Currency Forecasts

Outlook for the pound, and the weeks data.

Good Morning. Today as usual, we’ll take a detailed look at the weeks data and how this may affect exchange rates. Let’s have a quick look at where rates stand this morning:

  • GBP/EUR 1.0971
  • GBP/USD 1.6502
  • GBP/AUD 1.8020
  • GBP/NZD 2.3000
  • GBP/CAD 1.7408
  • GBP/CHF 1.6526
  • GBP/ZAR 12.185
  • GBP/JPY 142.10
  • EUR/USD 1.5036

The main news to kick off the week is the debt crisis in Dubai. The main stock markets in Dubai and Abu Dhabi have dived at least 6%. The falls came after Dubai’s property developer, Nakheel, asked for trading of some of its Islamic bonds to be suspended.

Shares are trading for the first time since the state-owned property company Dubai World asked for an extension on repaying its debts. The central bank of the United Arab Emirates said on Sunday it would provide banks with extra liquidity.

While shares in the Middle East dropped sharply, Asian shares rebounded on Monday on hopes the Dubai debt crisis will not spread to other financial markets after the UAE central bank decision. The yen rose against the dollar after the announcement from Nakheel, paring earlier declines.

The fear for Sterling, is that many UK banks are heavily exposed to this, as they have lent Billions of pounds into this market. As I’ve said here before, finance and banking is one of the biggest parts of our economy, and one of our biggest exports. So, any exposure could be negative for the pound.

“The UK has the biggest loan exposure to Dubai among the G7, which should ensure sterling underperformance against the forex majors,” said Lena Komileva, head of G7 market economics at Tullett Prebon.

This Weeks Data
For the UK, we have already had Consumer Confidence data today, that measures the level of consumer confidence in economic activity. The figures were much worse than expected, and the pound has fallen as a result. We also have some inflationary measures later in the week. The main driver for the pound is likely to be the developing news from Dubai; as UK banks have lots of exposure to this market, it doesn’t bode well for Sterling.

In the Eurozone we also have inflationary measures, along with Gross Domestic Product and an interest rate decision. It’s likely that rates will be left on hold, so the main news to watch is Gross Domestic Product. This a measure of the total value of all goods and services produced by the Eurozone. It’s considered as a broad measure of the Eurozone economic activity and health, and can therfore have a big impact on the Euros value, and thus GBP/EUR rates.

In the USA, we have various measures of employment, and Nonfarm payrolls on Friday. 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 therfore hard to predict. So, any difference to the predicted figure can cause USD volatility.

Elsewhere, we have GDP for Canada and Switzerland, retail sales for Australia, and Commodity prices for New Zealand. This is is considered as an early indicator of export price changes. The price changes influence GDP and exchange rates. An increase in prices may indicate strength of the NZD, while a decrease in prices may indicate weakness of the NZD.

Monday
UK – Consumer Confidence
UK – Money Supply
UK – Mortgage Approvals
EU – Consumer Price Index
Can – Gross Domestic Product

Tuesday
Aus – Building Permits
Aus – Interest Rate Decision
Swi – Gross Domestic Product
Ger – Retail Sales
Ger – Purchasing Managers Index
EU – Purchasing Managers Index
EU – Unemployment

Wednesday
UK – PMI Construction
EU – Producer Price Index
US – Employment

Thursday
Aus – Retail Sales
NZ – Commodity Prices
EU – Purchasing Managers Index
UK – Purchasing Managers Index
EU – Gross Domestic Product
EU – Retail Sales
EU – Interest Rate Decision
US – Jobless Claims

Friday
Swi – Consumer Price Index
Can – Unemployment
US – Nonfarm Payrolls
US – Unemployment

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Pound falls again on Dubai news

Good Morning. The pound has remained under pressure after concerns over exposure of UK Banks to the debt crisis in Dubai. Rates @ 08:30am are as follows:
  • GBP/EUR 1.0988
  • GBP/USD 1.6325
  • GBP/AUD 1.8207
  • GBP/NZD 2.3175
  • GBP/CAD 1.7521
  • GBP/CHF 1.6578
  • GBP/ZAR 12.350
  • GBP/JPY 140.77
  • EUR/USD 1.4853

Reuters have reported that Dubai’s shock move earlier in the week to restructure Dubai World, and delay repayment on some of the company’s $59 billion of liabilities, sent ripples through financial markets, denting equities and riskier currencies.

Some analysts said the pound was underperforming because of concerns that some UK banks may be affected, although no exposure was confirmed.
“There are concerns regarding the extent of the exposure of the UK banks to Dubai, hence sterling is coming under pressure,” said Ian Stannard, currency strategist at BNP Paribas.
The pound is particularly sensitive to any banking sector problems, given the fact that the financial sector makes a large contribution to the UK economy. This is in addition to the news earlier in the week that the Bank of England gave a £60bn loan to some UK banks.
Lack of confidence in the Banking sector is one of the main drivers for Sterling weakness at the moment. As yesterday was a market holiday in the US for thanksgiving, trade was fairly thin. Most investors chose to sell riskier currencies such as the pound, helping to dent the currency.
Strong Yen harming Japanese Eeconomy
Japan’s finance minister has said the strength of the yen is harmful to the country’s economy.
In trading the currency has touched 84 to the dollar, the US currency’s lowest level since the mid-1990s.
A high yen damages the competitiveness of Japanese exports, which have been the engine of the country’s growth.With much of the relative strength caused by dollar selling rather than yen buying, there may be little the government can do alone.
Enjoy your weekend.
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Why has pound fallen November ’09

Good Morning. The pound has fallen quite a bit overnight, after yesterdays GDP data showed that the UK is the only major economy still in recession. At 08:30am pound exchange rates are as follows:

  • GBP/EUR 1.0971
  • GBP/USD 1.6556
  • GBP/AUD 1.7971
  • GBP/NZD 2.2914
  • GBP/CAD 1.7407
  • GBP/CHF 1.6560
  • GBP/ZAR 12.197
  • GBP/JPY 143.72
  • EUR/USD 1.508

Sterling Falls again
Sterling fell this morning, losing more than 1% against the US Dollar while the pound also fel against the Euro, hitting a 1 month low as it remained under pressure in the wake of Wednesday’s gross domestic product data.

The data showed the British economy shrank by 0.3 percent in the third quarter compared with the initial estimate of a 0.4 percent contraction. This came as a disappointment to some who were looking for a bigger revision and it exacerbated concerns that the UK economic recovery is lagging that of other major economies. So, the figures were not as good as some analysts had expected, and so this is the main reason for the dip in exchange rates.

The new figures confirm the economy has contracted for six consecutive quarters – the longest unbroken stretch of since records began in 1955. The UK is lagging many of its rivals. France, Germany Japan and the US have all already exited recession.

Earlier on Wednesday, Bank of England monetary policy committee member Andrew Sentance said there were signs the UK economy had returned to growth in the second half of this year, however the markets have reacted and Sterling has lost a significant amount of it’s value.

Given our huge debt levels, and concerns over the banking sector mean there’s little hope the pound will rebound any time soon. Many analysts are expecting the pound to remaind weak until at least the General Election next year. If you have a requirement to purchase a Foreign Currency with Sterling, then you should consider fixing rates now. Even if your currency is not needed for some time, you can pay a 10% deposit and lock in a rate for the full amount you need, for up to 2 years into the future.

This will protect you against further losses, and give you peace of mind knowing what your currency will cost you.

Dollar Falls
The US dollar has hit a 14-year low against the Japanese yen with low interest rates in the US making the greenback less attractive to investors. The dollar slipped to 86.5 yen, its lowest level since July 1995.

The US has indicated it is unconcerned about the dollar’s slide, and will not intervene to strengthen it. Many traders are swapping dollar holdings for gold as a safer investment in the current uncertain economic climate.

Usually the pound benefits from this type of news, but for the reasons already listed above, not many people are interested in investing in Sterling right now.

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Pound falls after secret £60bn loans revealed.

Good Morning. Sterling fell yesterday as concerns about the Banking sector dented appetite for riskier currencies, while Bank of England policymakers offered little insight into the outlook for monetary policy. At 08:30am rates stand as follows:

  • GBP/EUR 1.1127
  • GBP/USD 1.6710
  • GBP/AUD 1.8019
  • GBP/NZD 2.2841
  • GBP/CAD 1.7598
  • GBP/CHF 1.6792
  • GBP/JPY 147.50
  • GBP/ZAR 12.373
  • EUR/USD 1.5012

UK Banking Sector
The Bank of England yesterday revealed secret loans to UK banks last year of more than £60 Billion pounds. It was also revealed that Chancellor Alistair Darling had agreed to underwrite any losses which the Bank may have made on the loans.

It’s headline news, and rather than repeat it all here, you can see a detailed report on the BBC website here. In terms of the effect on the currency markets, finance forms a huge part of our conomy, and is also our biggest export. This news will do little to spur confidence in the economy, and the pound has fallen as a result.

The big question is what else is there that we don’t know? There is already talk of the UK’s credit rating being downgraded, and this will fuel that speculation, and will hurt the pound. The governor of the BoE, Mervyn King, again said a weak pound was needed to help the ecomomy, which is not what clients needint to buy foreign currency need to hear!

Analysts said King’s comments offered limited new direction in terms of policy outlook, while underlining differences among members of the bank’s interest rate-setting committee who recognise the economy has been slowly improving and those who are cautious about normalising monetary policy.

“There’s a fair amount of division in the committee and this is holding sterling back,” said Phyllis Papadavid, currency strategist at Societe Generale in London. “The lack of certainty around policy is a big driver of sterling today.”

US Economic Growth
The US economy grew by far less than originally forecast between July and September, according to revised official figures. The latest estimate said the economy grew at an annual pace of 2.8%. That compared with the 3.5% the Department of Commerce initially forecast earlier this month.

The change in the gross domestic product figure came partly because imports, which count as negative, were higher than thought. Imports increased at an annual rate of 21%, the biggest gain since the second quarter of 1985, and a big jump on the 16% first thought. US GDP is expressed as an annualised rate, or annual pace, which shows what the annual rate would be if the latest change continued for the rest of the year.

Usually, good data from the USA would strengthen the dollar, and we would see GBPUSD rates fall. However, as USD is a safe haven currency, good news spurs investors into riskier currencies. Unfortunately the pound is not very attractive, and so other currencies such as AUD benefited. As investors pull out of the USD, it actually weakens it and GBPUSD rates have gone up despite the bad news from the UK, however this is purely dollar driven.

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Pound Euro & Pound Dollar Forecast

Good Morning. Today we’ll take a detailed look at GBP/EUR and GBP/USD. First as usual, we’ll have a quick look at where rates stand @ 08:30am:

  • GBP/EUR 1.1079
  • GBP/USD 1.6525
  • GBP/AUD 1.8013
  • GBP/NZD 2.2785
  • GBP/CAD 1.7553
  • GBP/CHF 1.6744
  • GBP/JPY 146.45
  • GBP/ZAR 12.406
  • EUR/USD 1.4910

Euro
Last week began with the release of monthly trade balance data for the Euro zone on Tuesday. This revealed a larger than expected surplus, easing some concerns that a strong Euro is hindering the economy’s export performance. As a result this limited the chances of official intervention to stop the Euro rising and ultimately contributed to the GBP/EUR rate dropping towards the end of the week.

Further through the week an absence of any further major Euro zone economic data left the Pound’s weakness as the primary source of any Euro gains, particularly after Wednesday’s surprise Bank of England minutes showing a split vote for QE.

However, by Friday GBP/EUR took a further downfall as the Euro gained strength after the surprise comments by the European Central Bank President Jean-Claude Trichet. In brief his comments warned that the banks should prepare for the unwinding of stimulus measures, which could be taken away promptly if the threat of inflation awakens.

As a result GBP/EUR closed down 0.83% at 1.1101, from 1.1194 a week earlier, continuing to improve market conditions for those converting Euro’s into Sterling further.

This week sees the release of German business conditions data on Tuesday and consumer confidence on Wednesday, both of which will help shape economic growth expectations for the coming months depending upon their positivity.

Friday will also see the release of Euro zone business, consumer, and industrial confidence data which could support the Euro if stronger than expected. As for the UK, this week sees the release of Private Consumption, Government Spending, Imports and Exports and most importantly GDP figures all on Wednesday.

With the recent array of disappointing data releases from the UK and increasingly optimistic figures from the Euro Zone, it may be a wise to consider buying Euros before the market possibly falls.

US Dollar
Sterling fell sharply on Friday, falling more than 1 percent to a two-week low against the dollar at $1.6460, this erased all of the gains made on Monday when it hit a three-month high just shy of $1.69 on concerns over the UK public finances deteriorating almost twice as fast as expected and waning investor appetite for perceived risky currencies.

It is likely that public finances data will be weak in the months to come, and each time we get that it will be negative for sterling.

The highlight for UK data this week will be Wednesday’s second estimate of UK Q3 GDP, which many analysts expect to be revised up slightly from a first estimate reading of a 0.4 percent decline. If revised as expected GBP is likely to respond in a positive way.

Across the pond the American Thanksgiving holiday means that markets will likely become illiquid through later-week trade, but earlier-week price action could produce big US Dollar moves on several important reports. Tuesdays second release for Q3 GDP figures, Conference Board Consumer Confidence survey results, and the minutes from the Fed Committee’s most recent policy-setting meeting have been known to force considerable moves in the US Dollar, and it remains important to watch for surprises from each.

What this means for those wishing to repatriate their funds is that the early part of the coming week could prove critical if the widely expected UK Q3 GDP data is revised positively and the sentiment from the Fed Policy meeting is deemed dovish, it could elevate Sterling to undesirable levels resulting in losses.

On the flip side this could also prove critical for those buying Dollar as the latter part of the week could see flat exchange rates due to the US holidays.

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