Currency Forecasts

Pound starts to fall – gains over.

Good Morning. Yesterday the pound hit 8 week highs against the Euro, and 3 month highs against the US Dollar. However the takeover bid for Cadburys along with continued worry about the UK economic recovery caused the pound to fall back in afternoon trading. Rates at 08:30am this morning stand as follows:

  • GBP/EUR 1.1110
  • GBP/USD 1.6649
  • GBP/AUD 1.7966
  • GBP/NZD 2.2524
  • GBP/CAD 1.7635
  • GBP/CHF 1.6788
  • GBP/ZAR 12.353
  • GBP/JPY 149.31
  • EUR/USD 1.4980

Pound/Euro
Following a hugely important week for the Pound last week, much focus will now be placed on determining what will happen next for the GBP/EUR cross. Surprisingly, following the Bank of England’s decision to increase its Asset Purchase Scheme by £25 Billion, Sterling has held relatively strong, actually gaining strength against the Euro by Monday morning.

This has been attributed to the wide spread anticipation within the market that this £25 Billion will bring to an end the UK’s Quantitative Easing cycle. Confirmation of this could come later this month when the minutes of the Bank of England’s most recent meeting are published, this will be vital for anyone with an upcoming requirement to buy or sell Euros. While for now an end to QE is being viewed as Pound positive news, the long-term effect of £200 Billion of additional government debt remains to be seen.

Looking forward, this week is a relatively busy week in terms of data from both the UK and our European trading partners. From the UK we have Retail Sales data, Unemployment figures and on Thursday a speech by Mervyn King (Governor of the Bank of England) which will give indications as to the bank’s future economic stimulus plans.

From the Euro-Zone key data includes the ZEW economic sentiment on Tuesday but most importantly the week climaxes with EU GDP figures for Quarter 3. Last quarter The Europeans narrowly remained in recession with a quarterly decline of just 0.2% and all eyes will be firmly focused on this release. A positive figure would bode badly for Sterling which presumably is still fundamentally fragile given the poor GDP figures for the UK at the tail end of last month and additional QE last week.

Early forecasts suggest that the EU will officially exit recession and therefore it would probably be sensible to consider booking an exchange rate in advance of the release for anyone looking to buy Euros in foreseeable future. Contact us today about the benefits of Forward contracts to protect against any pitfalls in the market.

For those bringing Euros back to the UK it would also be extremely wise to pay close attention the this release as it could well create some fantastic opportunities to fix a price at unnaturally good levels. Your account manager will be able to explain how Limit and Stop-loss orders will help you to achieve this.

Overall, despite some substantial data releases recently the direction of the cross appears unclear. This week could well help to determine the short-medium term future of GBP/EUR. As always in the currency markets expect the unexpected and be aware that the recent flat trading on the Euro could be replaced by a volatile market creating ideal buying and selling opportunities.

Pound/US Dollar
Last weeks data releases saw the US Federal Reserve maintain interest rates at 0-0.25%, and indicating that it is likely to leave interest rates low for an extended period. As a result the US Dollar was the weakest of all the major currencies last week causing GBP/USD to close 1.02% up at 1.6612, from 1.6445 a week earlier, benefiting those converting Sterling into US Dollars. In fact, yesterday saw a 3 month high for GBP/USD, but has already started to fall this morning.

This was in whole due to improving investor’s risk appetite and stronger global stock markets. The US Federal Reserve expressed greater confidence about the US economic recovery, which was generally supported by the economic data last week. This was also coupled with monthly increases in construction spending, pending home sales, manufacturing activity, service sector activity and factory orders which all rose throughout last month.

The only negative data this week came from the US Non-farm payrolls report which revealed a slightly larger than expected number of job losses for October, coming just after revised data for the previous two months had shown that 91,000 fewer jobs were cut than had been initially reported.

Counter to the dollar, Sterling benefitted this week from positive economic releases. This included Thursday’s Bank of England’s decision to only add a further £25 Billion in to the economy through the Governments Quantitative Easing scheme, instead of the anticipated £50 Billion. With the possibility of early signs of a Sterling recovery, the market is perhaps set to continue to become more hostile for those selling Dollars and perhaps suggests an earlier sale may be more favorable.

After a large number of data releases last week, this coming week is particularly quiet, with only a consumer confidence survey from The University of Michigan on Friday. In light of its safe haven status, this could leave trends in investors’ risk appetite levels to play a major role in determining the US Dollar’s performance.

In conclusion with such an unstable and volatile market it may be beneficial to discuss the possibility of locking into a forward contract with you Account Manager to enable you to take a greater control of finances and protect yourself from any loss.

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Pound outlook week commencing 9th November

Good Morning. The pound rose slightly towards the end of last week, helped by the fact the Bank of England didn’t extend the Quantitative Easing measures as much as some had forecast. At 08:30am Monday morning, rates stand as follows:

  • GBP/EUR 1.1203
  • GBP/USD 1.6772
  • GBP/AUD 1.8088
  • GBP/NZD 2.2761
  • GBP/CAD 1.7830
  • GBP/CHF 1.6919
  • GBP/ZAR 12.451
  • GBP/JPY 151.08
  • EUR/USD 1.4966

Sterlings gains
Sterling pared gains against the US Dollar at the ends of last week as a weaker US jobs report left investors more averse to risk and offset the boost to the UK currency from the previous days Bank of England decision.

However, the pound stayed not far from a two-week high against the dollar hit after the central bank on Thursday increased its quantitative easing programme by £25bn , less than the £50bn rise many had forecast.

The top-up to QE broadly supported sterling, particularly as many in the market believe this will be the last time the bank has to pump money in. With the BoE meeting over, analysts said the market would focus on the bank’s quarterly inflation report this week.

Under its QE programme, the BoE has since March been buying assets to inject liquidity into the economy. This contributed to recent sterling weakness which saw the pound touch a five-month low against the dollar in October.

However, the overall view that the BoE will maintain economic stimulus and keep interest rates low perhaps for longer than other central banks is seen limiting further gains. As other economies recover faster and start raising rates, their currencies will strengthen. The pound is likely to lag behind given that our rates are not likely to be raised until well into next year.

This Weeks Data
We have lots of data from the UK, EU and US this week that will no doubt cause volatility in exchange rates. Let’s take a look at each zone, and the key pieces of data to watch out for.

UK
We have various house price measures on Tuesday. Recently prices have been rising helping to strengthen the pound, but many analysts are saying this will not last. Any decline in the recent rise could cause the pound to weaken and exchange rates to fall.

There is some unemployment data on Wednesday, along with a speech from the Bank of England where a press conference will show how the BoE observes the current UK economy and the value of the GBP. His comments may determine a short-term positive or negative trend.

EU
We have inflationary measures, and also the Gross Domestic Product data on Friday. 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.

US
Thursday sees Jobless Claims, and Friday we have Import Prices, Trade Balance, and consumer sentiment which is a survey of personal consumer confidence in economic activity. It shows a picture of whether or not consumers are willing to spend money.

Monday
Aus – Investment Lending
Ger – Trade Balance
Ger – Industrial Production
Can – Housing Starts

Tuesday
UK – BRC Retail Sales
UK – RICS House Prices
Ger – Consumer Price Index
UK – DCLG House Prices
Ger – Economic Sentiment
US – Consumer Confidence

Wednesday
UK – Average Earnings
UK – Jobless Claims
UK – Unemployment
UK – BoE Speech
NZ – Retail Sales

Thursday
Aus – Unemployment
EU – ECB Monthly Report
EU – Industrial Production
US – Jobless Claims

Friday
Ger – Gross Domestic Product
Swi – Producer Prices
EU – Consumer Price Index
EU – Gross Domestic Product
US – Import Prices
US – Trade Balance
US – Consumer Sentiment


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Pound up after BoE, but GBPEUR rates unchanged

Good Morning. Sterling jumped to a 2 week high against the US Dollar on Thursday after the Bank of England expanded its quantitative easing programme by £25bn, confounding some analysts’ expectations of a bigger increase. The pound rose slightly agains the Euro, but then fell back on news the Eurozone economy is set to recover. Rates at 08:30am are as follows:

GBP/EUR 1.1164
GBP/USD 1.6619
GBP/CAD 1.7650
GBP/AUD 1.8128
GBP/NZD 2.2847
GBP/CHF 1.6876
GBP/ZAR 12.549
GBP/JPY 150.38
EUR/USD 1.4884

Bank of England Decision
The bank left rates on hold, but increased the QE programme by £25bn. A poll had shown that two thirds of analysts had predicted the BoE would expand its asset-buying scheme, with the consensus being an increase of 25 billion pounds. Some in the market had forecast a 50 billion pound increase.

Analysts said the pound rallied as market participants were relieved the BoE did not take more drastic action on quantitative easing, and on the view that it may hold off from implementing aggressive stimulus through the end of the year.

“Some in the market expected 50 billion pounds, and so 25 billion was seen as less aggressive,” said Chris Turner, currency strategist at ING in London.

So, as the move was widely predicted, and only £25bn was pumped in rather than £50b, this caused strength for the pound across the board. Some analysts said Thursday’s top-up may be the last.

With the BoE meeting over, analysts said the market’s next focus was on the bank’s quarterly inflation report next week, which they said would shed more light on the medium-term outlook for inflation, the key driver of the BoE’s monetary policy.

ECB Rate Decision
The European Central Bank (ECB) has kept interest rates on hold at a record low of 1% for the sixth month in a row.The ECB began cutting rates in October 2008, taking them from 4.25% to their current record low in May.

After the rates announcement was made the president of the European Central Bank, Jean-Claude Trichet, predicted the eurozone economy would recover gradually in 2010. Next week, the release of third quarter eurozone economic growth figures are expected to show the bloc exited recession, growing by around 0.5% from the second quarter.

This view that the EU will recover much faster than the UK economy helped trim any gains against the Euro. Rates initially climbed about half a point, but after the ECB decision, it fell back to roughly where we started the day, and indeed roughly where we are now at 1.1158.

Check back on Monday for a full breakdown of next weeks data, and the outlook on where exchange rates may go for the remainder of November.

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Pound in for volatile day – BoE decision due.

Good Morning. The pound rose against the Euro and US Dollar and other currencies yesterday after data showed a higher-than-expected increase in UK service sector activity and as a rebound in equity markets eased risk aversion ahead of a Bank of England policy decision today.

Rates @ 08:30am are as follows:

  • GBP/EUR 1.1136
  • GBP/USD 1.6513
  • GBP/AUD 1.8231
  • GBP/NZD 2.2972
  • GBP/CAD 1.7603
  • GBP/CHF 1.6807
  • GBP/ZAR 12.644
  • GBP/JPY 149.00
  • EUR/USD 1.4825

Today we have Industrial and Manufacturing Production data for the UK, but the main news is the Interest Rate meetings for the European Central Bank and Bank of England.

Analysts expect the BoE to keep interest rates at their 0.5 % record low, but many see an extension of its quantitative easing programme to inject liquidity into the economy.

Two thirds of economists polled expect the Bank of England to top up its QE programme by at least £25bn in November after the economy unexpectedly contracted between July and September.

But recent stronger data for the manufacturing and service sectors have raised questions about the scale of increase. Analysts said the biggest risk to the market would be if the BoE decided to refrain from increasing its asset-buying scheme. This might push sterling higher on the view the excess liquidity which has kept the pound low was beginning to dry up.

So, today will be the most important for the future movements of Sterling over the next month. If they increase the measures, then I expect the pound to take a hit and exchange rates to fall. If they decide not to pump more money in, then the pound is likely to rise. Either way, I think we’ll see some significant movement today.

As mentioned above, it’s odds on that they will extend the measures, but the question is by how much.

If you have a requirement, you can fix rates in advance of this decision to protect against any adverse movement with a Forward Contract. Doing nothing means you may gain, or equally you may lose. If you do wish to wait to see what the BoE do, then consider placing Stop and Limit orders to make sure you can control any loss should markets not go your way.

Get in touch to discuss how these types of foreign exchange contracts work.

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Pound falls on UK Banking news.

Good Morning. Sterling dipped against the US Dollar yesterday after the UK Treasury announced a major shake up of British banks and investors braced for a possible extension of asset purchases by the Bank of England this week. The pound rose against a broadly weaker Euro. Rates @ 08:30am are as follows:

GBP/EUR 1.1165
GBP/USD 1.6479
GBP/AUD 1.8193
GBP/NZD 2.2770
GBP/CAD 1.7512
GBP/CHF 1.6872
GBP/JPY 149.46
GBP/ZAR 12.735
EUR/USD 1.4753

The news that the major banks that the government bailed out will be split up shook Sterling yesterday. You can read a report on the issue on the BBC website here: http://news.bbc.co.uk/1/hi/business/8340627.stm

As finance is one of the biggest parts of the UK economy, this will likely affect the pound. Indeed Sterling fell against the US Dollar yesterday, but due to weakness in the Euro, GBPEUR rates actually rose slightly despite the news.

“Clearly this is not good news for UK PLC, but it is not happening in isolation – the banking sector in general across the euro zone is under pressure too,” said Jeremy Stretch, strategist at Rabobank. This explains why the news didn’t affect GBPEUR as much as other currency pairs.

In other banking news, HSBC has announced a cut of 1,700 jobs in the UK. The job losses will come from retail banking, but will come from support services rather than branches. HSBC employs 40,000 people in its UK retail operations, and more than 300,000 employees worldwide.

The main news remains the BoE meeting, which starts today with the announcement tomorrow lunchtime. We expect rates to be left on hold at the record low, but most analysts do expect further Quantitative Easing measures. This will likely hold back any gains for the pound, and could in fact cause rates to fall. We await the announcment tomorrow and will look to see what the effect of further measures will have on exchange rates.

Those that are risk averse, and dont wish to take a gamble on rates falling should consider fixing a rate in advance with a Forward Contract, or place a Stop Loss order to protect against a fall, while still allowing you to aim for a higher rate should the BoE not announce QE.

Aussie Dollar
Australia has raised its main interest rate for the second month in a row, to 3.5% from 3.25%.
The move by its central bank was not unexpected as the Australian economy was the only one in the developed world to expand in the first half of 2009. In fact, Australia managed to avoid recession, only seeing its economy contract in the last quarter of 2008.

Also, the release of the lowest inflation figures in 10 years last week added to expectations of a modest rate rise. “With the risk of serious economic contraction in Australia now having passed, the board view is that it is prudent to lessen gradually the degree of monetary stimulus that was in place when the outlook appeared to be much weaker,” he added.

So, higher rates strenghten the currency and make it more expensive to purchase. Rates in Australia have historically been high, and this could signal a return to higher rates in the near future. So, if you need to buy AUD, with the weak pound and the Aussie getting stronger, it’s likely that rates may continue to struggle.

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