Currency Forecasts

Pound largely unchanged after BoE

Good Morning. The pound slipped very slightly against the US Dollar and the Euro yesterday, over concerns over the UK’s fiscal position and the prospect of low UK interest rates well into next year didn’t help Sterling. At 08:30am pound rates are as follows:

  • GBP/EUR 1.1067
  • GBP/USD 1.6312
  • GBP/AUD 1.7804
  • GBP/NZD 2.2449
  • GBP/CAD 1.7135
  • GBP/CHF 1.6730
  • GBP/ZAR 12.256
  • GBP/JPY 144.88
  • GBP/NOK 9.3582
  • EUR/USD 1.4739

The Bank of England held rates at 0.5% as expected yesterday, and there was no new Quantitative Easing.

This had little impact on the Pound, which had earlier stemmed losses from the previous day in the wake of finance minister Alistair Darling’s pre-budget report and on persistent concerns about Britain’s fiscal health.

UK Interest Rates
The Bank of England kept rates on hold, and economists are predicting that they will keep interest rates at ‘one per cent or lower’ for the next five years.

The prediction will delight millions of homeowners who are saving a fortune from the massive cuts in their monthly mortgage payments, however in terms of a recovery in exchange rates, this is bad news.

A prolonged period of low interest rates will be required to allow the economy to withstand the looming fiscal austerity, however low rates here while there are better rates to be had in the EU and US as those economies raise interest rates, means that investors will put funds into these other currencies. This will strengthen them, and the pound will likely remain weak while there is little return.

With regards to Quantitative Easing, most analysts expect the BoE has finished with its quantitative easing programme, but that it will not raise interest rates from their record low until at least October next year. In contrast, we expect EU rates to start going up early in the new year, and this will probably stop GBP/EUR rates recovering.

Economic Data
Most US data yesterday afternoon came in much as expected, meaning yesterday overall was a very flat day on the markets, with hardly any movement in key rates at all.

Today, we have Producer Price Index for the UK at 09:30am. This is a monthly measurement of the rate of inflation experienced by the UK manufactures when buying goods and services. It captures changes in the average price of a fixed basket of goods and services purchased by the UK Manufactures.

This afternoon, the European Central Bank a press conference as to how the ECB observes the current European economy and the value of EUR. The comments may determine a short-term positive or negative trend.

Later on we have Retail Sales for the US, giving an idea how the high streets are performing. This afternoon we have Import Prices also from the states, which informs the changes in the price of imported products into the US. The higher the cost of imported goods, the stronger the effect they will have on inflation, the higher probability of a rate rise.

That’s it for this week folks. Have a great weekend, and on Monday morning I’ll analyse next weeks data and look at where Sterling exchange rates are headed.

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Pound largely unchanged after pre Budget Report

Good Morning. Sterling was mixed yesterday after the pre-budget report. The pound briefly rallied against the euro and the dollar on Wednesday after UK finance minister Alistair Darling said there will be no windfall tax on bank profits, however the lack of any clear direction on our deficit doesn’t bode well. This morning rates are as follows:

  • GBP/EUR 1.1057
  • GBP/USD 1.6254
  • GBP/AUD 1.7789
  • GBP/NZD 2.2364
  • GBP/CAD 1.7187
  • GBP/CHF 1.6727
  • GBP/JPY 143.16
  • GBP/NOK 9.3728
  • GBP/ZAR 12.318
  • EUR/USD 1.4692

Pre Budget Report
We won’t analyse the whole report here, simply cover what it means for exchange rates. For an outline of the key points, the BBC has a clear simply fact sheet.

The only real points that may affect currency were on growth forecasts. Economy forecast to shrink 4.75% in 2009, worse than 3.5% forecast in April. Growth of 1%-1.5% expected in 2010 and 3.5% in 2011 and 2012. It wasn’t made clear how Darling arrived at these figures though, and the IMF and credit agencies have a less rosy view.

The pre-budget report was a bit of a letdown according to most analysts. It was really nothing more than electioneering, with no real news at all. In a foretaste of the looming general election battle, he said the choice was between going for growth or putting the recovery at risk – a choice between “two competing visions”. But he was also forced to admit that the recession in the UK had been worse than he predicted last year. Exchange rates remain largely unchanged, as there was no clear path on how they plan to reduce the deficit, simply stating it would be halved within 4 years.

UK Credit Problems
Britain is still in danger of losing its triple-A credit rating and the Conservatives would make protecting it a priority if elected next year, Shadow Chancellor George Osborne said.

Osbourne said that there was not enough in the pre-budget report to soothe fears that Britain might lose its credit rating. “I don’t think it is a credible plan. Unfortunately, the measures announced yesterday don’t start tackling the deficit until 2014/15 and that is far too late. “The thing I’m aiming for is making sure that Britain keeps its credit rating.”

Osborne also said that although monetary policy was a matter for the Bank of England, it was important to keep interest rates as low as possible for longer. This brings us nicely to the interest rate decision today…

Interest Rate Decision
The Bank of England is expected to announce no change in policy when it reveals the outcome of its most recent meeting later. The Bank is likely to hold interest rates at 0.5% and leave its £200bn asset purchase programme unchanged.

In November, the central bank said that the fragile economy and the risk of inflation falling below its target of 2% had led it to extend its quantitative easing scheme, which runs out in January. But since then, the economic data has been largely positive.

So, it’s likely rates will stay at the record low of 0.5% well into next year. We’re not expecting any more QE, but if there is then the pound will weaken. The main problem for those hoping for a recovery in rates is our low interest rates.

As other economies such as the US and EU start raising their rates as they exit recession, their currency becomes more attractive due to the higher return. As our rates will likely stay lower for longer, the pound will lose out and likely weaken into 2010, before recovering in the Spring, around the General Election.

Other Data
We 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. If it’s positive, then a strengthening Euro may cause GBP/EUR rates to fall.

There is also jobs data for the US. Positive news from the states could help the pound.

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Pre Budget report & effect on exchange rates

Good Morning. Today is very important for the currency markets, as we have the pre budget report for the UK along with some other important measures of the economy. We’ll look at this in detail in a moment. First as usual, a snapshot of where rates stand. This is likely to be very different by the end of the day:

  • GBP/EUR 1.1022
  • GBP/USD 1.6243
  • GBP/AUD 1.7907
  • GBP/NZD 2.2882
  • GBP/CHF 1.6646
  • GBP/DKK 8.2010
  • GBP/JPY 142.38
  • GBP/NOK 9.3765
  • EUR/USD 1.4734

Before we look at today’s data, we’ll review what happened yesterday. The pound weakened over fears over our financial health. We also saw industrial Production and Manufacturing production figures come in much worse than expected. This caused the pound to fall.

So, if the pound fell, why did GBP/EUR rates go up?
Well this is more to do with the Euro than Sterling. We saw Fitch the credit reference agency reduce Greeces’ credit rating, weakening the Euro. The pound is still very weak, and it was the bad news from the EU that weakened the Euro and caused rates to climb slightly. Today the focus will be on UK fiscal health.

Pre Budget Report
What is it? Each year the chancellor delivers two reports to MPs, updating them on the state of the economy and planned fiscal changes. The pre-Budget report (PBR) takes place in the autumn with the Budget each spring. This year’s PBR will be Mr Darling’s third since he became chancellor in June 2007 and, with an election imminent, his most important.

Mr Darling will update MPs on his latest forecasts for the economy, which has been in recession for more than a year. He is expected to say the economy will shrink 4.75% this year, which is a more severe contraction than the 3.5% drop predicted in April.

He will probably also stand by forecasts for growth in 2010 of between 1% and 1.5%. Many economists also expect him to revise upwards his forecast for borrowing this year from the £175bn predicted in April’s Budget.

The banking crisis and the recession have had a severe impact on the public finances but ministers say they are committed to halving the budget deficit, the gap between revenue and spending, by 2013.

The problem is that the governor of the Bank of England said recently the UK has no real plan to repay the huge deficit. The gloomy forecast expected today could well hit the pound very hard. If they announce huge measures to repay the debt then this will weaken Sterling. If they don’t spell out a clear plan, this also will be bad news. So, it’s hard to see how the pound can benefit from today’s reports.

He wants to demonstrate that the government is serious about cutting Britain’s spiralling budget deficit by a half in four years, whilst at the same time preserving spending on programmes designed to support an economic recovery and front-line services. I don’t think we’ll see a clear plan on how this will happen, and with the credit agencies hovering over major economies at the moment with the risk of reducing credit ratings, I think the pound is in for a rocky day.

Here’s a great animation by the BBC on the problems facing Darling.

UK Bank Bonuses
A tax on bankers’ bonuses is expected to form the centrepiece of Alistair Darling’s pre-Budget report. Banks will face a 50% levy on bonuses above a level of about £20,000. This is nothing to do with money, and all to do with politics. The public have been baying for blood in the wake of the financial meltdown. Now they have got it, but at what price?

Finance is one of our biggest exports. This will make the UK a very unattractive place to do business, and we could see an exodus of our best banking minds. In my view this is short sighted, will raise little revenue, and is little more than political points scoring, at the cost of the economy.

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

Check our twitter updates for news throughout the day, and of course we’ll have a detailed report right here on our blog tomorrow, reviewing what effect the PBR has on the currency markets.

Those that would prefer not to take a risk on their currency costing more as a result of possible Sterling weakness should consider a Forward contract to protect against a downturn.

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Pound to Euro & Pound to US Dollar Forecast

Good Morning. Sterling fell to its weakest in 10 days against the US Dollar yesterday, and unwound some of the previous session’s gains versus the euro, weighed down by banking sector concerns and worries over UK fiscal health in the run up to the pre budget report this week. At 08:30am rates are as follows:

  • GBP/EUR 1.1045
  • GBP/USD 1.6368
  • GBP/AUD 1.7962
  • GBP/NZD 2.2950
  • GBP/CAD 1.7228
  • GBP/JPY 145.66
  • GBP/ZAR 12.246
  • EUR/USD 1.4819

Euro
Following a very quiet week in terms of movement much focus will now be placed on the Bank Of England Interest Rate decision on Thursday of this week to help determine the future direction of the GBP/EUR cross.

Any further quantitative easing would be viewed as Sterling negative by investors while an announcement that this scheme has reached and end would almost certainly bode well for the struggling Pound. If you have any upcoming requirement to either buy or sell Euros it would be well worth paying close attention to this release and any accompanying statements.

Last week The European Central Bank, (ECB) announced that they will be leaving interest rates on hold at 1% as had been widely forecast. However, they did announce plans to withdraw some of their existing stimulus measures, bringing to an end cheap fixed-rate loans to banks which had been introduced to encourage lending.

This has fueled speculation that the ECB may look to hike interest rates sooner than previously thought, although in accompanying statements key officials played this down which has prevented any significant Euro gains at least for the moment.

In other news, Euro zone inflation rose to the first positive reading for five months, should this continue it will only add to the speculation building on the ECB to increase interest rates, a luxury that The Bank of England can only dream as they battle to pull the UK economy out of recession.

Elsewhere, in a relatively quiet week for data, focus will be on German Industrial figures on Tuesday and inflation data on Wednesday.

All things considered it is difficult to see where Sterling is going to get any additional strength from making it vital for anyone with a need to buy Euros in the near future to speak with to their account manager about the various options to ensure you get the very best rate of exchange possible. Those selling would be wise to pay close attention to the Bank of England decision on Thursday, keeping fingers crossed for any Sterling negative sentiment and take advantage of the potential short term spikes.

US Dollar
GBP/USD traded in a relatively stable range in the early part of last week with the pound steadily climbing as high as 1.67 against the Dollar benefiting Dollar purchasers for most of the week. However, Friday’s Non Farm Payroll data saw the Pound slip by almost 2 cents by the end of the day.

Non Farm payroll is an important piece of data on the monthly economic calendar and shows the change in the number people employed in the US excluding the farming industry. It is widely regarded as a good indicator of the state of the US economy and as such often sees the markets swing heavily one way or the other depending on the results.

The figures showed that the US unemployment rate fell in November to 10%, down from 10.2% in October. In total, only 11,000 jobs went over the month – the smallest number since the recession began in December 2007. That was far fewer than the 130,000 expected by most analysts and was a very positive sign for the US economy and also the wider world economy as we emerge from the global recession.

This gave the dollar a boost and enabled it to track back some of the losses against the Pound sustained earlier in the week. However, many analysts are hoping there will be a knock on result and that the UK will post similar results with their employment data later in the month.
Before then the Pound is expected to have a rocky week ahead.

Analysts suggest the pound will come under pressure with the UK government’s pre-budget report on Wednesday expected to throw the spotlight on Britain’s ballooning debt as it pours money into the economy to drag it out of recession. To compound Sterling’s troubles, concern about the potential exposure of the British banking sector to Dubai’s debt troubles is also weighing heavily on the sterling. With this in mind, speak to your FCG account manager to discuss your options to ensure that you are protected against the volatility expected within the market.

Other influences on the market this week are the Bank of England interest rate and Quantitative easing meeting which are widely expected to remain unchanged. Whilst in the US risk appetite trends are likely to remain important to US Dollar performance, although Friday’s retail sales data will have bearing on the perception of US economic conditions.

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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.

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

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

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

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

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

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