Currency Forecasts

Pound Prediction September October 2009

Pound / Euro falls
08:30am 13th August 2009 – The Euro has strengthened this morning following the Germany GDP figures. Gross Domestic Product is a measure of the total value of all goods and services produced by Germany. The GDP is considered as a broad measure of the German economic activity and health.

The figures were slightly better than forecast, and as Germany is the biggest economy in the EU, the Euro has strengthened. Rates as at 08:30am 13th August 2009 are as follows:

  • GBPEUR 1.1612
  • GBPUSD 1.6554
  • GBPNZD 2.4474
  • GBPAUD 1.9720
  • GBPJPY 159.22
  • GBPZAR 13.238

We also saw Sterling weakness yesterday, following the Bank of England Quarterly inflation report. The pound hit a 2 week low versus the dollar as the Bank of England’s forecast that inflation would remain well below target cooled speculation of an early interest rate hike. Also we saw UK unemployment rise.

The central bank said it was “more likely than not” that inflation would fall below 1 percent in autumn, suggesting that markets are pricing in rate hikes too early. UK rates are currently at a record low 0.5 percent.

“To some extent, the BoE was dovish in that they talked about the potential for inflation to go below 1 percent,” said Lauren Rosborough, senior currency strategist at Westpac in London.

“So they were dovish, yes, but no more than what Speaking to reporters after the report’s release, BoE Governor Mervyn King acknowledged the pound’s tumble from above $2.10 just over a year ago by saying that a weak currency would have some impact on rebalancing the economy, but his comments had little sway on sterling.

I believe that we’re now near the bottom of GBPEUR, as we’ve had all the bad news possible from the UK – look however for positive figures from the EU this morning, as better than expected results may show a further slight drop, but I think we have support at around 1.16. Against the USD however, we could see further drops.

GBPUSD

Sterling may have more room to fall versus the dollar in the near term if the U.S. central bank does not extend its quantitative easing program, as widely expected. “In the event that Fed gives no new indication on asset purchases, this will leave sterling exposed to deeper losses as the BoE remains the most generous provider of QE,” said Ashraf Laidi, chief market strategist at CMC markets in London.

Todays Data – At 09:00am we have further GDP figures for the whole Eurozone, and also a monthly report by the ECB. For the US this afternoon, we have Import Prices, Jobless Claims and Retail Sales.

Finally – after some requests for more information with regards to the Antipodean currencies, AUD and NZD, tomorrow we will look at where rates may go for Sterling to these pairs.

NEWSFLASH 09:10am – Gemany and France exit recession – The French and German economies both grew by 0.3% between April and June, bringing to an end year-long recessions in two of Europe’s largest economies …http://news.bbc.co.uk/1/hi/business/8198766.stm

Hardly any effect on rates however, as this was expected.

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Pound vs Euro Exchange Rates 12th August 2009

Today is a big day for UK data, and so we’re expecting some movement in Sterling exchange rates.

At 09:30am we have Jobless Claims, Average Earnings, Claimant Count and the Unemployment Rate. At 10:30am we have the Bank of England Inflation Report. The 2 most important pieces of data here are the unemployment and BoE report.

Let’s take a closer look, but first a quick look at where rates stand at 08:30am 12th August 2009:

  • GBPEUR 1.1643
  • GBPUSD 1.6426
  • GBPAUD 2.0038
  • GBPNZD 2.4823
  • GBPZAR 13.446
  • GBPJPY 156.57

UK Unemployment
The number of people out of work is expected to rise again when the latest unemployment figures are released by the Office for National Statistics. The jobless rate increased by 281,000 to 2.38 million in the three months to May – the highest jump since 1995.

More clues on the health of the economy will be revealed in the Bank of England’s quarterly inflation report (more on that in a moment). We’re expecting unemployment to be revealed at 7.7% and an additional 25.5k people claiming benefit. Look at the news for the figures, and if they are worse than this, the pound may weaken.

BoE Inflation Report
The Bank of England publishes a report at10:30 of the detailed economic analysis and inflation projections on which the Bank’s Monetary Policy Committee bases its interest rate decisions, and presents an assessment of the prospects for UK inflation over the following two years.

It will also provide more details on quantitative easing – its policy of injecting cash into the economy – remember it is this that has caused the pound to tumble in the last week. The Bank of England is to reveal later how it thinks economic output will perform over the next two years when it publishes its quarterly inflation report.

In explaining the additional £50bn, the Bank said the UK recession “appears to have been deeper than previously thought”.

The most recent official data showed that the UK economy contracted by 2.4% in the first quarter of 2009, more severe than the earlier estimate of a 1.9% fall. Meanwhile, inflation fell in June to 1.8%, below the Bank of England’s target of 2%.

Last week the Bank kept interest rates on hold at 0.5%, but injected another £50bn into the economy.

This is by far the most important data release this week. Look very closely at what is said with regards Quantitaitve Easing. This has been the main driver of Sterling weakness.

USA
We have some Trade Balance data and an interest rate decision today. Keep a close eye on this as. The Dollar has been the main Safe haven currency over the past year and has therefore strengthened dramatically as investors run for the relative safety of the dollar and away from equities and riskier currencies such as the pound. Look closely at this data, as if it’s poor, then it will decrease risk appetite for riskier currencies such as the pound, and this could compound the weakness in Sterling we have seen recently.

Summary
We already know the unemployment will be bad, so I don’t think this will have a massive impact, although if the figures are wildly different, then I could be wrong. QE is the main story of the day, and indeed the week. Depending on what’s said, it could lay the path for the pound for the remainder of the year. Of course I will post a detailed analysis of the results tomorrow, and the effect on exchange rates.

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Sterling to Euro & US Dollar Forecast, August 2009

Good Morning. Today we’ll have a look at GBP/EUR and GBP/USD, and a further analysis of the Quantitative Easing method that has caused rates to tumble in the last week. First let’s have a quick look at where rates are @ 08:30am 11/08/09:

  • GBPEUR 1.1634
  • GBPUSD 1.6494
  • GBPAUD 1.9670
  • GBPNZD 2.4391
  • GBPDKK 8.6607
  • GBPJPY 159.72

Yesterdays Trading
Sterling fell yesterday, extending losses triggered last week by the Bank of England’s surprise decision to expand quantitative easing, which raised expectations for a dovish tone in the central bank’s Inflation Report due on Wednesday. That was in sharp contrast to the dollar, which held most of its gains made on Friday after data showed U.S. job losses slowed last month, boosting speculation for higher U.S. rates.

The pound fell to a one-week low against the dollar below $1.66, while it hovered near a one-week trough against the euro.

GBP/EUR
Last weeks sterling euro trading perfectly highlighted the notorious volatility of the currency markets. Early in the week Sterling was heavily bought as news broke about profits from two of the UK’s largest high street banks.

In what became widely publicised news, Barclays made a first half (of 2009) profit of nearly £3bn and HSBC much the same. In fact, both banks said these profits were not as good as they could have expected, but the ripple on the open markets that UK banks were profitable again boosted sterling sharply.

Indeed, this news coupled with both the Nationwide and Halifax’s bullish view on UK house prices led to inter bank highs over 1.18 and thus the best trading levels all year.

Of course, this being sterling euro trading, it didn’t last long. In a complete shock to all in the market place, the Bank of England announced in its Thursday afternoon interest rate decision that another £50bn would be released to the, what is in my opinion, questionable Quantitative Easing Scheme.

I say this as even experienced traders and bankers cannot see the value of the scheme as its merits cannot and have not been measured. This latest injection represents over one 3rd again of the initial offerings and certainly deflated sterling as soon as it was announced, with the inter bank level dropping over a point to below 1.17 in the minute after midday.

The market has not really recovered from Thursdays moves, with trading moving lower this afternoon. The hope for those of you looking to buy euros is now that the euro zone figures out this week disappoint and weaken the euro. Don’t expect too much more sterling strength; it doesn’t get better than profitable banks and rising house prices!!

Look out for EZ GDP figures on Thursday and their inflation data on Friday. For a comprehensive list of important market data releases see yesterdays post.

GBP/USD
Another choppy session last week for GBP/USD as the market remains indecisive in terms of its mood and attitude toward risk. The balance of risk appears to be the key to interpreting the direction of cable (GBP/USD) over the coming months.

Gone are the days of “Traditional Trade” whereby good figures create a strong currency. The Dollar has been the main Safe haven currency over the past year and has therefore strengthened dramatically as investors run for the relative safety of the dollar and away from equities and riskier currencies such as the pound.

As the recent downturn flattens out and world economies show signs of recovery, those investors who had moved to the Dollar are now pulling out hence the move from 1.35 to 1.70 at the high. Therefore, good news out the U.S. produces Dollar weakness as market confidence returns and people move to equities, commodities, commodity currencies (AUD,NZD,CAD,ZAR) and riskier currencies e.g. GBP.

Looking ahead this week, Thursday will be main focus for U.S figures and key indicators such as retail & GDP which will provide the market will a clearer view as to whether we are on the road to recovery or is if there is still the potential for a W-shaped recession or “double dip”.

The General view amongst analysts is that we have perhaps seen the worst of the current downturn and therefore Dollar weakness has to be the favoured view, with cable expected to Trade at the low 1.64 and the high of 1.70 through this week. Dollar buyers and sellers should contact us to take advantage of these movements.

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Pound Euro Rates 10th August 2009

Market Snapshot

  • GBPEUR 1.1716
  • GBPUSD 1.6617
  • GBPAUD 1.9810
  • GBPNZD 2.4700
  • GBPZAR 13.301
  • GBPCHF 1.7995
  • GBPJPY 161.74

Pounds Gains short lived
The pound had a very strong run in the first part of last week, hitting 1 year highs against the US Dollar and close to year highs against the Euro. The gains were due to increased confidence in the UK economy, amid positive data releases showing the UK economy is rising.

The gains were short lived however, as is often the case. As outlined in Fridays Post, the pound plummeted after the Bank of England increased their asset buying programme, and pumped another £50bn into the econonmy.

Sterling fell further on Friday, hitting a one-week low against the dollar in volatile trade due to a broad rise in the U.S. currency following a stronger-than-expected reading of U.S. non-farm payrolls.

The UK currency struggled a day after the Bank of England surprised markets by extending quantitative easing measures to boost the nation’s economy, while poor first-quarter earnings results at Royal Bank of Scotland also stung the pound.

Traders continued to sell the pound after it fell more than two cents against the dollar on Thursday following the BoE announcement, and had all but snuffed out big gains made early this week.

Some analysts said more quantitative easing would hurt sterling, adding that UK interest rates at a record low 0.5 percent for a prolonged time would do no favours to the currency. It would also be haunted by the need for future fiscal tightening to pay for the asset-buying programme, he added.

“Sterling will lose big-time support from the Bank of England’s rate view,” said Hans-Guenter Redeker, chief currency strategist at BNP Paribas in London.

So, this shows that even amid confidence of a revival of the economy, and data releases to the contrary can weaken the currency very quickly indeed. It is for this reason that blindly hoping rates will continue to move in your favour can backfire. Dont leave it to chance, Open a free trading facility, and you can then discuss the various tools we have available such as Forward Contracts, Stop Loss and Limit Orders. Make sure you take control of the markets, and don’t let them take control of you!

This Weeks Data
Economic Data releases have a big impact on foreign exchange rates. Analysts will already have predicted what the results of the data below will be, and investors may well have already moved funds in anticipation of these announcements. If figures come out better or worse than expected, then the currency for the country concerned will generally strengthen or weaken acccordingly.

A good example is the Quantitative Easing measures announced last week by the Bank of England. Most analysts expected no further money would be pumped into the economy, and Sterling was strong as a result. When the announcement came on Thursday that in fact a further £50bn would be created to pump into the economy, the news came as a surprise to the markets. The pound fell straight away and all the gains it made through the week were wiped out as the view of the UK economy deteriorated. So, data releases are very important and can change rates very quickly.

So, what should we look for this week? For the UK, we have some Trade Balance figures on Tuesday, but Wednesday sees a raft of UK releases. Watch for the various measures of unemployment for the UK, as any increase in unemployment will likely weaken Sterling.

For the EU we have Trade Balance data, in addition to the quarterly GDP figures. This will give 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.

A full list of data is below, but of course do get in touch to discuss the implications of this on your specific requirement.

Monday
Aus – Home Loans
EU – Investor Confidence
UK – BRC Retail sales
UK – RICS House Price Balance

Tuesday
Jap – BoJ Interest Rate Decision
Aus – NAB Business Confidence
Ger – Consumer Price Index
Ger – Wholesale Price Index
UK – House Price Index
UK – Goods Trade Balance
UK – Total Trade Balance
US – Non-Farm Productivity
US – Consumer Confidence

Wednesday
UK – Average Earnings
UK – Claimant Count
UK – Unemployment Rate
UK – Jobless Claims
UK – BoE Inflation Report
EU – Industrial Production
US – Trade Balance
US – Fed Interest Rate Decision

Thursday
Ger – GDP
EU – GDP
US – Import Prices
US – Jobless Claims
US – Retail Sales

Friday
EU – Consumer Price Index
US – Consumer Price Index
US – Industrial Production

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Quantitative Easing, Bank Results and Exchange Rates

Increased Quantitative Easing Weakens Sterling
Sterling fell across the board yesterday after the Bank of England said it would pump more funds into the banking system than was expected, citing subdued inflation and fragile financial conditions.

The central bank stunned market players by extending its quantitative easing programme to 175 billion pounds from 125 billion, beyond a previous limit of 150 billion pounds. It also held interest rates at 0.5 percent, as expected.

Economists had been evenly split on whether the BoE would effectively choose to print more money to buy assets such as government bonds and corporate debt.”That they expanded quantitative easing by 50 billion pounds is more dovish than expected, so sterling is weakening accordingly,” said Daragh Maher, senior currency strategist at Calyon in London.

Weak Pound good for UK recovery
“Since the BoE has frequently addressed the positive impact of currency weakness in stimulating the economy, it is unlikely to close the door on quantitative easing,” said Ashraf Laidi, chief market strategist at CMC Markets.

The central bank said it expected the increased asset buying programme to take another three months to complete, and the scale of the scheme would be kept under review.
It also said past sterling depreciation continued to put upward pressure on prices, although spare capacity in the economy was likely to keep inflation low in the medium term.

“The BoE must be well aware of sterling’s resurfacing positive response to improved risk appetite,” he added.

UK Bank Results
Sterling extended its slide on Friday, hitting the day’s low against the dollar after Royal Bank of Scotland posted losses during the first half of 2009 and said it anticipated tough times in the next two years.

The statement from RBS was downbeat, highlighting the £1bn loss after paying tax and dividends to the government and describing the results as “poor”.

Summary
So, we’ve had some positive figures from some parts of the UK economy, which helped the pound make significant gains against both Euro and US Dollar. However due to very poor bank figures, and a surprise increase in Quantitative Easing the pound is under pressure again.

The UK is likely to be the last economy to see light at the end of the tunnel in terms of coming out of the recession, and due to the enormous levels of debt, which are forecast to get to over 100% of GDP, it’s unlikely that the pound will continue rallying.

Contact us if you have a requirement, and we can discuss the various tools we have on offer to help you get the best exchange rate possible. We have seen demand for Forward Contracts increase massively, helping clients limit their loss and give certainty over what their currency will cost them.

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