Currency Forecasts

This weeks data and the effect on exchange rates

Pound falls last week
Sterling fell to new lows against other major currencies last week on perceptions the UK currency would be allowed to weaken to help the fragile British economy, after Mervyn King said a weak pound would benefit the UK economy due to exports (which is strange, as we import much much more than we export!) Rates 08:30am Monday morning stand at:

  • GBP/EUR 1.0854
  • GBP/USD 1.5866
  • GBP/AUD 1.8388
  • GBP/NZD 2.2222
  • GBP/CAD 1.7415
  • GBP/JPY 142.10
  • GBP/ZAR 11.815

Market players took the opportunity to dump the pound, and selling of Sterling accelerated after the pound broke through key technical levels, keeping it vulnerable to further declines.

Bearish sentiment on sterling has persisted since Bank of England Governor Mervyn King said on Thursday that sterling’s fall against major currencies was helping a much-needed rebalancing of the British economy towards exports.

“The BoE voiced benefits of a weaker pound for rebalancing the economy, which ties in nicely with the G20 which have been calling for a rebalancing of the global economy,” said Ian Stannard, senior currency analyst at BNP Paribas. However, the news will not be welcome for anyone that needs to purchase a foreign currency with Sterling, as rates have tumbled, and the pound remains under pressure. we could well see further declines, as there is lots of data this week from all corners of the globe (see below).

The Japanese yen has hit an eight-month high against the dollar, denting the share prices of many exporters. The currency reached 88.23 yen per dollar which is the highest since January’s 13-year high of 87.10.

A stronger yen makes Japanese exports less competitive but makes imports more affordable to Japanese consumers. In the past, Japan has stepped into the currency markets to weaken the yen when the government thought its rise was threatening growth in the world’s second largest economy.

The authorities have not intervened since 2005, but some observers had believed finance minister Hirohisa Fujii could step in to halt the yen’s strengthening.

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This Weeks Data
We have a very busy week in terms of data releases this week. For the UK, we have Gross Domestic Product which is a measure of the total value of all goods and services produced by the UK. The GDP is considered as a broad measure of the UK economic activity and health, and so is likely to affect Sterlings value. Also for the UK, we have House Price data and various inflationary measures. One other thing to watch is a speech by Alastair Darling and Peter Mandelson, which may also sway the pounds value.

For the EU, we have a speech by Trichet, the president of the European Central Bank. 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. Also for the EU we have some confidence measures, and unemployment data for Germany and the EU.

For the US we have confidence data, Gross Domestic Product, and on Friday there is the Non Farm Payrolls data. The report presents the number of people on the payrolls of all non-agricultural businesses. The monthly changes in payrolls can be excessively volatile, and so very hard to estimate. For this reason, it often causes big swings in GBP/USD rates.

Data is listed below. For more information on how these releases can affect exchange rates for your particular requirement, contact us today.

EU – ECB Speech by Trichet
NZ – Building Permits
Jap – Consumer Price Index

NZ – Money Supply
Ger – Import Prices
UK – Consumer Credit
UK – Gross Domestic Product
UK – Mortgage Approvals
UK – CBI Trade Survey
UK – Consumer Confidence
EU – Consumer Confidence
EU – Economic Confidence
EU – Industrial Confidence
US – Consumer Confidence

Aus – Retail Sales
Aus – Building Permits
NZ – Business Confidence
Ger – Retail Sales
Ger – Unemployment
EU – Consumer Price Index
Can – Gross Domestic Product
US – Gross Domestic Product

Ger – Purchasing Managers Index
UK – Halifax House Prices
UK – Purchasing Managers Index
EU – Purchasing Managers Index
EU – Unemployment
US – Jobless Claims

US – Non Farm Payrolls

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Sterling Exchange Rate Forecast

Sterling falls across the board
The pound has fallen sharply against the Euro and the US Dollar after the head of the Bank of England said a weak currency was “helpful” to the economy. Bank governor Mervyn King said in a newspaper interview that a fall in the exchange rate would help to balance the UK economy by giving exports a lift.

Analysts said the pound was likely to fall further against the euro. The pound has weakened in recent days on fears about the high level of UK debt. Rates now stand as follows:

  • GBP/EUR 1.0914
  • GBP/USD 1.6030
  • GBP/CAD 1.7459
  • GBP/CHF 1.6483
  • GBP/AUD 1.8440
  • GBP/NZD 2.2275
  • GBP/ZAR 11.950
  • GBP/JPY 145.17

Bank of England Comments
The comments reiterated the central bank’s long-held view on the currency and the economy, and analysts said the market considered his remarks a good opportunity to wipe out sterling’s gains made the previous day.

Sterling had rallied on Wednesday after minutes from the BoE’s policy meeting earlier this month showed a unanimous vote not to extend quantitative easing in September.

Market participants said those gains had been overdone, and some analysts said that even though King’s comments on Thursday did not offer new insight into the BoE’s position on sterling, his statement helped to revive momentum to dump the pound.

Sterling is a whipping boy
“When the market’s down on a currency, it will jump on anything that justifies selling it,” said Stuart Bennett, currency strategist at Calyon in London. “Sterling is certainly the whipping boy at the moment.”

Speaking to The Journal newspaper, King also said UK growth may be beginning to pick up, but that people should not get too carried away as growth was very small, echoing the cautious stance shown in the BoE minutes released the previous day.

The latest bout of pound weakness began on Monday, when traders seized upon an article in the BoE Quarterly Bulletin that said sterling’s long-run sustainable exchange rate may have fallen due to an increased focus on Britain’s economic imbalances.

So, the view is that the pound is under pressure and will remain so. If you need to purchase currency, holding on for better rates will likely result in dissapointment. To get the best possible rate, ensure you contact us for a quotation.

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Enjoy your weekend.

Todays Data
Ger – Import Prices
Ger – Consumer Confidence
UK – Business Investment
US – Home Sales
US – Consumer Sentiment

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Could Sterling reach parity with the Euro?

The pound rose yesterday after the Bank of England minutes, but the gains were very short lived indeed. This morning rates have already tumbled close to new lows:

  • GBP/EUR 1.1028
  • GBP/USD 1.6279
  • GBP/AUD 1.8624
  • GBP/NZD 2.2515
  • GBP/JPY 147.30
  • GBP/ZAR 12.094
  • GBP/CHF 1.6675
  • GBP/CAD 1.7490

Bank of England Minutes
You can read the full minutes here. The pound rallied after they showed no policymakers voted to increase its asset buying plan and that cutting the interest paid on bank reserve deposits was not discussed.

They gave no indication the MPC had considered cutting the interest rate on funds banks hold, which was an issue raised by Governor Mervyn King last week in testimony that the currency markets took as offering a grim view on the UK economy.

In summary, the minutes showed MPC members were cautious on the economic outlook, while noting that recent strong data may lead to an upward revision to second-quarter growth. Some analysts said traders had taken that as a sign to buy sterling, which is why the pound went up straight after the release.

Despite its gains yesterday however, the pound continues to suffer on perceptions the BoE will lag other central banks in ending its ultra-loose monetary policy. It fell on Monday, when traders seized upon an article in the BoE Quarterly Bulletin that said sterling’s long-run sustainable exchange rate may have fallen due to an increased focus on Britain’s economic imbalances.

GBP/EUR Summary
It’s a very volatile market right now. Earlier in the year analysts were saying rates would reach €1.20 by the Autumn. Recent Articles published yesterday though say that the pound will keep falling and possibly reach parity. It all depends on how the UK economy recovers, and of course the levels of debt the goverment have saddled the country with.

If you need to buy Euros, then dont leave it to chance, as if the reports are true and the pound does fall, your currency will cost significantly. Stop and Limit Orders are perfect for this type of market, as you can manage your risk.

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Fed and US Interest Rates
The Euro and Yen have strengthened this morning also, on Fed’s announcement of stimulus withdrawal, however they left their interest rates unchanged at 0.25% as expected.

G20 Meeting
The G20 (Group of Twenty Finance Ministers and Central Bank Governors) meeting is the meeting of the seven industrialized nations (G7),the European Union, and the emerging economies. The meeting takes place to discuss international economic and financial issues. Traders should pay close attention to this event as it might bring a new dimension to the markets. This starts today in the US.

Other data today
Aus – New Homes Sales
Ger – IFO Business Climate
US – Housing Starts
US – Jobless Claims
Jap – Bank of Japan Minutes

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Bank of England Minutes & Effect on Exchange Rates

Pound makes small gains
Sterling rose against a broadly weaker dollar yesterday, and very slightly against the Euro. The pound remained under pressure however against the euro on wariness ahead of Bank of England policy meeting minutes which we will see later today. Rates at 08:30am:

  • GBP/EUR 1.1055
  • GBP/USD 1.6355
  • GBP/AUD 1.8697
  • GBP/NZD 2.2541
  • GBP/JPY 148.73
  • GBP/ZAR 12.048
  • GBP/CAD 1.7482
  • GBP/NOK 9.5343

The dollar weakened after rallying on Monday as traders took profits on short dollar positions before a Federal Reserve policy-setting meeting and a Group of 20 summit later this week.

“Sterling’s rise is a reflection of dollar weakness,” said Christian Lawrence, currency analyst at RBC Capital Markets. “A general tone of dollar weakness seems pretty strong.”

The market was awaiting minutes, due Wednesday of the BoE’s September policy meeting for any signs of further monetary easing.

Bank of England Minutes
Perceptions the Bank of England will lag its counterparts in ending an ultra-loose monetary policy were also expected to keep downward pressure on sterling. With that in mind, markets will keep a close eye on the BoE minutes which are released at 09:30am this morning.

We will be looking for any discussion of a cut in the remuneration rate (the interest commercial banks receive on their reserves with the BoE) which Bank of England Governor Mervyn King has said may be considered in a further move to boost lending by banks.

If the minutes show there was no discussion of a cut to the remuneration rate, that would probably mean it is off the cards for the foreseeable future, putting the focus back on any suggestion of a further expansion in quantitative easing, something King was keen on last month.

If there is an expansion, then the pound is likely to remain weak. Also hindering any recovery for sterling, is the forecast for UK economic recovery.

UK Economic Recovery
The UK economy has begun to emerge from recession but growth next year will be fragile, a forecast by business group the CBI has warned. It predicts UK GDP will grow by 0.3% between July and September from the previous three months, and will rise by 0.4% between October and December.

The CBI also predicted that continued job losses would see unemployment peak at about 3 million in the second quarter of 2010. Worries about job security and weak rises in wages would mean that households opted to save more and pay-down debt, rather than spend, it said.

The sharp fall in business investment and the state of public finances were also a “big concern”, Mr Lambert said, adding both would “affect UK economic prospects in the years to come”.

So, the pound has not moved much against the Euro due to markets waiting for the all important BoE minutes today. Watch this closely, as the pound will likely move very quickly at 09:30am as the minutes are released.

If you are worried that the news will be bad and markets will fall, then you should either fix a rate in advance with a Forward contract, or if you want to take a gamble that the news will be good and rates will rise, then place Stop and Limit orders. this allows you to aim for a higher rate, without losing out if rates actually drop.

Open an account with us for free now, (make sure you quote ‘BLOG’ on your application) and one of our currency dealers will call you to give you a consultation on what options we have on offer to help manage the risk of the currency markets.

Todays Data
Ger – Purchasing Managers Index
EU – Purchasing Managers Index
EU – Industrial New Orders
UK – Bank of England Minutes
UK – Mortgage Approvals
US – Mortgage Applications
US – Fed Interest Rate Decision

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G20, Sterling vs US Dollar

Good Morning. With little UK data yesterday, the pound remained steady against the Euro, with hardly any movement. The pound crept up slightly against the USD, and fell against the Aussie Dollar and Kiwi Dollar. Rates as at 08:30am 22/09/09 are as follows:

  • GBP/EUR 1.1015
  • GBP/USD 1.6282
  • GBP/AUD 1.8606
  • GBP/NZD 2.2552
  • GBP/ZAR 12.057
  • GBP/CAD 1.7415
  • GBP/JPY 148.52
  • GBP/CHF 1.6680

Before we look at todays currency info, a quick link to a good article in the Telegraph about how to find the best Foreign Exchange Deals:

The only UK data of note yesterday was from property website Rightmove showed asking prices for homes in England and Wales were on average 1.5 percent lower this month than a year ago, with the available stock at its lowest for 18 months.

Today is also very quiet in terms of UK data, with all eyes now on tomorrows Bank of England minutes, which are published two weeks after the interest rate decision. The minutes give a full account of the policy discussion, including differences of view. They also record the votes of the individual members of the Committee. If the BoE is hawkish about the inflationary outlook for the economy, then the markets see a higher possibility of a rate increase, and that is positive for the GBP.

This week’s G20 summit in the US will call for major reforms to promote a more balanced global economy. A draft paper hints at significant policy changes from G20 countries, including the UK, the US and China. And while stimulus packages should continue for now, the document called for the creation of “transparent and credible” means to unwind that support. Leaders will meet in Pittsburgh with the economy high on the agenda.

NZ Dollar
For today, we have GDP data for New Zealand at the end of the day. It’s a measure of the total value of all goods and services produced by New Zealand. The GDP is considered as a broad measure of New Zealand economic activity and health. A rising trend has a positive effect on the NZD, while a falling trend is seen as negative (or bearish) for the NZD. We expect the figure to show a contraction of 0.2%.

Other data
Not much! Nothing for the UK, Retail Sales from Canada, House Prices and Manufacturing data for the US.

US Dollar
The US Dollar rose against Sterling last week, with the UK currency falling 2.4 per cent to $1.6280. However, this was caused by weakness in the UK economy, rather than the strength of the greenback. The dollar actually fell to one-year lows against the Euro and the Japanese Yen, as rising risk appetite stemmed safe-haven demand for the US currency. So the rise against the pound highlights just how negative the current outlook is for Sterling.

The Dollar’s fall against most major currencies displayed a willingness to take on more risk as stock markets rose, with investors selling the low-yielding currency to seek higher returns elsewhere. Some analysts feared a further decrease in the coming weeks as it appeared there was a risk that the low US interest rates could lead to the dollar replacing the Yen as the financing currency for the carry trade – where investors borrow in a country with low interest rates and then exchange the currency to buy assets in countries with currencies yielding higher returns.

However, these fears were eroded in early Monday morning trading, as the Dollar rose against major currencies, hitting $1.6143 per pound on speculation the US may start to reign back the economic stimulus measures of past months, showing signs of recovery and increasing demand for US assets.

Although it is believed interest rates will remain low for some time, Federal Reserve Chairman Ben Bernanke reported last week that the US recession has probably ended.

The main factors for the downward pressure on the pound came from Mervyn King’s comments that the Bank of England is considering lowering the interest rate it pays commercial banks for the deposits held in accounts at the Central Bank, added to the problems facing Lloyds TSB and whether it will need further assistance in the BoE’s asset protection scheme.

The difficulties facing British banks and the strategy of quantitative easing employed by the Central Bank has weighed heavily on the UK currency, whilst the £16.1 billion public sector budget deficit for August alone gave investors the impression that this weakness shows no immediate signs of abating.

The release of the September BoE minutes and the Fed’s interest rate decision on Wednesday, plus the G20 finance ministers meeting towards the end of the week, mean that there is likely to be some movement in the Sterling and Dollar markets.

Mentioning of further quantitative easing and the rate paid to commercial banks by the BoE will be watched closely, so contact us to discuss the possibility of tying into current rates through forward contracts, or setting up stop-loss orders to minimise exposure to any further Sterling losses.

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