Currency Forecasts

Sterling to EUR & USD rates tumble

Yesterdays Trading
The pounds run could not last forever, and yesterday was the end of the continued gains for Sterling. The pound dropped heavily against both the Euro and the Dollar, wiping out the recent gains the pound has made. As outlined in yesterdays report, those clients that left it to chance in the hope rates would continue to climb may have missed their chance. Clients that placed Stop and Limit orders, in order to aim for a higher rate while protecting themselves limited their loss to management and predictable levels.

So, why the sudden drop? It’s all to do with deteriorating market sentiment. Despite a jump in services sector data from the UK yesterday that pushed the pound higher, the main reason for the decline is again mainly due to the dollar.

As outlined in other posts this week, Sterling has gained on the back of the US Dollars losses, as investors moved funds from the dollar to the pound. Now, other US data has pushed investors back, as weak U.S. employment and services sector data also stung optimism on the global economic outlook, further helping the dollar against higher risk currencies such as sterling.

A worsening political crisis for the Prime Minister Gordon Brown also helped knock the pound, as Communities Secretary Hazel Blears became the latest high profile minister to tender her resignation from the government. The political turmoil in government has knocked the pound, although not by very much.

Blears’ decision to step down follows Tuesday’s resignation by interior minister Jacqui Smith.
The resignations are seen as undermining Brown’s authority on the eve of European and local elections in which his Labour Party is widely forecast to suffer a dismal defeat. “These political dynamics are likely to weigh on sterling too,” Rabobank’s Stretch said.

Interest Rates
Today is an important day, as we see interest rate decisions for the UK, EU and Canada. Expect volatility in rates one way or the other, and do not expect things to stay the same for long!

Analysts do expect rates to be left on hold for both the UK and EU, and the main thing analysts and the markets will be looking for, is to see whether policymakers make any further announcements on its quantitative easing programme.

If its announced this will be increased, then expect Stering exchange rates to continue to fall. If however there is no announcement for further measures, we could see a recovery.

In the EU, the consensus is that rates will be left on hold at 1%. I’m going to go out on a limb however, and say that there is a chance that rates will be cut, possible by 0.25% or even 0.50%. also watch for any QE announcements here, as that will also undermine the Euro.

So, all is not lost. If you are buying currency with Sterling, you will want no QE measures from the UK, some QE from the EU and a rate cut there also. This will help rates recover. If you are selling currency back to Sterling, then medium term forecasts do suggest rates will climb by year end, so you may wish to take advantage of the current drop and lock rates now.

Whatever your requirements, open an account with us today (click the orange banner below to take you to the online application form), and you can then discuss the options available to you for your specific requirements. Registering with us is free, does not obligate you, but gives you the opportunity to discuss your needs with an experienced broker that can help you give you all the information you need to make an informed decision on when to buy.

Todays Data
UK
09:00am – Halifax House Prices
12:00pm – Bank of England Interest Rate Decision

EU
10:00am – Retail Sales
12:45pm – ECB Interest Rate Decision

US
13:30pm – Jobless Claims
13:30pm – Non-Farm Productivity
13:45pm – Fed Chairman Speech

Canada
14:00pm – Interest Rate Decision

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Sterling rally continues

Belief that the global economy is recovering has helped Sterling continue its gains this morning. At the time of writing rates are as follows:

GBP/EUR 1.1650 – 6 month high!
GBP/USD 1.6626
GBP/AUD 2.0180
GBP/CAD 1.7968
GBP/NZD 2.5507
GBP/JPY 160.02

Pound Euro rates are now at a 6 month high, and the rise is being driven by investors returning to perceived higher risk currencies like Sterling. Be aware though, the Euro is also gaining, just not as much as the pound which is why rates are rising. Today we have some important GDP data from the EU, and if its better than expected these gains may be short lived.

Another reason for the pounds rise is the weakening of the US Dollar. Following news that General Motors, one of the worlds largest car makers have gone into recievership, this has severely dented confidence in the US economy. So, as investors move their funds from USD to other currencies, Sterling is the winner as the recent surge in it’s value demonstrates.

It is in these times that it is important to make decisions on when to purchase your currency. If you are buying with Sterling, then rates are now at record levels for many currencies, and so serious consideration is needed to fixing your rate while times are good. Holding out in the hope rates will continue to rise is simply a gamble. Of course you could win and rates may keep going up, but as is often the case, spikes like this are extremely short lived and rates could quickly drop back away.

As mentioned in yesterdays post, it is situations like this where Limit Orders allow you to continue aiming for a higher rate, while at the same time placing a Stop Loss order so if rates do tumble, you are protected and dont lose out completely. Leaving it to chance is a risky strategy.

For those selling currency back to Sterling, while rates may climb or may drop in the short term, most medium term forecasts do suggest that rates will climb this year, and so if I was selling a currency back to Sterling, I would move very quickly.

Click the orange banner to open a free trading facility with FCG – this allows you to discuss your requirments without any obligation, and allows you to have all the information you require to make an informed choice of when to fix your rate.

UK Confidence
In another boost for the pound, UK consumers were more optimistic last month about the future than they had been for six months, according to the Nationwide Consumer Confidence index.

The index hit 53 in May, up from a reading of 51 the month before and the highest reading since November. Despite the improved outlook for the future, consumers remained pessimistic about the current situation. “It is likely that confidence will remain fragile,” said Nationwide’s chief economist Martin Gahbauer.

Todays Data
We have some data for the UK, EU and US today, however most will be waiting for the major data releases tomorrow, namely the interest rate decisions for both the UK and EU.

We have already had GDP data from Australia that was much better than expected which has dropped the GBPAUD rate slightly.

For the UK today we have Purchasing Managers index and BRC Shop Price Index data.

For the EU we have Purchasing Managers Index, Gross Domestic Product and Prouducer Price Index

For the US, this afternoon there is some employment data, Factory orders and mortgage applications.

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Sterling Exchange Rates continue to climb

Sterling
The pound continued its strong gains in trading yesterday, and hit a 7 month high against the US Dollar and also new highs against the Euro.

Rising share prices prompted investors to seek perceived riskier assets such as the pound, and some analysts now believe that the UK economy could emerge from a global recession sooner than other major economies.

Other data yesterday showed Britain’s manufacturing sector contracted at its slowest pace in a year in May as the pace of decline in new orders, output and employment eased.”Today’s PMI reading adds to the growing body of evidence that the pace of contraction in the UK is slowing, even raising the possibility that the UK may be one of the first large economies to emerge from the crisis,” said analysts at UBS. This also helped the pound continue to rise

US Dollar
The dollar has fallen on signs the global economy is improving. This makes currency traders more confident to switch to higher-yielding currencies (like the pound).

This is the case not only for the pound, but also the euro, as UK and eurozone interest rates remain higher than in the US. While US interest rates are currently between 0% and 0.25%, UK rates are at 0.5%, and the eurozone level is 1%. This selling of US Dollar has helped weaken the currency, and combined with the current strength of the pound, has pushed rates to the highest since November last year. Right now rates are at 1.6397.

Eurozone
Prices in the eurozone stopped rising in May with the annual inflation rate at 0% , igniting concern that prices will fall in the months ahead.

This is the lowest inflation rate recorded since 1997. Inflation stood at 0.6% in April, after hitting 4% when energy prices hit record highs. Many analysts now expect deflation to grip the 16-nation zone this summer.

“There seems little doubt that the eurozone will see deflation in June and that it will persist over the next few months at least,” said Howard Archer at IHS Global Insight.

Deflation is considered damaging to an economy as consumers tend to delay making purchases until prices fall further. Without consumer spending to stimulate growth, economic output falls.

For the currency markets, the news weakens the currency, and also increases the chance that interest rates will be cut in the Eurozone this week. Lower interest rates will cause investors to move funds to other higher yeilding currencies – at the moment this is the pound. So, there is a good case to beleive that as the week goes on the Euro will become weaker, the pound stronger and GBPEUR rates may continue to rise

Summary
So, the pound is enjoying a very strong position at the moment, with the best exchange rates for some time against a basket of major currencies. As outlined above, further USD and EUR weakness signal that rates may continue to rise, however we also have other economic data out today which is outlined below. So, if you do wish to gamble on rates continuing to rise, it is also worth planning for the fact that the pound may lose the recent gains and drop away, as is so often the case.

All it takes is some of the below data to be worse than expected, and the pound could fall. It is situations like this where Limit Orders allow you to continue aiming for a higher rate, while at the same time placing a Stop Loss order so if rates do tumble, you are protected and dont lose out completely. To discuss these contract types, click on the orange banner below to open a trading facility, and you can then have a tailored consultation for your particular requirements. It’s free, and there’s no obligation.

Todays Data
For the UK today at 09:30 we have Consumer Credit, Money Supply, Mortgage Approvals, and PMI construction. Later in the day we also have Unemployment figures for the EU. For the US we have home sales data and a consumer confidence release.

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Sterling at best levels all year.

Good morning and welcome to a new week for the currency markets. Below we will take a look at economic data being released this week, but let’s first take a quick look where the pound is after a good week last week.

Pound to Euro
Rates have steadily climbed up over recent weeks, and last week broke through the 1.15 level for the first time this year. This is much better than at the start of 2009 when this currency pair was almost at parity. The reason for the gain is partly due to a slowly recovering pound, but also due to poor economic data being released from the Eurozone. We could see an interest rate cut in the EU this week that could help keep this run going, however we also have news from the BoE this week, which if poor could wipe out the recent gains.

UK House Prices boost pound
Sterling jumped to its highest level in more than 6 months against the US dollar late in the week – the pound is on track for its biggest monthly gain since 1985. One of the reasons for the rise is renewed hopes that the UK economy is fully on the road to recovery. Also news from nationwide that house prices rose also boosted Sterling. Nationwide reporting a 1.2 percent rise in UK house prices during April 2009.

US Dollar rates very good
So far this month sterling has risen by around 9 percent against the US Dollar, leaving it on course for its biggest monthly rise since March 1985. Any dollar buyers may want to take advantage of some of the best buying levels for some time. Rates are 30 cents higher than only a few months ago.

UK Retail Sector
There was further good news from major British retailer John Lewis, which reported its strongest week of the year so far, with sales up 2 percent last week. John Lewis is always a good barometer of the UK retail sector as a whole, and so this is a good sign of continued recovery.

A UK consumer confidence survey gave mixed signals, however, with an improvement in consumers expectations for their own finances offsetting rising gloom over the economy. Although market participants cheered the rise in UK house prices reported by Nationwide, some analysts warned against getting carried away, arguing the Bank of England still has its work cut out to get a weak economy growing again.

BoE
This week we’ll see the central bank annoucne interest rates. As outlined below it’s unlikely rates will be cut, however it’s not out of the question that further Quantitive easing will be announced. This may harm the pound and stem the recent gains.

This Weeks Data
We have various things to look out for this week. A full outline of the major data releases is below. To brefily summarise, for anyone buying or selling Euros then look out on Wednesday for various inflationary measures, and also the interest rate decisions for both the UK and EU on Thursday. It’s unlikely the BoE will move rates from the current 0.5%, however the EU do have scope to cut rates in order to boost the economy.

These decisions may also come with further news for Quantitative Easing for both zones. It’s likely that the Euro may well weaken towards the end of the week, giving better levels for Euro Buyers, but make things worse for those that need to convert funds back to Sterling.

For those clients looking at either buying or selling the US Dollar, then today we have Personal Consumption data and Personal Spending. Friday will also be a key day, as we have Earnings, Unemployment, Spending and most importantly, the Non-Farm Payrolls data. As this is so difficult to forecast, actual results are often way off predictions causing volatility in the value of the USD.

Monday
EU – Purchasing Managers Index
UK – Purchasing Managers Index
US – Personal Consumption
US – Personal Spending

Tuesday
Aus – Interest Rate Decision
UK – Consumer Credit
UK – Mortgage Approvals
EU – Unemployment
US – Home Sales

Wednesday
Aus – Gross Domestic Procuct
Ger – Purchasing Managers Index
UK – Purchasing Managers Index
EU – Purchasing Managers Index
US – Unemployment

Thursday
EU – Retail Sales
UK – Interest Rate Decision
EU – Interest Rate Decision
Can – Interest Rate Decision
US – Jobless Claims

Friday
UK – Producer Price Index
UK – Halifax House Prices
Cad – Unemployment
US – Unemployment
US – Non Farm Payrolls.

For further information on how these data releases can affect exchange rates, or to simply discuss your particular requirements, please get in touch today by clicking the orange banner below to register an account with FCG for free, without any obligation.

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