Currency Forecasts

Currency Forecast 23rd November 2009

Good Morning, and welcome to a new week in the currency markets. Sterling fell sharply on Friday, falling more than 1% to a 2 week low against the dollar, on concerns over the UK’s fiscal health and waning investor appetite for perceived risky currencies. The debt levels were the main news of last week, and caused the pound to fall. At 09:00am Monday 23rd November, rates are as follows:

  • GBP/EUR 1.1070
  • GBP/USD 1.6584
  • GBP/CAD 1.7591
  • GBP/AUD 1.7970
  • GBP/NZD 2.2665
  • GBP/JPY 147.46
  • GBP/CHF 1.6723
  • GBP/ZAR 12.405
  • GBP/NOK 9.2668
  • EUR/USD 1.4977

Sterling also fell against the Euro, falling to a 1 week low as it slid further in the wake of data on Thursday showing UK public finances deteriorated almost twice as fast as expected last month.

The UK government faces mounting pressure to spell out how it will curb public borrowing as it prepares to fight an election due by June 2010. In the Queen’s speech, they said it would be halved within 4 years, but didn’t spell out any plan at all on how this would be achieved.

It’s believed that that record debt levels will threaten Britain’s triple-A sovereign debt rating, which would no doubt cause further falls for the pound. Concerns about mounting government debt and the belief that interest rates will stay very low for many months to come have ensured sterling has remained weak throughout this year, and this is unlikely to change.

“The pressure on sterling will not abate. The Bank of England is in no rush to change its very loose monetary policy and sterling should stay weak against the euro,” Bank of New York Mellon currency strategist Neil Mellor said.

Below is a full breakdown of the weeks data, and what will be the main drivers for exchange rate movements this week.

This Weeks Data
The main data this week is Gross Domestic Product (GDP) data for the UK, Germany and the USA. This is a measure of the total value of all goods and services produced by the various economnic zones. The GDP is considered as a broad measure of the UK economic activity and health. A rising trend has a positive effect on the GBP, while a falling trend is seen as negative.

The UK’s release is on Wednesday, and we expect the figures to show an annual decline of -5.2% and a monthly decline of -0.4%. This will confirm tthat the UK is the only major economy still in recession, and so will likely be negative for the pound.

For the EU, Germany’s GDP will be important as it is the EU’s largest economy, and so Germany’s performance can have a big impact on the value of the Euro.

For the US there’s also a lot to watch out for. On Tuesday we see GDP, Consumer Confidence, and also the FOMC minutes. FOMC stands for The Federal Open Market Committee that organizes 8 meetings in a year and reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. FOMC Minutes give a good idea where interest rates will go in the states.

Ger – Purchasing Managers Index
EU – Purchasing Managers Index
EU – ECB Speech
Can – Retail Sales
US – Home Sales

Ger – Gross Domestic Product
UK – Mortgage Approvals
UK – Business Investment
EU – Industrial Orders
US – Gross Domestic Product
US – Consumer Confidence
US – FOMC Minutes

Ger – Consumer Price Index
UK – Gross Domestic Product
US – Jobless Claims
US – Homes Sales

Ger – Consumer Price Index
UK – Distributive Trade Survey

EU – Business Climate Indicator
EU – Consumer Confidence
EU – Economic Confidence

When you get in touch, ensure you mention you heard about foremost currency group through our Blog. Simply quote ‘Blog’

Open a free Trading Facility

Open an online Trading Account

Email Me

Foremost Currency Group

Pound falls on debt fears.

Good Morning. Sterling slipped on Thursday as UK borrowing data underlined Britain’s deteriorating finances, while a sell-off in high-risk currencies also kept the pound under pressure. At 08:30am the snapshot of pound rates are as follows:

  • GBP/EUR 1.1141
  • GBP/USD 1.6610
  • GBP/AUD 1.8068
  • GBP/NZD 2.2744
  • GBP/CAD 1.7675
  • GBP/CHF 1.6849
  • GBP/ZAR 12.452
  • GBP/JPY 147.53
  • EUR/USD 149.05

Pound Falls
Sterling fell after data showing that the UKs public finances deteriorated at a much faster pace than expected in October, taking public borrowing to its highest on record. There was also a rise in Retail Sales for the UK, but the borrowing data overshadowed that and caused rates to fall.

Ratings agencies have said Britain may face a possible cut in its sovereign rating if its fiscal position gets worse. This would ruin the appeal of UK government debt and probably prompt investors to pull funds out of the country into other currencies percieved as safer. This will hurt Sterling in the Short to Medium term .

Analysts said the data highlighted the need for Britain to rein in borrowing or face the possibility of a ratings downgrade. Such measures, coupled with ongoing low interest rates would keep sterling weak in the medium to longer term. Despite this, the government continue to borrow more and more money, still trying to spend their way out of the problem.

In the Queens speech, the government stated it would pass law to ensure the deficit was halved within 4 years, however they did not mention how they were planning to do this. At all. Not even a hint (!). This is worrying, as it seems that it is adopting the Emu’s policy of dealing with problems, sticking it’s head in the sand and hoping it will go away. Excellent policy…

Many in the market say Wednesday’s Bank of England minutes did little to change the view among investors that UK rates will stay low into next year, which is seen as negative for sterling as other central banks begin to raise rates.

Elsewhere, the Nationwide also delivered a gloomy forecast for the UK economy, which you can read on the BBC here.

As the world exits recession, our governments policies mean that we are lagging behind in a big way, and there’s no sign of this changing in the near future. Rates are low, debt is high, unemployment is rising still, and all of this means that the UK is not an attractive place for investors. Other currencies such as the Euro and Dollar are more attractive, and this doesn’t bode well for those hoping exchange rates will rise.

Sorry for the gloomy outlook that seems to be mirroring our weather before the weekend, but that’s the state of play at the moment.

Todays Data
A quiet Friday. We’ve already had consumer price index for Germany. This was worse than expected, but GBPEUR rates still fell due to the reasons already outlined above.

Later we have a speech by the European Central Bank.

Whatever you’re doing over the weekend, have a good one!

When you get in touch, ensure you mention you heard about foremost currency group through our Blog. Simply quote ‘Blog’

Open a free Trading Facility

Open an online Trading Account

Email Me

Foremost Currency Group

Inflation, BoE and effect on Pound exchange rates.

Good Morning. The pound fell from it’s recent highs yesterday after the Bank of England minutes showed a split in the decision to increase the Quantitative Easing measures. At 08:30am this morning, rates are as follows:

  • GBP/EUR 1.1210
  • GBP/USD 1.6675
  • GBP/AUD 1.8088
  • GBP/NZD 2.2716
  • GBP/CAD 1.7680
  • GBP/JPY 148.34
  • GBP/CHF 1.6956
  • GBP/ZAR 125162
  • EUR/USD 1.4868

Bank of England Minutes
The Bank of England’s Monetary Policy Committee (MPC) was split three ways in November over whether to increase its quantitative easing (QE) scheme – the first time members have voted in three different directions since the controversial policy began in March.

Spencer Dale, the Bank’s chief economist, in his first dissent from the majority since QE began in March, voted for no increase at all, arguing that pumping more money into the economy might fuel “unwarranted increases in some asset prices that could prove costly to rectify.”

In contrast, David Miles, who joined the MPC in June this year, called for QE to be increased by £40 billion in “order to provide greater insurance to the downside risks to growth and inflation”.
The split highlights a growing concern that the programme, where the Bank “prints money” and uses it to buy assets such as bonds, was stoking inflation.

What does this mean?
The door is clearly not shut on further quantitative easing. Nevertheless, with the economy almost certainly returning to growth in the fourth quarter, we suspect that November marked the final extension to the quantitative easing programme. The committee also discussed whether to cut the interest the central bank pays private banks for holding their cash deposits, in a bid to encourage them to lend the money rather than sitting on it, but decided that they did not want to do this at the present time.

So, inflation is rising, and this usually signals that interest rates will go up. If interest rates go up, Sterling becomes more attractive to investors, more people buy Sterling and the currency strengthens and exchange rates rise.

It’s not that simple however. Despite inflation rising, most analysts expect our interest rates to stay at record lows well into nex year. As mentioned above the BoE are actually considering cutting the rate for banks, and so the rise in inflation is unlikely to cause rates to rise as it usually would.

This is reflected in the drop in rates after the minutes were released yesterday.

Todays Data
For the UK, we have Retail Sales, Money Supply, and Public Sector Borrowing. The Retail Sales are the figures to watch. Expect a monthly rise of 0.6% and an annual rise of 2.9%. And different, and the pound will likely change in value.

We also have a speech by the European Central Bank President.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. If he shows a hawkish outlook, that is seen as positive (or bullish) for the EUR, while a dovish is seen as negative (or bearish).

When you get in touch, ensure you mention you heard about foremost currency group through our Blog. Simply quote ‘Blog’

Open a free Trading Facility

Open an online Trading Account

Email Me

Foremost Currency Group

Pound vs US Dolllar

Good Morning. The pound rose yesterday after figures showed inflation in the UK rose. Rates @ 08:30am stand as follows:

  • GBP/EUR 1.1274
  • GBP/USD 1.6801
  • GBP/AUD 1.8046
  • GBP/NZD 2.2534
  • GBP/CAD 1.7681
  • GBP/ZAR 12.510
  • GBP/JPY 149.78

UK Inflation
A key measure of UK inflation has risen for the first time since February, official figures have shown. The Consumer Prices Index (CPI) climbed to 1.5% in October, up from 1.1% in September. Meanwhile the Retail Prices Index (RPI) inflation measure, which includes mortgage interest payments and housing costs, rose to -0.8% from -1.4%.

Inflation accelerated mainly because fuel prices fell by a lot less than they did in the same period a year ago. Analysts had expected the rate of inflation to rise, so the figures came as no surprise to the City. “I don’t think this is anything that will worry the Monetary Policy Committee [of the Bank of England] too much,” said Amit Kara at UBS.

“The MPC has highlighted that inflation is going to be very volatile in the near term.” Given the serious risks facing the UK economy and the dangers of a double-dip recession in 2010, it is important for the MPC to persevere with an aggressive QE programme, and to consider special measures aimed at boosting bank lending to businesses,” said David Kern, chief economist at the British Chambers of Commerce.

So, with little chance of interest rate hikes, and more QE likely, we’ve seen yesterdays gains already pull back, as the pound is likely to remain weak well into 2010.

US Dollar
As global stockmarkets generally performed strongly, improving investor sentiment undermined some support for the US Dollar. However, the University of Michigan consumer confidence index, released on Friday, was weaker than expected and fell to the lowest level for three months, adding to US Dollar weakness late in the week.

This was balanced by earlier employment data showing that US jobless claims in the latest week fell to the lowest level since January, boosting some expectations that the US labour market could be stabilising.

Consumer price inflation data on Wednesday will be closely watched for signs that inflationary pressures are building (Inflationary pressure is when the price of goods and services in general increase at a higher rate than wages, thus causing a financial strain). A larger than expected rise could potentially offer support to the US Dollar on expectations that the Federal Reserve will eventually need to raise interest rates as the inflation risks intensify. However, global trends in investors’ risk appetite levels are likely to remain an important influence on the US Dollar’s overall performance.

The potential threat of Inflationary Pressure on both GBP and USD could force both the BoE and the Fed to take action sooner than expected. Taking advantage of the current gains made by GBP against USD should be considered as the potential to increase interest rates by the FED to counter inflationary effects would make USD a more attractive investment. On the flip side this would also affect those wishing to sell their Dollars as Dollar strength is undesirable.

Queens Speech Today
Written by the government and delivered by the reigning monarch, it sets out the legislative agenda for the year ahead and is the centrepiece of the state opening of Parliament. The government will promise a bill obliging it to halve its budget deficit within four years when it announces its planned new laws in the Queen’s Speech.

This will be interesting to see how they plan to do this, as the huge deficit the UK has is one of the reasons the pound is so weak. Analysts have no clue as to how the government plan to reduce this, so this may give clues as to the plan. Wooly comments will simply cause further Sterling weakness.

When you get in touch, ensure you mention you heard about foremost currency group through our Blog. Simply quote ‘Blog’

Open a free Trading Facility

Open an online Trading Account

Email Me

Foremost Currency Group

Pound vs Euro

Good Morning. Rates @ 08:30am Tuesday 17th November are as follows:

  • GBP/EUR 1.1257
  • GBP/USD 1.6831
  • GBP/AUD 1.8081
  • GBP/NZD 2.2561
  • GBP/CAD 1.7679
  • GBP/CHF 1.6997
  • GBP/ZAR 12.446
  • GBP/JPY 149.46
  • EUR/USD 1.4948
On Friday morning the Euro zone officially announced it had come out of recession with a growth in GDP of 0.4% just under expectation for a growth of 0.5%. The currency markets had priced in the figures and so we saw little movement in exchange rates between Sterling and Euro.

The German ZEW think-tank’s business survey showed that confidence levels in the Euro zone’s largest economy weakened in November, raising some concerns that the economy’s recovery could be more tentative in the coming months.
One of the reasons why the Euro zone has recovered quicker than the UK is because their financial sectors account for a smaller proportion of their economies. Stronger exports driven in Germany particularly by the car market has contributed hugely to the Euro zone’s recovery.

Only Spain and Ireland remain in recession. These announcements have potential to affect GBP/EUR exchange rates so if you are looking to purchase any of these currencies now maybe the time to contact your account executive to discuss the options available to you.

What you can do
With not much movement on the Market at the moment one may look into a Stop/Limit order, this gives you the option to look at prices which are not quite available on the market at present and also but putting a stop in this protects you against any reverse spikes against you.

For example if you are looking for a better price than is currently available one could put a limit order in to the market place at a price which is above or below interbank. However, on the flip side you may wish to protect your purchase from a market downturn and place a lower stop in case the market fluctuates the wrong way. (This is reversed if selling a currency)

This Week’s Data
This week is a much quieter week in terms of data releases, with nothing to note from the Eurozone aside from any un-announced press releases from European Central Bank officials which may occur.

In the UK, we have Bank of England minutes released on Wednesday. However, these are unlikely to reveal any big surprises, as Mervyn King outlined his view of the economy in last week’s quarterly inflation report. Looking to the USA, we have more data coming out, with Retail Sales, inflation and the leading indicators index as the week goes on.

Please find a full calendar below:

US – Retail Sales
UK – Rightmove House Prices

UK – CPI & RPI Inflation
US – October PPI Inflation

UK – Bank of England Minues
US – CPI & Real Earnings

UK – M4 Money Supply
UK – Retail Sales

For more information on the information contained in this report, contact us today:

When you get in touch, ensure you mention you heard about foremost currency group through our Blog. Simply quote ‘Blog’

Open an online Trading Account

Email Me

Foremost Currency Group