, or if you want to take a gamble that the news will be good and rates will rise, then place Stop and Limit orders. this allows you to aim for a higher rate, without losing out if rates actually drop.

Open an account with us for free now, (make sure you quote ‘BLOG’ on your application) and one of our currency dealers will call you to give you a consultation on what options we have on offer to help manage the risk of the currency markets.

Todays Data
Ger – Purchasing Managers Index
EU – Purchasing Managers Index
EU – Industrial New Orders
UK – Bank of England Minutes
UK – Mortgage Approvals
US – Mortgage Applications
US – Fed Interest Rate Decision

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G20, Sterling vs US Dollar

Good Morning. With little UK data yesterday, the pound remained steady against the Euro, with hardly any movement. The pound crept up slightly against the USD, and fell against the Aussie Dollar and Kiwi Dollar. Rates as at 08:30am 22/09/09 are as follows:

  • GBP/EUR 1.1015
  • GBP/USD 1.6282
  • GBP/AUD 1.8606
  • GBP/NZD 2.2552
  • GBP/ZAR 12.057
  • GBP/CAD 1.7415
  • GBP/JPY 148.52
  • GBP/CHF 1.6680

Before we look at todays currency info, a quick link to a good article in the Telegraph about how to find the best Foreign Exchange Deals:

http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/6205184/How-to-find-the-best-foreign-exchange-deals.html

The only UK data of note yesterday was from property website Rightmove showed asking prices for homes in England and Wales were on average 1.5 percent lower this month than a year ago, with the available stock at its lowest for 18 months.

Today is also very quiet in terms of UK data, with all eyes now on tomorrows Bank of England minutes, which are published two weeks after the interest rate decision. The minutes give a full account of the policy discussion, including differences of view. They also record the votes of the individual members of the Committee. If the BoE is hawkish about the inflationary outlook for the economy, then the markets see a higher possibility of a rate increase, and that is positive for the GBP.

G20
This week’s G20 summit in the US will call for major reforms to promote a more balanced global economy. A draft paper hints at significant policy changes from G20 countries, including the UK, the US and China. And while stimulus packages should continue for now, the document called for the creation of “transparent and credible” means to unwind that support. Leaders will meet in Pittsburgh with the economy high on the agenda.

NZ Dollar
For today, we have GDP data for New Zealand at the end of the day. It’s a measure of the total value of all goods and services produced by New Zealand. The GDP is considered as a broad measure of New Zealand economic activity and health. A rising trend has a positive effect on the NZD, while a falling trend is seen as negative (or bearish) for the NZD. We expect the figure to show a contraction of 0.2%.

Other data
Not much! Nothing for the UK, Retail Sales from Canada, House Prices and Manufacturing data for the US.

US Dollar
The US Dollar rose against Sterling last week, with the UK currency falling 2.4 per cent to $1.6280. However, this was caused by weakness in the UK economy, rather than the strength of the greenback. The dollar actually fell to one-year lows against the Euro and the Japanese Yen, as rising risk appetite stemmed safe-haven demand for the US currency. So the rise against the pound highlights just how negative the current outlook is for Sterling.

The Dollar’s fall against most major currencies displayed a willingness to take on more risk as stock markets rose, with investors selling the low-yielding currency to seek higher returns elsewhere. Some analysts feared a further decrease in the coming weeks as it appeared there was a risk that the low US interest rates could lead to the dollar replacing the Yen as the financing currency for the carry trade – where investors borrow in a country with low interest rates and then exchange the currency to buy assets in countries with currencies yielding higher returns.

However, these fears were eroded in early Monday morning trading, as the Dollar rose against major currencies, hitting $1.6143 per pound on speculation the US may start to reign back the economic stimulus measures of past months, showing signs of recovery and increasing demand for US assets.

Although it is believed interest rates will remain low for some time, Federal Reserve Chairman Ben Bernanke reported last week that the US recession has probably ended.

The main factors for the downward pressure on the pound came from Mervyn King’s comments that the Bank of England is considering lowering the interest rate it pays commercial banks for the deposits held in accounts at the Central Bank, added to the problems facing Lloyds TSB and whether it will need further assistance in the BoE’s asset protection scheme.

The difficulties facing British banks and the strategy of quantitative easing employed by the Central Bank has weighed heavily on the UK currency, whilst the £16.1 billion public sector budget deficit for August alone gave investors the impression that this weakness shows no immediate signs of abating.

The release of the September BoE minutes and the Fed’s interest rate decision on Wednesday, plus the G20 finance ministers meeting towards the end of the week, mean that there is likely to be some movement in the Sterling and Dollar markets.

Mentioning of further quantitative easing and the rate paid to commercial banks by the BoE will be watched closely, so contact us to discuss the possibility of tying into current rates through forward contracts, or setting up stop-loss orders to minimise exposure to any further Sterling losses.

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Pound remains weak against EUR, AUD, NZD & USD

The pound had a torrid week last week, as poor UK data from the banking sector and the Bank of England caused rates to hit a 4 month low against the Euro. At 08:30am monday 21st September, rates stand as follows:

  • GBP/EUR 1.1036
  • GBP/USD 1.6175
  • GBP/AUD 1.8744
  • GBP/NZD 2.2946
  • GBP/CAD 1.7377
  • GBP/ZAR 12.118
  • GBP/JPY 148.77

Why did the pound fall?

Sterling slumped to a 4 month low against the euro last week, stung by news that the UK government was tightening the terms for one of the nation’s banks to exit its asset-protection scheme, which underlined the ongoing fragility of the UK banking sector. Sterling suffered broadly, hitting a two-week low versus the dollar, a 4 month low against EUR, and hovering around a two-month trough against the yen.

The pound clawed back from some of those levels after figures on UK public sector finances were not as dismal as markets had been expecting, although they were the worst for an August on record. Lloyds Banking Group said on Friday it was in talks over a possible reduction in the number of toxic assets it might place in the so-called asset protection scheme, encouraged by “improving economic conditions”.

The market has been swinging between optimism and pessimism about the UK financial sector, and the Lloyds story is obviously not so good for sterling right now. Signs of weakness in the UK and global banking sector tend to hit sterling hard given the large role that the financial sector plays in the British economy. Also knocking the pound were comments from Bank of England policymaker David Miles, who told the UK’s Independent newspaper the UK could be out of recession in six or nine months, but that the road to recovery could be long and slow.

As we will see in a moment, there isnt much UK Data this week other than the mintutes from the Bank of England, so the pound will likely remain under pressure this week.

This Weeks Data
This week is fairly quiet in terms of UK data, with the main release of note being the Bank of England Minutes to their recent interest rate decision. The MPC meetings are published two weeks after the interest rate decision. The minutes give a full account of the policy discussion, including differences of view. With recent Sterling movements being largely influences by Bank of England policy, we will watch any comments closely, as they are likely to affect pound exchange rates.

In Europe, we have various inflation data that will give a good idea where interest rates may go for the EU. If figures support the case for higher rates, then expect GBP/EUR rates to drop.

For New Zealand, watch for the Gross Domestic Product data on Tuesday. This is a measure of the total value of all goods and services produced by New Zealand. The GDP is considered as a broad measure of New Zealand economic activity and health. A rising trend has a positive effect on the NZD, while a falling trend is seen as negative (or bearish) for the NZD.

In the US, we have the majority of this weeks data releases. Watch for the FED interest rate decision, Consumer Confidence Data, Mortgage Approvals and Jobless data. This US data will likely be the main driver for rates this week, due to risk sentiment. Good US figures at the moment drive investment into riskier currencies with a higher yeild such as AUD and NZD, which strengthen these currencies and weaken the dollar. Poor figures drive investors back towards USD strengthening the reserve currency.

Monday
Aus – New Vehicle Sales
NZ – Credit Card Spending

NZ – Current Accounts

Tuesday
Can – Retail Sales
US – Housing Price Index
US – Manufacturing Index
US – Consumer Confidence
NZ – Gross Domestic Product

Wednesday
Ger – Purchasing Managers Index
EU – Purchasing Managers Index
EU – Industrial New Orders
UK – Bank of England Minutes
UK – Mortgage Approvals
US – Mortgage Applications
US – Fed Interest Rate Decision

Thursday
Ger – IFO Business Climate
US – Housing Starts
US – Jobless Claims

Friday
Ger – Producer Prices
EU – Current Accounts
UK – Money Supply

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Pound falls again on Banking News

The pound has weakened massively yesterday and again this morning against the USD, AUD, NZD and the Euro on renewed concern the financial crisis in Europe will be prolonged, damping demand for the region’s assets including Sterling. Rates at 08:30am stand as follows:

  • GBP/EUR 1.1101
  • GBP/USD 1.6310
  • GBP/AUD 1.8781
  • GBP/NZD 2.2999
  • GBP/CAD 1.7462
  • GBP/ZAR 12.143
  • GBP/JPY 148.80

Pound falls on Banking News
Sterling dropped against 15 of its 16 major counterparts after the Daily Telegraph said Lloyds Banking Group Plc had been forced to abandon a move to withdraw from the U.K. government’s asset protection plan.

The dollar pared weekly losses against the Australian and New Zealand dollars as Asian stocks retreated, reviving demand for the relative safety of the U.S. currency. The Telegraph article enhanced views the Bank of England can’t exit its accommodative monetary policy stance any time soon, and the renewed concern in this area is weighing heavy on Sterling.

The Telegraph said Lloyd’s Chief Executive Officer Eric Daniels is understood to have presented the Financial Services Authority with plans to raise more than 15 billion pounds. The FSA decided Lloyds would require more capital to withstand rising bad debts and to lend an additional 28 billion pounds to businesses and households this year and next, as agreed with the government.

The pound also weakened after British Bankers’ Association data showed the cost of three-month loans in sterling between banks fell for a 13th day in a row. That spurred speculation and traders sold the pound to fund investments in higher-yielding assets in carry trades.

Bank of England Governor Mervyn King said this week that policy makers may lower the interest rate paid to hold reserves at the central bank, and the market is now focusing on which central banks of the developed countries will be the first to pull out of quantitative easing. It’s not likely to be the UK.

Aussie Dollar & Kiwi Dollar
Falling equities are spurring risk aversion. This is causing buying back of the dollar, which has been used as a funding currency for carry trades. Australia’s and New Zealand’s dollars trimmed weekly gains as technical indicators signaled their advances versus the dollar may stall. Rates for Sterling to these currencies have also dropped, as the pound weakens and these currencies strengthen as investors buy them to benefit from the higher interest rates.

Given the fact that the global economy has not rebounded to pre-financial crisis levels, currencies such as the Australian dollar that have already fully recovered may face headwinds in extending their advances. Benchmark interest rates are 3 percent in Australia and 2.5 percent in New Zealand, compared with 0.5% in the UK, 0.1% in Japan and as low as zero in the USA attracting investors to the antipodean currencies higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

Todays Data
UK – Money Supply
UK – Public Sector Borrowing
EU – Current Accounts
Ger – Producer Price Index
Can – Wholesale Sales

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