Currency Forecasts

Sterling Exchange Rate Outlook

The pound took a battering last week, falling around 1.5% against most major currencies. Rates this morning @ 08:30am are as follows:

  • GBP/EUR 1.1388
  • GBP/USD 1.6352
  • GBP/AUD 1.9442
  • GBP/NZD 2.3788
  • GBP/ZAR 12.669
  • GBP/JPY 152.42
  • GBP/CAD 1.7802

Sterling starts to gain
Sterling edged up this morning slightly, supported as recovering global shares stirred risk demand, while traders awaited a reading of the UK manufacturing sector for more clues into whether the economy is continuing to improve. This is released later this morning.

UK share prices made slight gains in early London trade, helping to pull the pound further away from a 2-1/2 month low hit against the single currency last week. The UK Purchasing Managers’ Index due at 09:30am is expected to rise to 51.5 in August from 50.8 in the previous month, keeping manufacturing activity in growth territory for the second straight month. Any difference in these figures, and expect Sterling volatility.

Traders and analysts said a strong PMI print and a broadly weak dollar would keep sterling supported on Tuesday, but some pointed out that additional, significant gains may be met by some selling.

The pound recovered on Tuesday after taking a beating last week, when dismal UK business investment figures helped to further convince the market that UK interest rates would remain at a record low 0.5 percent for some time to aid the economy.

Other figures showed the UK economy contracted less than expected in the second quarter, helping sterling to stem losses, but that data only added to the view the Bank of England would continue its quantitative easing policy.

Also due on Tuesday are figures on UK consumer and mortgage credit for July, which are expected to show a rise in mortgage approvals.

See a full breakdown of the weeks data releases below.

Eurozone Prices
The eurozone’s annual rate of inflation was negative in August for the third consecutive month.
Prices in the 16-nation bloc fell 0.2% in the past year, Eurostat said, following the record 0.7% fall in July. Inflation in the eurozone has been dragged down by lower energy and food prices and by falling demand from both companies and households.

The downward trend began in June with a 0.1% fall in prices, but a Japan-style deflationary spiral is not predicted. Deflation is considered damaging to an economy because consumers tend to delay making major purchases until prices fall further. Without consumer spending to stimulate growth, economic output falls. The European Central Bank’s target rate for inflation is just below 2%.

This is helping GBPEUR and without this bad news from the Eurozone, rates would be even lower than they are now.

UK Defence Industry
Investment in defence research and technology must be maintained to protect the industry, its trade body has warned in two reports. The Defence Industries Council has published two reports amid fears spending could face major cuts in the next Ministry of Defence review.

The DIC says investing in the industry will help protect the country and could provide a “path out of recession”. The sector currently employs 300,000 people in the UK.
It also generated an annual turnover of £35bn in 2008. The Ministry of Defence review will decide the future direction of defence after the next general election.

Defence is a big part of the UK economy, and spurs investement. So, if we do see significant cuts, expect further Sterling weakness.


This Weeks Data
Markets are extremely volatile at the moment, as the big movements in exchange rates last week demonstrated. This week we have various data releases from across the globe, that will no doubt cause further changes in exchange rates.

For Australia, we have an interest rate decision, Gross Domestic Product, and building permits. The interest rate will probably stay at 3%, but there has been talk recently of a rise in the coming months. When it is raised, expect AUD to strengthen and rates to fall.

For the UK, we have various releases that will be a good barometer of the UK economy. We have House Price Information, Mortgage Data, Construction Data. Watch for the Halifax House Prices Today

In the EU, as is always the case on the first Thursday of the month, we’ll see an announcement regarding interest rates. Again we expect rates to be left on hold at 1%. The UK announce their decision on interest rates on the first Thursday in the first full week of the month. Given the bank holiday, this means we wont get any news on this until next Thursday.

Contact us today to discuss how these data releases can affect your currency requirement.

Tuesday
Aus – Building Permits
Aus – RBA Interest Rate Decision
Swi – Gross Domestic Product
Ger – Retail Sales
Ger – Unemployment
EU – Purchasing Managers Index
UK – Money Supply
UK – Mortgage Approvals
UK – Purchasing Managers Index

Wednesday
Aus – Gross Domestic Product
UK – Halifax House Prices
EU – Gross Domestic Product
US – Mortgages Applications
US – Non Farm Productivity
US – Fed Speech
US – FOMC Minutes
US – Factory Orders

Thursday
Aus – Trade Balance
NZ – ANZ Commodity Prices
EU – Purchasing Managers Index
EU – Interest Rate Decision
US – Jobless Claims

Friday
Swi – Consumer Price Index
Can – Unemployment
US – Non Farm Payrolls
US – Unemployment


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Pound falls for 7ths straight day

Pound to Euro is on its longest losing streak since January – 7 straight days of decline, while sterling/dollar is firmly on track for its steepest monthly decline this year. It’s fallen more than 3 percent so far in August. Pound rates have not fared well this week. At the time of writing rates are as follows:

  • GBP/EUR 1.1354
  • GBP/USD 1.6274
  • GBP/AUD 1.9360
  • GBP/NZD 2.3737
  • GBP/CAD 1.7702
  • GBP/CHF 1.7265
  • GBP/ZAR 12.672
  • GBP/JPY 152.63

Sterlings Decline

Sterling hit a 2 1/2-month low against the euro on Thursday after data showed UK business investment fell by the most in almost a quarter of a century, reinforcing expectations interest rates will stay low for some time.

These reports offset surprisingly strong UK house price data and kept the idea of low Bank of England and market-based interest rates, which diminish the relative appeal of sterling-denominated assets, at the forefront of traders’ minds.

As outlined in yesterdays report, it’s this prediction of continued low rates in the UK, while EU and US rates may climb is what’s keeping Sterling under pressure. This is unlikely to change in the near term.

We have had GDP data for the UK this morning, the monthly figures were better than expected, however the annual figures were as predicted. The only hope today for a climb in rates is a Friday afternoon run. When currency investors and speculators wind up their positions for the weekend, the result can often benefit key currencies such as the pound, although this is a long shot!

Signs of US Growth

US durable goods orders and new home sales both soared last month, the latest positive indications of the state of the world’s largest economy. Orders for goods expected to last more than three years increased 4.9% in July, beating analyst expectations of a 3% gain, said the Commerce Department.

Durable goods orders were lifted by the popularity of the government’s car scrappage scheme. This helped US car orders rise 0.9%, recovering from June and May falls. At the same time, the annual rate of sales of new US homes rose 9.6% last month, also ahead of market targets.

This has strengthened the US Dollar, and helped to push rates lower.

Summary

The pound is under severe pressure and the outlook is not good. Contact us today to discuss the implications of this weakness on your currency requirement. We can get you commercial rates that are up to 5% better than rates offered by the high street banks.

Consider the risk, and then open an account. Remember it’s free to have a trading account, it doesnt obligate you, and simply means that you can obtain live quotes and see how much you can save.

Todays Data
UK – Gross Domestic Product
UK – Index of Services
EU – Consumer Confidence
EU – Economic Confidence
EU – Industrial Confidence
US – Core Personal Consumption
US – Personal Income
US – Consumer Sentiment
Can – Industrial Product Price

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Interest Rate expectations hurt the pound

The pound continued to fall throughout trading yesterday, after government bond yeilds fell, and also interest rate differentials caused the Euro to gain against the pound. Rates at 08:30am 27th August are as follows:

  • GBP/EUR 1.1369
  • GBP/USD 1.6210
  • GBP/AUD 1.9542
  • GBP/NZD 2.3814
  • GBP/CAD 1.7805
  • GBP/CHF 1.7305
  • GBP/ZAR 12.706
  • GBP/JPY 151.61

The pounds continued weakness
Sterling hit a near 3 month low against the Euro yesterday after the yield on 2 year UK government bonds fell to a record low. This makes short-dated British debt less attractive than its euro zone counterpart.

Also, lower short-term UK yields hurt the pound across the board, pushing it to a 6 week low against the US Dollar. We also saw a strong reading of German Ifo business sentiment, and this boosted the euro against sterling, compounding the problem and causing rates to fall into the mid 1.13’s.

“When the BoE is so cautious about keeping rates low and the Ifo is so positive, it’s hard not to push Pound Euro rates lower,” said Geoffrey Yu, currency strategist at UBS in London.

Analysts said the widening spread had prompted investors to pull out of UK assets in favour of euro zone ones in European trade. As investors sell Sterling and buy Euros, it increases the value of the Euro and rates fall. Also, month end demand for euros from European central banks also helped to boost the single currency. As demand increases for anything, be it currency, eggs, cars or bread then the price increases.

Interest rate spreads are widening against those in the euro zone, as investors forsee rates in the Eurozone climbing before ours, then they move funds to Euros in anticipation of a higher returm. Investors have scaled back expectations on how aggressively the BoE will raise rates over the coming year. This has caused the rates to fall.

We seem to be hitting support levels at around the mid to low 1.13’s, and so the fall is probably over, and rates should either stabilise or rise slightly. of course, we have quite a bit of data for the UK today (see below) – if any of this is negative then dont rule out a further fall, although given 4 consecutive days of drops for the pound, we’re due a spike!

German Condidence Strengthens Euro
The business sentiment indicator from the Ifo Institute rose to 90.5 in August from a revised 87.4 in July. The unexpectedly strong rise was the fifth consecutive monthly increase, taking the figure to its highest since September 2008. The euro rose to 87.82 pence, which was up 0.43% on the day. The short to medium term outlook for GBP/EUR therefore is very poor.

US Consumer Confidence Climbs
US consumer confidence rose more than expected this month, a report has found, in the latest sign that the economy may now be recovering. The closely-watched Consumer Confidence Index from the Conference Board business organisation rose to 54.1 from a revised 47.4 in July.
While the latest number beat market expectations, it is still below 90, the minimum to indicate a healthy economy. Rates for USD remain at around 1.62 at the time of writing.

Todays Data
Ger – Consumer Price Index
UK – Nationwide House Prices
UK – Total Business Investment
UK – CBI Trade Survey
UK – GFK Consumer Confidence
US – Gross Domestic Product
US – Personal Consumption Expenditure
US – Jobless Claims
NZ – Building Permits
Jap – Consumer Price Index
Jap – Consumer Spending

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Pound continues to fall

Pound continues to fall
Sterling hit a 2 1/2-month low against the euro on Wednesday as investors continued to dump the UK currency after the yield on the two-year gilt hit its lowest level ever.

Asian markets appreciated this morning on the back of the second consecutive increase on U.S. housing prices and consumer confidence. The Euro has remained rangebound, while the Pound declined further. This has caused Sterling exchange rates to continue the recent downward trend. Rates at 08:30am 26th August are as follows:

  • GBP/EUR 1.1397
  • GBP/USD 1.6328
  • GBP/AUD 1.9484
  • GBP/NZD 2.3708
  • GBP/CHF 1.7313
  • GBP/CAD 1.7731
  • GBP/ZAR 12.668

Sterlings Weakness
Sterling hit its lowest mark in two-and-a-half months against the euro yesterday as interest rate and bond yield spreads moved against it, and lost ground against the dollar despite equities recouping earlier losses.

The news was concentrating on the fact that British mortgage data on Tuesday showed that mortgage approvals in July jumped to their highest in 17 months, an increase of 7%, but growth in net lending was the weakest in nine years.

“We’ve had a cumulative build in risk appetite during the day … but one thing that’s been striking has been the powerful upswing in cable is starting to peter out, and euro/sterling is starting to trend higher,” said Robert Minikin, senior currency strategist at Standard Chartered in London.

As you can see from the drop in rates, markets reacted little to the mortgage news, instead concentrating on the deteriorating UK budget position and Bank of England’s aggressive quantitative easing programme will weigh heavily.

US
The US budget deficit will soar to almost $1.6 trillion (£979bn) this year, the highest on record, both the White House and Congress have warned. Fuelled by President Obama’s $787bn stimulus package and reduced tax revenues due to the recession, it compares with a $455bn deficit in 2008.

The White House says the deficit will grow further, predicting it will hit a cumulative $9tn from 2010-2019. However, it continues to expect the US economy to start to recover this year.

Usually you would expect this to weaken the US Dollar, and cause GBPUSD rates to rise. However, in the current economic turmoil, news like this simply spooks investors that are worries about the global economy, and actually drives these investors back to the US Dollar strengthening it, which is why rates have not risen.

Todays Data
We have already had import price data from Germany, coming in roughly as expected. There’s nothing much for the UK, with the rest of todays data all from the US. This could well affect pound rates against all currencies, as good news from the US will spur investment into risker currencies such as the pound, and negative data causing a flood back to the dollar which will cause the pound to fall.

US Data
13:30 Durable Goods and Mortgage Applications
15:00 New Home Sales,
15:30 Crude Oil Stocks Change
17:00 Fed Speech

Converting Your Currency
If you need to convert one currency to another, dont use your bank. Here at FCG we can get you commercial rates that can be up to 5% better than those offered by the banks. When converting large sums, even a small difference in the rate can make a huge difference to how many Euros, Dollars etc you get for your pound.

If you’re looking to transfer less than £10k, then open an online trading account. See rates yourself, book currency 24/7 when you decide.If you are looking to convert more than £10k, then a standard trading facility is for you.

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Sterlng Euro & Sterling Dollar September 2009

Sterling Falls
Sterling fell to its lowest level against the euro in two and a half months on Tuesday, as a bout of weakness in global equities helped darken the pound’s near-term technical outlook. Today we’ll focus on Sterling rates to Euro, US Dollar, and Aussie Dollar. First we’ll have a quick look at how low rates have dropped:

  • GBPEUR 1.1463
  • GBPUSD 1.6364
  • GBPAUD 1.9558
  • GBPNZD 2.3876
  • GBPCAD 1.7635
  • GBPCHF 1.7378
  • GBPZAR 12.775
  • GBPJPY 154.03

EUR
Sterling fell away last week and again slipped further on Monday, hovering around its lowest level against the Euro in over a month. The fall was attributed predominantly to the comments that UK interest rates will stay low as the economy struggles, while strong Euro data boosted optimism about the pace of the Eurozone’s recovery.

The Pound slipped towards the 87 pence level against the single currency in the aftermath of strong European purchasing managers’ indices last week. Also last week, Bank of England policy meeting minutes showed that there had been a push to extend quantitative easing more than was ultimately decided.

Minutes from the BoE’s August policy meeting last week shocked markets as some policymakers, including Governor Mervyn King, had voted for an even bigger increase of 75 billion pounds to its quantitative easing programme. The surprise 6-3 vote, which decided on a 50 billion-pound boost, raised bets that British rates would stay at a record low of 0.5 percent until well into next year.

Analysts said Sterling would remain under broad selling pressure in the short term on the view that the BoE is delving deeper into quantitative easing while other central banks may be winding down measures to stimulate their economies.

Meanwhile the Euro advanced to its highest level in more than a month against Sterling following on from data showing that the Eurozone economy contracted only 0.1% during the second quarter, the latest survey data supported confidence that the economy could soon return to growth.

The German ZEW research institute’s economic sentiment survey surged to its highest level in more than three years. Furthermore the Purchasing Managers’ Indices confirmed that business activity in France and Germany rose in August, helping to provide some stability to Eurozone economic activity for the first time in fifteen months.

USD
The US Dollar initially strengthened last week against Sterling, as weaker global stock markets and sentiment about the strength of global recovery encouraged safe-haven demand for the Dollar. However, Sterling was able to gain back some of these losses throughout the remainder of the week, despite a worse than expected budget deficit for the UK (The deficit now stands at a staggering £8 bln.)

The US data generally confirmed improving housing and manufacturing sectors, supporting weekend comments from Federal Reserve Chairman Bernanke that the economy is beginning to emerge from recession. Both the New York and Philadelphia Federal Reserves reported stronger than expected rises in manufacturing activity in their regions.

Furthermore, US mortgage applications rose and existing home sales surged 7.2% in July to 5.24 million units, the highest level in almost two years. Traditionally all this would have meant just one thing, the dollar should strengthen and the pound should weaken, however, as regular readers are aware, the current global climate is far from ‘traditional’.

The contrasting opinion, held by many analysts, is that as data from the U.S shows the recession reaching an end there will be an increase in the amount of investors pulling money away from the safe-haven of the U.S. economy and investing in more high-risk assets elsewhere. This could have the opposite effect and weaken the USD and even potentially strengthen the Pound as investment in the UK rises.

All things considered, the direction of Cable is currently the subject of much debate amongst investors as well as analysts and with a plethora of factors pulling the Dollar in different directions the outcome remains unclear.

The second estimate of US GDP on Thursday could weigh on the US Dollar if the economy contracted more than expected and is worth keeping a close eye if you have any future requirement for $’s. For all additional information on data which could affect your Dollar purchase please contact your FCG Account Manager.

AUD
The minutes of the Reserve Bank of Australia’s 4th August policy meeting revealed that the Central Bank remains wary of raising interest rates too early whilst confidence remains fragile. This led markets to pare back some expectations of an interest rate rise in the near-term and undermined the Australian Dollar slightly.

However, the higher interest rate Australian Dollar was buoyed by rising risk appetite over the latter part of the week. The economic outlook also continued to improve, notably with a $50bn contract to sell liquefied natural gas to China.

The GBP/AUD rate closed at 1.969, down 0.8% from 1.985 a week earlier, benefiting those converting Australian Dollars into Sterling.

This week is relatively quiet for domestic releases. However, construction work data (Wednesday) and business investment data (Thursday) could boost the Australian Dollar if they raise expectations that next week’s economic growth report could be better than previously expected.

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