Currency Forecasts

Sterling falls on risk sentiment

Good Morning,
Today we’ll have a quick review of where rates moved last week, and then look at what data releases we have this week. As usual, let’s have a quick look at where rates stand…

Exchange Rates as at 08:30am 17th August 2009 :

  • GBP/EUR 1.1567
  • GBP/USD 1.6336
  • GBP/AUD 1.9923
  • GBP/NZD 2.4427
  • GBP/CAD 1.8115
  • GBP/ZAR 13.355
  • GBP/CHF 1.7624

Last Weeks Trading
The main story of last week was the good data from the EU, and a reverse of risk sentiment, both of which caused rates to fall.

French and German economies both grew by 0.3% between April and June, bringing to an end year-long recessions in Europe’s largest economies. Because markets had expected a 0.3% decline, the surprisingly good results strenghtened the Euro and caused rates to fall.

Sterling eased against the dollar on Friday and fell more than 1% on the day versus a resurgent yen after a report showing U.S. consumer confidence fell in early August dampened demand for riskier assets.

“It does reinforce the view that there’s still a long way to go before you see a sustainable turnaround in sentiment … It just underscores the vulnerability of the recovery so far,” said Samarjit Shankar, director of global strategy at Bank of New York Mellon.

The balance of risk appears to be the key to interpreting the direction of cable (GBP/USD) over the coming months. As I’ve mentioned before, 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.

This is what will cause a risk to the pound this week.

This weeks data
For the UK this week, the main data to look for is Consumer Price Index and Retail Price Index tomorrow, and towards the end of the week we have Retail Sales, Public Sector Borrowing and GDP figures. Tomorrows data will give an idea of inflationary pressures facing the UK economy and therefore where interest rates may move later in the year. The retail sales are measures the total receipts of retail stores. Monthly percent changes reflect the rate of changes of such sales. Changes in Retail Sales are widely followed as an indicator of consumer spending and as can have a big impact on exchange rates.

GDP figures are important as it will show the pace at which our economy is increasing or decreasing. Last weeks surprise GDP figures from the Eurozone demonstrate the effect this data can have on exchange rates.

A full list of the weeks releases is below, and if you need any further information on how this could affect your particular requirement, please contact us.

Monday
EU – Trade Balance
US – Manufacturing Index
US – Housing Market Index

Tuesday
UK – Consumer Price Index
UK – Retail Price Index
EU – Economic Sentiment
US – Building Permits
US – Producer Price Index

Wednesday
Ger – Producer Price Index
EU – Current Accounts
Can – Consumer Price Index
US – Crude Oil Stocks Change

Thursday
UK – money Supply
UK – Public Sector Borrowing
UK – Retail Sales
US – Jobless Claims

Friday
UK – Gross Domestic Product

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Australian Dollar AUD New Zealand Dollar NZD Forecast 2009

Following several requests of late for more information regards AUD and NZD, today we’ll take a detailed look at the antipodean currencies and where rates may head for the remainder of the year.

First, let’s take a quick look at the Euro. As at 08:30am 14th August rates are as follows:

GBP/EUR 1.1559
GBP/USD 1.6489
GBP/AUD 1.9632
GBP/NZD 2.4296
GBP/ZAR 13.257
GBP/JPY 156.82

GBP/EUR
Yesterday we saw figures that show France and Germany have exited the recession. The French and German economies both grew by 0.3% between April and June, bringing to an end year-long recessions in Europe’s largest economies.The data came as a surprise, with few analysts expecting Germany and France to start to recover so soon. There’s a comprehensive analysis on the BBC website. As the figures were a surprise, we’ve seen Euro strength and GBP/EUR rates unexpectedly fall.

GBP/AUD

Right now, the rate is 1.9612. Here we see GBP/AUD over the last 3 months. As you can see, the last month has seen a steady decline in the rate. This morning the rate has hit a near 11-month low as speculation of eventual interest rate hikes was abound as the central bank chief said rates would be a lot higher than the present level.

The RBA Chief Glenn Stevens said this morning that the current record low rate of 3 percent was an “emergency” level, and that a normal level was “a good deal north” of that.
Australia’s economy has shown a great deal of resilience as aggressive rate cuts, generous government handounts and firm demand from China supported consumption and key commodity exports. As such, the RBA, has started saying in recent weeks local rates need to normalise as Australia’s economy recovers. Stevens has warned that low rates risked inflating a housing bubble.

So, with regards as to where rates will go, if we do indeed see higher interest rates in Aus, then this will strengthen the currency even further, which means lower GBP/AUD rates. It all depends on how the Australian economy performs compared to the UK economy.
I think that the UK economy is in dire straights, and our level of debt is what will hinder our recovery. Thus, for the remainder of the year it is unlikely that rates will climb above the $2 level. The Aus economy is in a better position that the UK, and their rates will likely go up before ours.

We do however have spikes from time to time, and so if your requirement is for 2009, then consider Stop and Limit Orders to try and take advantage of one of these spikes, while at the same time protecting yourself against a continued drop. Rates will eventually recover as the UK economy does, but when this will happen is impossible to predict. I dont expect any significant recover until 2010.

GBP/NZD

    Here we see the GBP/NZD pair over the last 3 months. The trend is similar to the AUD, and the reason is the same – New Zealand has slashed it’s interest rates this year in an attempt to weaken the currency to boost exports, which are very important to New Zealand. This had caused rates to remain steady against the pound, but now rates sit at a record low, analysts expect the next movement to be up. This may happen towards the end of this year, however it may not happen until next year.

    The RBNZ said that bright spots were appearing for the economy for the first time in months, but stressed the risks remain to the downside, noting recent strength in the Kiwi could snuff out any fledging recovery.

    The NZD carried its positive momentum after domestic retail sales rose by more than expected in April, driven mainly by car sales, suggesting consumer demand remained patchy but showed signs of stabilisinstabilizingt data realise showed only a modest pick up in manufacturing sales for the first quarter, but marking the first rise in more than a year.

    Summary
    Speculation of interest rate hikes will keep AUD and NZD low for the coming months. Markets will look to signs of recovery both in the UK, Aus and NZ. It’s really nothing more than a tug of war between the economies, and whoever comes out of recession and wins the tug first, will see their currency strengthen. In the current climate, it would be a brave man who’d bet on the UK recovering before our cousins down under. As rates climb in NZ and AUS, it may also cause a resurgence in the carry trade. This will compound strength in the antipodean currencies.

    So, of course rates will recover, and speculating as to when is nigh on impossible. However I believe it will be into 2010 before the UK catch up with economic recovery. Therefore if your requirement is for the next 3 months, consider a Forward Contract to lock rates in now and protect against further falls.

    If you have longer until you need your currency, then Stop and Limit orders are to be considered. This means you can aim for a higher rate, but not do so blindly without protection if things dont work out. This article on managing fx risk should prove helpful if you would like to know more about the options available.

    South Africa Cuts Interest Rate – South Africa’s central bank has taken markets by surprise by cutting its lending rate from 7.5% to a four-year low of 7%. It was the sixth cut since December, bringing the rate down from 12%. This means a slightly weaker rand, and so any buyers of this currency should consider locking rates in – GBPZAR has not fallen as much as other currencies in the last 12 months.

    Todays Data
    The only real data of note is the Consumer Price Index for both the EU and US. It is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services excluding the volatile components like food and energy. The CPI Core is a key indicator to measure inflation and changes in purchasing trends.

    EU – Consumer Price Index
    US – Consumer Price Index
    Can – Manufacturing Shipments
    US – Consumer Sentiment Index

    Ok, that’s it for another week folks. Of course if you would like more information on anything contained within the blog, do get in touch below.

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    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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