Currency Forecasts

Why has Sterling fallen and the pound (GBP) dropped?

A quick update on developments for the pound since this mornings post. Sterling yesterday hit the highest level against the Euro for many months, and topped out at 1.1864. Today however the rise was halted and rates have dropped back – currently rates are 1.1730.

So why the fall?
Unemployment figures this morning showed that UK unemployment rose to 2.261 million in the three months to April, which is the highest in 12 years. The total jobless rate rose to 7.2%, the highest since July 1997. However, these figures while bad were actually much better than forecast, and the pound actually made some gains.

The actual reason for the fall is profit taking from clients that speculate on currency markets.
Sterling was particularly weak against the euro as market participants used the opportunity to take profits after it jumped to another 2009 high yesterday. So, this big sell off of Sterling has flooded the market hence the weakening of the currency. Simple supply and demand.
“We’ve had a pretty significant downward move in euro/sterling and maybe it’s a good time for a correction,” Standard Bank currency strategist Steve Barrow said.
“The labour market data was better than expected, but it just provided an excuse to sell sterling at better levels,” he added.
It’s important to remember however that Sterling remains relatively strong up around 8% so far against the Euro. The recent gains in sterling reflected the belief that the UK economy may be better placed to recover from the current recession than the euro zone.
I believe this will continue, and I still look for rates to break through 1.20 by year end.
More tomorrow as usual.

Pound gains on Inflation data / Best rates for holiday money

Sterling rises on Inflation Data
The pound climbed to its highest level in 7/8 months yesterday after much better than expected inflation data.

The Consumer Price indec fell to 2.2% last month which is bigger than analysts’ forecasts for a fall to 2.0%. The news encouraged the belief that the defaltion risk for the UK economy is now very low indeed. It also followed a raft of UK data which has boosted belief that the economy is on the road to recovery.

So, this is what has caused contined gains for the pound, however this morning some of those gains have been paired back. News that US industrial production fell more than expected in May dampened optimism that the global economy is over the worst. Also, profit taking by traders has caused a slight fall this morning, probably also due to anticipation of the UK unemployment figures today (see below).

So far this month the pound has gained 3% over the Euro, leaving it on course for a quarterly gain of more than 8 percent -this would be the biggest quarterly gain against the single currency since its inception 10 years ago.

Quantitative Easing
Although analysts are wary of drawing too many conclusions on the basis of one month’s data, the inflation figures mean that the Bank of England may not need to implement any additional quantitative easing (QE). It is this QE that has been causing the pound to fall earlier in the year, and it was thought that further funds would have to be made available. Now however this seem unlikely.

Interest Rates
It’s now more likely we could see Interest rate increases for the UK later this year – this will boost the value of Sterling, so another reason for the gains is speculation that this will happen. When a country or zone increases interest rates, the yeild investors get for the currency is increased – this causes more buying of the currency thus increasing its value.

Todays Data
We have UK unemployment data – any increase in the claimant count will likely weaken the pound, althougth this is unlikely. Also watch for the Bank of England minutes for the most recent interest rate decision. This will show how they voted, and can also cause volatility in the pound.

After yesterdays UK inflation data, today we have inflation data for the US at 13:30pm. It is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of USD is dragged down by inflation, so if you are buying or selling US Dollars, watch this closely.

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Exchange Rates Currency Forecast 2009

Good Morning

Let’s take a look at where currencies moved yesterday and the end of last week.

EUR
The Euro again fell to a 2009 low against Sterling, as a combination of internal member state stresses, banking sector fears and concerns that the Euro zone might lag the UK in recovery weighed on the single currency.

The latest economic data also suggested that the Euro zone recession could be more protracted than previously envisaged; industrial production plunged a record 21.6% in April from the same month a year earlier, in stark contrast with other economies where there have been encouraging signs that the worst of the recession might have passed.

The GBP/EUR rate closed today 3.5% higher than that of a week ago at 1.1837, from 1.1437 a week earlier, benefiting those converting Sterling into Euros.

The German ZEW think-tank’s survey of German economic conditions and Euro zone inflation data, both due to be released on Tuesday, will be the focus of attention this week. The Euro could lose further support if the inflation data suggest greater scope to lower Euro zone interest rates.

Paul Krugman the winner of the 2008 Nobel Prize for Economics has stated, “the UK’s economy is, the best in Europe at the moment” this news had capped off a week where sterling has risen to its highest value this year.

Professor Krugman went on to say, “If the government can hold off having an election until next year, Labour might well be able to run us, ‘we’re the people who brought Britain out of the slump’. This supportive announcement may help strengthen sterling value as it covers two key points of the currency compass, the economy and politics (the other being terrorism and acts of god).

USD
Last week saw the GBP-USD rate hit lows of 1.5801 before climbing back above 1.66 briefly towards the end of the week.

We have since had US consumer confidence rise for a fourth straight month and have also heard comments from finance ministers in Russia and Japan which have supported the Dollars status as the worlds top reserve.

Russia’s finance minister, Kudrin, said that he has confidence in the US Dollar and that it is too early for an alternative to the USD as the global reserve currency. Both of these facts supported the Dollar and forced the rate back down to 1.63 today.

The Pound still looks to have the ability to advance further still against the Dollar with signs that the UK economy is recovering from the recession earlier than expected, and there are some expectations that we could see growth in 2010. house price figures released last week from the RICS showed that only 44.1% of their surveyors reported a further drop in prices in their area last month, better than the expected 52%, which is another indication that the UK housing market may have bottomed out. We also saw UK industry and manufacturing figures grow for the first time in over a year.

This week we should see both UK & US CPI increase slightly and the BoE minutes from their last meeting are released on Wednesday. Both of these will probably come out as expected and therefore we don’t expect to see quite as much volatility as last week and will most likely see Cable remain range bound between 1.6150 & 1.66.

Before we look at this weeks data, just to let regular readers know that Le Mans 2009 was excellent – would recommend it to anyone who has even the mildest interest in cars or motorsport!

This Weeks Data
Lots of data from the EU, US and UK this week. The most significant data is listed below, but the main events to watch for are:

UK There is a string of headline data releases from the UK this week, with both inflation measures being shown on Tuesday and the retail sales figures following on Thursday. These could underpin a wave of Sterling positive optimism amid reports that the UK may be the first of the major economies to break free of recession.

EZ Inflation figures out on the same day as the UK counterpart figures will give an insight to the ongoing issues in Euro Land. Problems in the French banking sector have been blamed for recent shifts in the GBP –EUR cross.

US On what is a busy day for inflationary data releases, the US follows suit releas9nf MoM and YoY figures for May, as well, crucially, as the new Housing Starts for May. Look to these for further signs of the ‘green shoot of recovery.’

Jun 15
European Monetary Union Employment
United States NY Empire State Manufacturing Index (Jun)
United States Treasury’s Geithner Speech

Jun 16
United Kingdom Consumer Price Index (MoM) (May)
United Kingdom Consumer Price Index (YoY) (May)
United Kingdom Core Consumer Price Index (YoY) (May)
United Kingdom Retail Price Index (MoM) (May)
United Kingdom Retail Price Index (YoY) (May)
European Monetary Union Consumer Price Index – Core (YoY) (May)
European Monetary Union Consumer Price Index (MoM) (May)
European Monetary Union Consumer Price Index (YoY) (May)
United States Housing Starts (YoY) (May)
United States Producer Price Index (MoM) (May)
United States Producer Price Index ex Food & Energy (MoM) (May)
United States Producer Price Index ex Food & Energy (YoY) (May)

Jun 17
United States Consumer Price Index (MoM) (May)
United States Consumer Price Index (YoY) (May)
United States Fed’s Bernanke Speech

Jun 18
United Kingdom Retail Sales (MoM) (May)
United Kingdom Retail Sales (YoY) (May)
United States Leading Indicators (MoM) (May)
United States Philadelphia Fed Manufacturing Survey (Jun)

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Sterling rates climb to new highs

In trading Wednesday afternoon, rates for the Euro got close to 1.17, which is the highest level since November last year.

Sterling jumped to its highest level of the year against the euro on Wednesday after positive UK industrial output data helped to reinforce the belief that the economy may be emerging from the worst of the recession.

Sterling’s rise was also partly a result of heavy initial selling of the dollar after Russia announced a plan to cut its share of U.S. Treasuries in its reserves and buy International Monetary Fund bonds.

Some analysts said that sterling gains were capped after Bank of England policymaker Kate Barker said UK interest rates could stay low for some time and that it was still not clear whether the current pick-up in the economy would be sustained. So, it may go higher, or it could tumble as it did last week!

Analysts nevertheless believe the pound will continue to benefit from signs the UK economy is finally emerging from a deep recession, with some pointing to the prospect that the economy could record growth before the end of the year.

So, mid to long term forecasts suggest the pound will continue to rise. However, short term data releases may cause fluctuation to the downside.

Rest of this weeks data:

Thursday
AUS – Employment & Unemployment
EU – ECB Monthly Report
US – Retail Sales
US – Jobless Claims
NZ – Retail Sales

Friday
G8 Meeting
EU – Industrial Production
EU – Trichet Speech
US – Import Prices
EU – Trichet Speech

No Blog Updates for 2 days

Apologies to regular readers and subscribers, however this blog will not be updated tomorrow (Friday) or Monday.

This is due to, errr site maintenance…….. Ok, I’ll be honest – it’s due to me going to Le Mans to watch the 24 hrs race!
Tourist Cash
Despite being a currency trader, I have to source my Euros at tourist rates like everbody else – 1.0950 from the post office today despite being 1.1688 on mid market level.
Ouch.

For some advice though on small Euro cash amounts – bank with Nationwide. In most Euro countries they actually give you interbank rates at ATMs. Best deal out there. If you dont bank with Nationwide, M&S or Post office tend to be ok. Of the other high street banks, HSBC and 1st Direct are at the top end, with Natwest and RBS at the bottom end.
Site updates will continue as normal from Tuesday. In the meantime, please refer to our main site for market updates:

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Sterling Euro rates close to 6 month high

Pound Gains
Sterling rose sharply against a broadly weaker dollar and gained versus the euro on Tuesday, helped by further signs the UK housing market is stabilising. The pound was also buoyed by a calmer UK political vista, with Labour Party parliamentarians on Monday offering their support to Prime Minister Gordon Brown.

“Sterling is better bid. It got a boost from housing data falling less than expected and from Gordon Brown gaining some support from MPs,” RBC currency strategist Christian Lawrence said.

Bank of England Deputy Governor Paul Tucker warned on Tuesday, however, that although surveys have pointed to some improvement in the British economy, the medium-term outlook remained “highly uncertain”.

Pound to Euro
Rates here climbed and levelled off just above 1.16 – back almost to the 6 month highs of last week. Partly this was due to the above, partly it was due to weak German data that weakened the Euro and cause rates to rise.

German exports fell 28.7% in April compared with April 2008, according to the Federal Statistics Office.It was the biggest fall since the recession began, suggesting the economy has some way to go before it recovers. But the ministry’s statement stressed that “the downward trend has slowed noticeably”. “The odds that industrial production has hit its lowest point have improved due to stabilising demand,” the statement added. But analysts were not impressed by the trade figures.

It caused a sell off of Euros that weakened the single currency, helping to push rates back above the 1.16.

What next for the pound?
As the last few weeks have demonstrated, rates can climb to a spike and then suddenly drop off. Rates can also recover very quickly as we have seen this week. It’s impossible to predict which way things will go, however rates for the Euro are close to the 6 month highs we saw last week.

Today (see below) we have lots of UK data that could push rates either way. It is times like this where currency tools become very attractive. If you are hoping rates will rise, then you can take that gamble, while at the same time placing a Stop Loss order – this means should rates move the wrong way and plummet, then your currency is automatically secured at a bottom level, minimising any loss to a certain level.

Economic Data for today
Today is the busiest of the week in terms of data releases that may affect exchange rates. Alot of the data is UK based, so expect pound to euro and pound to dollar rates to fluctuate.

So, lets take a detailed look at the UK data today, and how this may affect exchange rates:

  • Industrial Production – measures outputs of the UK factories and mines. Changes in industrial production are widely followed as a major indicator of strength in the manufacturing sector.
  • Manufacturing Production – measures the manufacturing output. Manufacturing Production is significant as a short term indicator of the strength of UK manufacturing activity that dominates a large part of total GDP.
  • Trade Balance – a balance between exports and imports of total goods and services. A positive value shows trade surplus, while a negative value shows trade deficit. It is an event that generates some volatility for the GBP.
  • GDP Estimate – The report is highly reliable and would influence the UK monetary policy.

So, estimates will already have been made for the above announcements. If figures are at or close to these estimates, the dont expect much movement. If however the figures are above or below expectations, then that’s when we’ll see rates rise or fall respectively. If you have a requirement to purchase currency with Sterling, then today could be a gamble that you may win or lose. If you would prefer not to leave it to chance, then open an account with us for free by clicking the orange banner below, and talk to us about the tools we have available to protect you against falling rates.

Elsewhere we have US – Trade Balance Data and New Zealand – Interest Rate Decision
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