Currency Forecasts

The weeks data, and Foremost on CNBC

Good Morning. Sterling rose against the Euro and US Dollar on Friday, but trimmed its gains as the U.S. currency surged after surprisingly strong jobs data. Today, we’ll have a quick look at where rates went last week and as usual have a detailed look at the weeks data releases that may affect exchange rates.

First, we’ll watch our Director of Foreign exchange on CNBC recently, talking about the pound strength and the US Dollar safe haven status, which is what’s driving it. If you cannot view the video automatically, watch it on YouTube here.

Last Weeks Trading
The main reason for the pounds gains towards the ends of last week were the better than expected jobs data. As Adam mentioned on CNBC, earlier in the year the dollar enjoyed safe haven status. This meant that investors flocked to the USD and strengthened the currency. Now the world is exiting recession, investors are unwinding these positions, and as a result the US Dollar is weakening and the pound benefited.

UK Bank Bonuses
Also to watch this week is news that UK Bank Bonuses may be capped. This is a concern, as finance is our biggest export. If the UK is no longer an attractive place to do business for the banking sector, we could lose out to Switzerland and EU countries that have more favourable rules.

The government have itself said this is little to do with finance, and more to do with politics. The government want to jump on the bandwagon of the mood in the country at the moment, and so in the long run we could damage our biggest export for the sake of a few political points in the run up to the election.

Robert Peston the BBC business editor talked about the issue on Radio 4 this morning, in his own………… irritating………….. waaaaaaaaaaaaaay. You can read his blog here, and his written word is certainly better than listening to him speak. If you don’t know what I mean, click here.

This Weeks Data
For the UK, we have the UK pre budgut report. There are concerns that this will highlight the levels of UK debt, which are reported to be £40k for every UK household. The measures outlined to combat this could cause weakness for Sterling.

We also have Retail Sales, Consumer Confidence, industrial and Manufacturing production and an Interest Rate Decision by the Bank of England, where we expect rates to be left on hold again at 0.5%. If the BoE is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the GBP.

Likewise, if the BoE has a dovish view on the UK economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish. We will also look to any further signals about the end of Quantitative Easing. So, this data could well cause further volatility for Sterling.

For the EU, we have a speech by the ECB president following their decision to keep rates on hold last week. He gives 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. We also have the ECB monthly report that contains 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.

For the USA, following last weeks better than expected jobs data, further good news could cause further dollar weakness, benefiting other currencies that are percieved as risky. The monthly budget statement on Thursday will be one to watch, as it summarises the financial activities of federal entities, disbursing officers, and Federal Reserve banks. A positive budget statement that receipts exceed budgetary outlays is seen as bullish for the USD. On the other hands, a negative figure (deficit) that indicates government debt is seen as bearish.

Elsewhere, we have GDP from Japan, and an interest rate decision for New Zealand. Rates are expected to be left on hold, but the Australians surprised us recently, and if the RBNZ is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the NZD.

Full Breakdown below. For more information on how these released could affect your particular requirements, please contact us today.

EU – ECB Speech
US – Fed Speech
US – Consumer Credit
EU – Sentiment Index

UK – Retail Sales
UK – Industrial Production
UK – Manufacturing Production
Ger – Industrial Production
Jap – Gross Domestic Produc

UK – Nationwide Consumer Confidence
Ger – Consumer Price Index
UK – Trade Balance
NZ – Interest Rate Decision

Aus – Unemployment
UK – Interest Rate Decision
EU – ECB Monthly Report
US – Jobless Claims
US – Monthly budget Statement

UK – Producer Price Index
US – Import Prices
US – Consumer Sentiment
US – Retail Sales

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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.

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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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