Currency Forecasts

Sterling makes gains, then plummets.

The pound made good gains yesterday, before plummeting this morning showing how volatile the currency markets are at present. First we’ll look at the gains, then the reason for this mornings correction.

Sterling Exchange Rates Gain
Sterling extended it’s rally yesterday, hitting its strongest since early December against the euro, which came under pressure ahead of the European Central Bank’s first one-year refinancing operation.

Gains against the euro helped sterling to a seven-month high against a basket of other currencies as investors feel that all the bad news about the UK economy is for the most part priced in.

The pound fell against the US Dollar though as renewed concerns about global growth boosted demand for the USD and curtailed demand for currencies perceived as higher risk. (As mentioned in yesterdays report, when the markets are jittery, speculators move funds from currencies like the pound to the US Dollar.)

Eurozone
There is uncertainty before the ECB’s first ever one-year refinancing operation today which is aimed at getting banks lending again. This put pressure on the Euro helping the rate climb. There was also an article in the wall street journal about Germanys budget defecit which also weakened the single currency (again as mentioned in yesterdays report, as germany is the biggest economy in the EU it has a big impact on the single currencies value.)

This provided an opportunity to take the euro lower against sterling, continuing a trend of weakness over recent weeks. This also reflects optimism that the UK economy may be over the worst of the downturn, just as concerns have emerged about the euro zone.

The pound therefore is percieved to have already been through the worst, and renewed concerns about the Eurozone make me beleive that in the medium term, exchange rates for GBP/EUR are likely to continue the upwards trend. However, spikes in the market are still happening, and as we will see in a moment, the pound is not invincible and we have seen a drop this morning.

Pound falls
Despite all the above, and that forecasts are pointing towards higher rates, we have seen the pound plummet this morning. At the time of writing, rates are as follows:

GBPEUR 1.1739
GBPUSD 1.6320
GBPNZD 2.5811
GBPAUD 2.0778
GBPCAD 1.8804
GBPZAR 13.425

So, why the fall if the forecasts are saying that rates will rise?
A few reasons. Firstly we had some data from Germany this morning which measures confidence – the figures were much better than expected which has strengthened the Euro. Also, the World bank’s announcement of further economic contraction for 2009 for the UK did not help. The World Bank has downgraded its global economic forecasts to a 2.9% contraction in world economy, from the previously estimated 1.7%, while warned about a decline on investment in developing countries, that could increase poverty.

So, as outlined above, investors quickly return to the USD, causing temporary weakness in the pound.

Data
In a very quiet week for UK data, it’s likely to be events in the US and Eurozone that drive rates. Today we have Purchasing Managers Index for the EU. We also have home sales and house price data for the US. For the reasons already mentioned, movements in USD can effect the pound.

UK Jobs
Another reason the pound has fallen slightly, is the outlook for jobs in the UK, This is bleaker now than it was in the 1990s recession and more like the deep recession of the 1980s, the TUC says. The unemployment rate increased by 30% in the first 12 months of the current recession, compared with 22% in the 1990s and 29% in the 1980s. So, any hint of bad news like this quickly gives the market the jitters.

When to purchase your currency
This has to be your decision, as nobody can predict exactly what may happen in the market. While the medium term view is that pound rates will have climbed by year end, it’s important not to leave everything to chance. Even in an upwards trend we can see movements like this morning that make a big difference to the cost of your currency.

If you have a requirement to purchase currency with Sterling in the next few months, then get in touch with us today and discuss your options to protect you against market movements. Likewise if you are selling currency back to Sterling, then the upwards trend will be costing you money week by week. with FCG you can lock in todays rates for a date up to 2 years into the future. Then you will know exactly what you will get and not be gambling large amounts on unpredictable market movements.

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Pound regains strength and exchange rates recover.

As we correctly predicted here on this blog, despite some big drops last week the pound has recovered the losses last week, and have returned to roughly 7 month highs against both the Euro and the US Dollar.

First we’ll look at why they fell in the first place, then as usual for a Monday morning we’ll take stock of this weeks data releases and what this may mean for exchange rates.

The pounds fall last week
Sterling struggled after a surprisingly big fall in UK retail sales figures on Thursday gave traders more incentive to book profits. This followed sterling’s gains in the past few weeks, when solid data had raised hopes for an improvement in the economy. The figures helped to take the steam out of sterling’s climb to the year’s high against the euro and a currency basket early this week. This had been due to firmer-than-expected inflation data and a forecast by an industry group that UK economic growth would return in 2010.

Pound back to 7 month highs
Will little market data, it’s really confidence in the UK and significant lack of confidence in the US and EU that’s really driving the pound higher at the moment. Comments by the Bank of England have also helped to boost the view that the UK is recovering from the downturn.

Bank of England Governor Mervyn King was quoted as saying that there had been recent signs that the pace of decline in the UK economy was levelling off. However, he also said that it was too soon to draw strong conclusions. Minutes from the most recent MPC meeting showed a unanimous vote by policymakers to keep rates on hold at a record low 0.5 percent. They also showed that the Monetary Policy Committee decided to maintain quantitative easing because members judged the better data over the last month had not changed the previous month’s dire outlook on the economy.

So, in these very volatile times even a small data release (as we saw with UK retail sales last week) then rates can drastically correct. We saw GBP/EUR drop 2 cents very quickly. As mentioned above it is really just confidence that’s keeping the pound high rather than any fundamental data that shows this. Any dent of confidence or anything that shows otherwise can quickly change rates.

If you have a requirement to either buy currency with Sterling or indeed convert a foreign currency back to Sterling, then with markets so volatile it’s a good idea to discuss these requirements with us to make sure you don’t get caught out by adverse market movements.

This Weeks data
This week is very quiet indeed for UK data, with the only release of note some house price data on Thursday. Don’t expect Sterling exchange rates to stand still however, as there is plenty of other information that could affect the pound.

The full list of data releases is below as usual. A few to take note of; we have a lot of data from Germany this week. Germany is the largest economy in the EU, and so any figures from here are closely watched as an indicator of EU performance as a whole. Some other EU data as well could well change the value of EUR. If we see very positive data, then the Euro will strengthen and rates will drop. If however figures are worse than expected, then we could see the Euro weaken and rates climb.

From the US, we have some key data including an interest rate decision. These data releases will of course affect GBP/EUR rates, but it can also affect GBP/EUR rates indirectly, so needs to be watched closely. As the USD is a safe haven currency, then in times of turmoil investors flock o the USD, which increases the value and often weakens the pound. If however investors are more confident, which seems to be the case at the moment, then we see movement to Sterling, which currently is seen as higher risk. So, if there is a lot of confidence this week coupled with week US data, then we could see the pound continue to strengthen.

Whichever currency you need to buy or sell, and for whatever reason, ensure you contact us to discuss your requirements and b kept fully informed of any data releases that may affect exchange rates.

Monday
Aus – Vehicle Sales
Ger – IFO Business Climate (is closely watched as an early indicator of current conditions and business expectations in the Euro Zone.)

Tuesday
Ger – Consumer Confidence
Ger – Purchasing Managers Index
EU – Purchasing Managers Index
US – Mortgage Approvals
US – Homes Sales
US – House Prices

Wednesday
EU – Current Accounts (flow of current transactions, including goods, services, and interest payments into and out of the Euro-Zone)
UK – CBI Trade Survey
US – Home Sales
US – Fed interest rate decision.

Thursday
UK – Nationwide House Prices
EU – Industrial New Orders
US – Jobless Claims
US – Core Personal Consumption
US – Gross Domestic Product
NZ – GDP

Friday
Ger – Consumer Price Index
Ger – Import Price Index

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Sterling GBP Euro EUR Outlook Forecast

We’ll take stock of this weeks currency movements in a moment, and where things may head into next week. First let’s take a quick look at what happened in the currency markets yesterday:

Pound takes a hit on Retail Sales
Sterling plummeted yesterday morning after the 09:30am data showed UK retail sales unexpectedly fell, raising doubts about economic recovery. Retail sales volumes in May were 0.6% lower than in April and 1.6% lower than in the same month a year ago, and we were only expected a yearly fall of 0.1%. As the figures from the office for National Statistics were much worse than expected, we quickly saw the pound fall. The credit crunch-driven nature of the slowdown so far appears to have primarily hit spending off the High Street.

However, as we forecast, the fall was fairly short lived, and the pound regained much of it’s losses throughout the day. At one point Euro rates were as low as 1.1620, however things have improved. At the time of writing Sterling rates are as follows:

  • GBP/EUR 1.1746
  • GBP/USD 1.6379
  • GBP/NZD 2.5585
  • GBP/AUD 2.0321
  • GBP/CAD 1.8498
  • GBP/CHF 1.7765
  • GBP/ZAR 13.3037

The weeks trading
The pound had surged sharply in recent weeks along with some other currencies on optimism over the global growth outlook. But investors are reassessing such views as economic data have been mixed. So, at the start of the week rates continued to climb to 7 month highs against the Euro. The profit taking on Wednesday, followed by the poor retail sales data pushed the pound lower, but the general feeling of recovery remains, which is why we’ve seen rates climb back close to the highs we saw earlier in the week.

Data Releases, and other influencing factors for exchange rates
As markets are so volatile at the moment, even small economic data releases that are slightly different than forecast are having big impacts on exchange rates. This is why I post the daily data releases here, in anticipation of market movements.

When there is not much data being released, such as today and most of next week, then it is mainly currency speculators and other events such as political data that drive the markets. So, even if there is no data like today, political data and other events such as the unrest in Iran that can cause investors to move currencies to perceived safer havens such as the US Dollar.

Your currency requirements
If you are reading this, then it’s a fair bet that you have some vested interest in exchange rate movements. Perhaps you are buying a property abroad, or need to make an international transfer from Sterling to antoher currency, or perhaps even moving a foreign currency back to Sterling.

This is where we can help. This blog gives market updates based on my knowledge of the markets as a trader at the Foremost Currency Group, but our main business is obtaining commercial exchange rates for our private clients. Our rates can be up to 5% better than can be achieved with the high street banks. Why not open an account to find out how much you could save. It’s free, it doesn’t obligate you, and you can even trade online using or online trading platform that’s available 24 hours a day, 7 days a week.

If you have a requirement to purchase currency, then you can open an account with us for free, and then obtain live quotations. Trading with FCG is simple. Simply click below to register your account, and take advantage of the commercial exchange rates we can offer.

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Pound falls, but likely to recover

Sterling
As outlined in yesterday afternoons update post, Sterling fell sharply against the euro and the dollar yesterday due to profit-taking. This follows recent sharp gains and after Bank of England policymakers remained very cautious on the UK outlook despite encouraging signs of economic recovery.

A 1.5% fall in UK equities and drops in the FTSE also dampened sentiment towards the pound as doubts whether the recent increase in optimism surrounding the UK was justified.

As I said yesterday, figures showing a much smaller than expected rise in UK unemployment failed to provide more than a very short-lived boost to sterling. In fact many currency blogs incorrectly said it was this rise in unemployment which caused the pound to fall. This was not the case, and Sterling actually rose slightly as the figures were not as bad as thought.

Any gains were short lived however, and the pound quickly tumbled to lows against the dollar and euro. It’s a mixture of the lack of confidence, and also the cautious note of the BoE minutes yesterday that caused the drop in the pound.

“Sterling has been coming off strongly, and the better jobs data failed to generate any interest,” BNP Paribas’s Ian Stannard said. “It also looks very much as though sterling has been dragged lower by a disappointing equities performance,” he added.

However core figures are still very strong for the UK. Often spikes in the market are followed by dips, and I believe this is what we saw yesterday. The pound has already started to climb slowly back up towards 1.18 against the Euro this morning.

Todays Data

UK
At 09:30 we have Money supply data, also Retail Sales which will show how the high street is performing and give us an idea of consumer confidence. We expect to see month on month figures to show a rise of 0.5%, while the year on year should be a drop of about 0.1%. Watch for the news at 09:30 – if figures are higher than this, expect Sterling exchange rates to climb, and vice versa.

EU
Not much. We have already had the Swiss interest rate decision this morning, where rates were left on hold at 0.25%

US
Jobless data, and also a speech by theTreasury Secretary on how he observes the current US economy. Leading Indicators data also this afternoon, which measures future trends of the overall economic activity including employment, average manufacturing workweek, initial claims, permits for new housing construction, stock prices.

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Security of Funds

Is it safe to use a currency broker, and is my money safe?

Yes – but check that they are registered with the FSA as an Authorised Payment institution. The industry became regulated by the Financial Services Authority on the 1st November 2009.

Not all brokers are registered however. You will be able to check this on the FSA site to see if the companies you plan to deal with are on the FSA’s list. Foremost Currency Group was one of the first brokers to be granted authorisation as an Authorised Payment institution.

What does this mean?
This means that all Directors and key staff are fit and proper to continue trading. Client funds are held in nominated, segregated client transaction accounts thus safeguarding them, and we have ring fenced sufficient capital to comply with the new legislation.

We have been fully vetted and are expected to maintain strict standards relating to capital requirements, safeguarding of client funds and the fitness and propriety of senior staff.

With regards to security of funds, our principle bankers are Barclays. All accounts your funds are held in, both in Sterling and foreign currencies, are nominated segregated ‘client transaction accounts’ with Barclays bank. This means all client funds are kept completely separate to our business accounts as required by the FSA.

The main reason funds are safe however, is because we don’t speculate. Many companies make their profits by speculating on the market, which is nothing more than an educated gamble and inherently risky. We simply make our profits on the margins we buy and then sell the currency at, so at no time are any of your (or our!) funds at risk.

The directors and staff at The Foremost Currency Group are pleased to have been granted FSA authorisation and welcome the opportunity to demonstrate the standards and procedures we have in place to ensure the highest possible levels of service to our clients.

Questions to ask a broker before doing any business

“Are you registered / authorised / regulated by the FSA?” Not all firms have yet been granted authorisation, so check the list.

“Are my funds kept in segregated nominated client accounts?” Safeguarding client funds is a requirement of the new directive, and segregated funds mean that your money is not lumped in with the company’s own funds. This gives you peace of mind that your funds are secure.

“How long have you been trading, and how many clients do you have?” It’s important to use a reputable firm that has an established history, and one that you feel comfortable with. Obviously the longer they have been around, the better the sign. Having a large number of customers for a long time can also help to allay any fears. Ask for client testimonials and indeed case studies to negate any concerns.

The Foremost Currency Group Ltd is fully compliant with the Financial Services and Markets Payment Services Regulations and is registered with the FSA (Financial Services Authority) as an Authorised Payment Institution; our FSA Registration number is 503906.

The Foremost Currency Group Ltd is registered in England and Wales (registered no. 5544575). Registered Office: Sutton Court, Church Yard, Tring. Hertfordshire HP23 5BB.

The Foremost Currency Group Ltd is fully compliant with HMRC (HM Revenue & Customs) Anti Money Laundering Regulations; our Money Laundering Registration number is 12219945.

If you are looking for the best exchange rates, send us an enquiry, and have a free consultation on what’s happening in the currency markets.