Currency Forecasts

Bank of England & Pound Exchange Rates

Good Morning. The pound rose against the US Dollar yesterday, but remained steady at around €1.10 against the Euro. Mervyn King gave a speech yesterday, but mostly covered bank regulation and made little mention of the currency markets. Rates this morning are up a little as follows:

  • GBP/EUR 1.1030
  • GBP/USD 1.6497
  • GBP/AUD 1.7782
  • GBP/NZD 2.1788
  • GBP/CAD 1.7296
  • GBP/CHF 1.6658
  • GBP/ZAR 12.144
  • GBP/JPY 149.46
  • EUR/USD 1.4952

The pound rose to a near 4 week high against the Euros this morning, lifted by the view that Sterlings falls in recent weeks may have been overdone. There was some caution, however, ahead of Wednesday’s release of Bank of England minutes, where any hint that the central bank may be considering another extension to quantitative easing is likely to push the pound lower again.

Bank of England Speech
Yesterday the governor gave a speech in which Mr King said that government support for the banking sector had been “breathtaking” at close to £1 trillion. “Never has so much money been owed by so few to so many. And, one might add, so far with little real reform,” he said.

Separately, Mr King said the UK economy would grow in the second half of the year.
However, he did not commit himself to saying the economy had come out of recession between July and September. Initial data on the economy’s performance during that period is due on Friday.

And he added that while it should become easier for households and businesses to borrow money, “we should be under no illusion that the path to sustained recovery will be smooth and painless”, citing high unemployment and lower industrial output. “We shall all be paying for the impact of this crisis on the public finances for a generation.”

So, not a good outlook for the pound, but the markets have not really reacted as he didnt really say anything we didn’t already know.

BoE Minutes
At 09:30am we’ll see the minutes to the recent meeting. 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 minutes suggest more quantitative easing is coming then sterling may well stagger,” Rabobank currency strategist Jeremy Stretch.

“This would put the BoE further in isolation compared with other central banks, especially given that Australia has already started tightening,” he said.

Analysts said, however, that Tuesday’s provisional money supply data, which showed the M4 broad measure rising by 0.7 percent month-on-month in September, gave some reason for optimism that the BoE’s QE policy may be working.

Which way will the pound go?
The easy answer is one way or the other! It will all depend on these minutes. I dont think the pound will remain steady, and if the minutes show more QE, the pound will likely fall. If they show QE is working, the pound may gain. So it could really go one way or the other. It’s been hard to predict becuase we’ve had conflicting comments from BoE members.

Some clients will be wishing and hoping the market will move in their favour. Some clients will understand however that wishing is not a reliable economic tool, and will have placed Stop Loss orders, so that a higher rate can still be aimed for, without exposure to adverse rate movements.

If you want to know more about tools such as Stop Loss orders, contact us today.

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Euro and US Dollar Exchange Rates

Good Morning. The pound remained fairly range bound against the Euro yesterday, still under €1.10. Sterling gained against the US Dollar however on weaker than expected US data. Rates this morning are as follows:

  • GBP/EUR 1.0924
  • GBP/USD 1.6372
  • GBP/AUD 1.7659
  • GBP/NZD 2.1718
  • GBP/CAD 1.6848
  • GBP/CHF 1.6536
  • GBP/ZAR 11.995
  • GBP/JPY 147.60

Last Weeks Trading
The pound rallied against the euro on Thursday amid increased optimism from the Bank of England. The currency closed up more than two points against the euro at €1.0889 a three week high. To give some perspective as to the strength of this rally, the pound set its biggest one day advance against the euro in eight months.

The rise was partly explained by comments made by Paul Fisher, a member of the Bank of England’s Monetary Policy Committee, who said there were positive signs that the MPC’s £175bn Quantitative Easing (QE) programme was working. However, Monday morning brought a new twist to the Bank of England Quantitative Easing (QE) debate in the form of Adam Posen another member of the Bank of England’s Monetary Policy Committee commenting that the central bank should “continue its quantitative easing programme because the financial system has yet to fully recover”. These diverse opinions have only helped fuel volatility and increase a need for definitive answers.

The upcoming event risks that have the potential to produce a meaningful change in the underlying trend of the British pound are the Bank of England’s Minutes on Wednesday 21st October which would provide further insight into the MPC’s overall thinking of this month’s policy meeting, a dovish tone would mean further pressure on the pound and could undo last weeks gains. Friday 23rd October brings the third quarter gross domestic product data, Should the 3rd Quarter reading report growth, it would be a major step towards seeing a more meaningful recovery for the pound.

Last week The Euro hit a 6 1/2-month high of 94.13 pence per Euro. On Monday however it headed toward 91.65 pence per Euro as Finance ministers from the 16 countries that use the euro were due to gather in Luxembourg on Monday amid concern in the region that a strong currency could curb exports and hinder an economic recovery, this comes on top of the European Central Bank president Jean-Claude Trichet’s warning that excess exchange-rate volatility is an “enemy” of stability.

The events to look out for this coming week will be the German IFO business confidence data and Industrial New Orders report both released Friday 23rd October, a positive sentiment in business confidence will have bullish movement in the Euro as too would growth in industrial orders.

To summarise there is still a vast amount of uncertainty and volatility between the Pound and Euro, however, buyers and sellers of both currencies are still able to benefit by utilising several tools of the market. To find out what options are available to you and your circumstance please do not hesitate to contact your Foremost Currency Group broker to discuss your requirements and the benefits associated with them.

US Dollar
The USD was the weakest of the major currencies last week with exception for the Japanese Yen. Flows into the US Dollar were curbed by improving risk appetite as the Dow Jones index rose above the 10,000 level for the first time since October 2008.

The US economic data was mixed. The latest monthly data showed a rise in manufacturing and industrial activity, a fall in jobless claims to a ten-month low, whilst retail sales dropped by a less than feared 1.5%. However, the minutes of the Federal Reserve’s recent policy meeting revealed that it remains especially wary of how the economy would perform if government stimulus were to be withdrawn, dampening speculation that it might end Quantitative Easing measures.

The GBP/USD rate closed up 3.27% at 1.6360, from 1.5700 a week earlier, benefiting those converting Sterling into US Dollars.

Evidence of a hopeful housing recovery will be in focus this week, with housing construction starts and existing home sales. With several major US companies also reporting results this week, investors’ risk appetite levels are also likely to be an important influence on US Dollar direction.

What this means to you
With signs of further USD weakness due to the speculation of printing more money (Quantitative easing) showing a weakness within the US economy, this may provide Sterling with buoyancy to push back through the 1.70 barrier benefiting those buying US Dollars in the coming weeks. However on the flip side the BoE minutes will be released on Wednesday providing crucial information to whether more quantitative easing was favoured by some panel members or even a further rate drop.

If this is the case expect to see the pound lose value across the board especially with the Greenback and the Euro. If you are worried about the current market movements you need not to worry. Here at FCG we provide a number of contracts which could protect your requirement whether one is buying or selling.

One of the contracts we use is a ‘Forward contract’ this allows one to purchase a currency for up to 2 years in advance with only a 10% deposit safeguarding your currency against market movements.

Finally….
I meant to mention this yesterday… Congratulations to Jenson Button on clinching the Formula 1 World Drivers Championship on Sunday, with an epic sublime drive. Also well done to the Brawn team for clinching the constructors championship. Motorsport is a big success story for the UK, it generating Billions of pounds of income to the UK. And for those that watched the race – what about that Kobayashi?!

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Sterling Exchange Rate Forecast Oct 2009

Good Morning. As outlined in Fridays post, the pound made some good gains at the end of last week, recovering some of the ground lost over the previous 2 weeks. This was due to BoE comments that Quantitative Easing may be working. Before we look at rates and today’s view on the market, we’ll look at our Director of Foreign Exchange speaking on CNBC recently. If the video does not play, you can view directly on YouTube here

Rates at 08:30am stand as follows:

GBP/EUR 1.0881
GBP/USD 1.6252
GBP/AUD 1.7628
GBP/NZD 2.1751
GBP/CAD 1.6827
GBP/CHF 1.6491
GBP/ZAR 11.892
GBP/JPY 147.16
EUR/USD 1.4930

Despite the gains, the UK is still struggling to recover. It is “still premature” to talk about the beginnings of a recovery despite growing optimism, according to the influential Ernst & Young Item Club. It predicted some growth in the second half of 2009 but said the economy would struggle to achieve 1% growth in 2010. This will likely keep the pound weak.

Bank of England and Quantitative Easing
The reason for the gains last week were one of the MPC members saying the QE measures were working, and this meant the view was there may be no further measures, and therefore the pound recovered. Sterling slipped this morning however against the euro and dollar after a Bank of England policymaker said the central bank should continue its quantitative easing programme because the financial system has yet to fully recover.

Adam Posen’s comments to the UK’s Sunday Times eclipsed sterling-friendly house price data from property website Rightmove, which showed asking prices for homes in England and Wales up on an annual basis for the first in more than a year in October.

Market participants said Posen’s relatively dovish remarks contrasted with those of fellow MPC voting member Paul Fisher last week, which were interpreted as a signal the Bank might be considering drawing its QE programme to a close soon.

This weeks data
The main news that caused the pounds rise last week was Paul Fisher’s comments from the BoE that QE was working. Today we see a different member Adam Posen say it’s not working, and more is needed. So, conflicting views on what will happen. On Wednesday this week we see the full minutes of the recent BoE meeting, where we can see differences of opinion in more detail. This will be key to this weeks Sterling movements. We also have Producer Prices and Retail Sales for the UK.

Elsewhere, there is an Interest Rate decision for Canada, where rates will likely be left at the low of 0.25%. There are several speechs by the US Federal Reserve, where they give views on the US economic recovery, and these comments can influence the value of USD.

Monday
UK – Rightmove House Prices
US – Fed Speech

Tuesday
Ger – Producer Price Index
UK – Producer Price Index
US – Housing Starts
Can – Interest Rate Decision
US – Consumer Confidence

Wednesday
UK – BoE Minutes
US – Mortgage Applications
US – Feds Beige Book

Thursday
UK – Retail Sales
US – Jobless Claims
Can – Retail Sales

US – House Price Index

Friday
Ger – Business Climate
EU – Industrial New Orders
US – Fed Speech
US – Home Sales

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Pound makes big gains against USD & EUR

Sterling racked up its biggest 1 day gain against a basket of currencies including the Euro and US Dollar in nearly a year yesterday, after a UK policymaker’s comments prompted speculation the Bank of England may not extend quantitative easing. Rates at 08:30am stand as follows:

  • GBP/EUR 1.0921
  • GBP/USD 1.6290
  • GBP/AUD 1.7658
  • GBP/NZD 2.1883
  • GBP/CHF 1.6558
  • GBP/CAD 1.6817
  • GBP/ZAR 11.904
  • GBP/JPY 148.03

Bank of England & Quantitative Easing
The reason the pound has been so weak recently, is due to the fact our interest rates are so low, and likely to remain so for a long while. Also, the QE measures were predicted to be extended, which has kept the pound low.

Monetary Policy Committee member Paul Fisher yesterday told the Financial Times the BoE’s interest rate cuts and injection of money into the economy via asset purchases were working, and it’s this positive view that caused yesterdays rally, even though there was little UK data out yesterday.

Sterling has come under heavy pressure in recent weeks, battered across the board on the view that UK interest rates will stay low and public finances will deteriorate further. The pound rose more than 2 percent at one stage against the dollar and the euro and more than 3 percent versus the yen, taking it to its highest in three weeks against the U.S. and Japanese currencies and to a 10-day high versus the euro.

“Fisher was implying that he thinks quantitative easing is working fairly well, which has led to talk that the policy may be withdrawn sooner than previously thought,” said Neil Mellor, currency strategist at Bank of New York Mellon.

The market is eagerly awaiting the November MPC meeting to see if the BoE extend quantititive easing. If they do not then we are likely to see a rally in sterling,” said Geraldine Concagh, economist at AIB Group Treasury in Dublin.

Mellor at the Bank of New York Mellon said, however, that the comments had done little to alter the negative picture on the UK currency. “Sterling’s plight is more about interest rates being on a floor and staying there, because the BoE is in no position to start thinking about raising rates at all,” he said. “This could be the perfect selling opportunity,” he added.

So, is this a sign of recovery for the pound, or simply a short term spike that will correct itself in the coming weeks? Impossible to tell. Markets will look to Novembers BoE meeting to see if more QE is announced. If this becomes more likely, expect the pound to fall. If it is less likely, then my view is Sterling cant simply climb and climb, as the fact remains that we are still in recession, and our rates are going to remain low for some time.

Again today, there is little economic data of note. There is however various measures from the USA, and it is this that has helped boost the pound. When there is good US data, in the past this would have strengthened the USD and made no difference to Sterling. In the current climate however, and good news from the states is a sign of global economic recovery, and so this boosts risk sentiment and thus drives investment towards riskier currencies such as the pound.

We saw this yesterday, as better than expected US data helped the pounds run yesterday. Stock markets were also up across the board, and you can read a breakdown of the gains in this BBC article.

Have a great weekend.

Todays Data
EU – Trade Balance
Can – Consumer Price Index
US – Industrial Production
US – Consumer Sentiment

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Pound makes gains on unemployment data

Sterling rose slightly on Wednesday, up sharply for most of the day on stronger than expected UK jobs data, before losing ground on a Financial Times report on the Bank of England’s quantitative easing programme. Rates this morning stand as follows:

GBP/EUR 1.0785
GBP/USD 1.6113
GBP/AUD 1.7490
GBP/NZD 2.1550
GBP/ZAR 11.637
GBP/JPY 144.12
GBP/CHF 1.6318

UK Unemployment
Official statistics showed the unemployment rate held steady at 7.9 percent in August. Economists had expected a rise to 8 percent. Because the rise was less than forecast, the pound rose. The number of Britons claiming jobless benefit rose by 20,800 in September, less than expected and the smallest rise since May 2008.

This was enough to trigger a relief recovery but the market is still broadly bearish on sterling because of Britain’s deteriorating fiscal position and the likelihood of interest rates staying low for a long period.

“The fact that sterling is stronger is evidence of positioning rather than the strength of the data, because in reality the data weren’t all that much stronger than expected,” said Paul Robson, currency strategist at RBS Global Banking in London.

Expectations rates will stay at record lows of 0.5 percent and that the BoE may extend its QE programme have pummelled the pound in recent months and are making traders pessimistic about its outlook.

The latest unemployment data comes a week before the Office for National Statistics (ONS) releases its first estimate for how the UK economy performed between July and September.

Despite some signs of economic improvement, analysts remain unsure as to whether the economy will post growth and therefore exit recession. If the economy contracts again, it will be the first time that the UK has endured six successive quarters without economic expansion.

Todays Data
There is no data of note for the UK today, with most data coming from the EU and USA. We also have some inflation data from Australia. Look out for the ECB monthly report which is a detailed analysis of the prevailing economic situation and the risks to price stability. It also provides articles on a wide range of topics related to the tasks of the ECB.

EU – ECB Monthly Report
EU – Consumer Price Index
US – Consumer Price Index
US – Jobless Claims

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