Currency Forecasts

Sterling GBP Euro EUR Outlook Forecast

We’ll take stock of this weeks currency movements in a moment, and where things may head into next week. First let’s take a quick look at what happened in the currency markets yesterday:

Pound takes a hit on Retail Sales
Sterling plummeted yesterday morning after the 09:30am data showed UK retail sales unexpectedly fell, raising doubts about economic recovery. Retail sales volumes in May were 0.6% lower than in April and 1.6% lower than in the same month a year ago, and we were only expected a yearly fall of 0.1%. As the figures from the office for National Statistics were much worse than expected, we quickly saw the pound fall. The credit crunch-driven nature of the slowdown so far appears to have primarily hit spending off the High Street.

However, as we forecast, the fall was fairly short lived, and the pound regained much of it’s losses throughout the day. At one point Euro rates were as low as 1.1620, however things have improved. At the time of writing Sterling rates are as follows:

  • GBP/EUR 1.1746
  • GBP/USD 1.6379
  • GBP/NZD 2.5585
  • GBP/AUD 2.0321
  • GBP/CAD 1.8498
  • GBP/CHF 1.7765
  • GBP/ZAR 13.3037

The weeks trading
The pound had surged sharply in recent weeks along with some other currencies on optimism over the global growth outlook. But investors are reassessing such views as economic data have been mixed. So, at the start of the week rates continued to climb to 7 month highs against the Euro. The profit taking on Wednesday, followed by the poor retail sales data pushed the pound lower, but the general feeling of recovery remains, which is why we’ve seen rates climb back close to the highs we saw earlier in the week.

Data Releases, and other influencing factors for exchange rates
As markets are so volatile at the moment, even small economic data releases that are slightly different than forecast are having big impacts on exchange rates. This is why I post the daily data releases here, in anticipation of market movements.

When there is not much data being released, such as today and most of next week, then it is mainly currency speculators and other events such as political data that drive the markets. So, even if there is no data like today, political data and other events such as the unrest in Iran that can cause investors to move currencies to perceived safer havens such as the US Dollar.

Your currency requirements
If you are reading this, then it’s a fair bet that you have some vested interest in exchange rate movements. Perhaps you are buying a property abroad, or need to make an international transfer from Sterling to antoher currency, or perhaps even moving a foreign currency back to Sterling.

This is where we can help. This blog gives market updates based on my knowledge of the markets as a trader at the Foremost Currency Group, but our main business is obtaining commercial exchange rates for our private clients. Our rates can be up to 5% better than can be achieved with the high street banks. Why not open an account to find out how much you could save. It’s free, it doesn’t obligate you, and you can even trade online using or online trading platform that’s available 24 hours a day, 7 days a week.

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Pound falls, but likely to recover

Sterling
As outlined in yesterday afternoons update post, Sterling fell sharply against the euro and the dollar yesterday due to profit-taking. This follows recent sharp gains and after Bank of England policymakers remained very cautious on the UK outlook despite encouraging signs of economic recovery.

A 1.5% fall in UK equities and drops in the FTSE also dampened sentiment towards the pound as doubts whether the recent increase in optimism surrounding the UK was justified.

As I said yesterday, figures showing a much smaller than expected rise in UK unemployment failed to provide more than a very short-lived boost to sterling. In fact many currency blogs incorrectly said it was this rise in unemployment which caused the pound to fall. This was not the case, and Sterling actually rose slightly as the figures were not as bad as thought.

Any gains were short lived however, and the pound quickly tumbled to lows against the dollar and euro. It’s a mixture of the lack of confidence, and also the cautious note of the BoE minutes yesterday that caused the drop in the pound.

“Sterling has been coming off strongly, and the better jobs data failed to generate any interest,” BNP Paribas’s Ian Stannard said. “It also looks very much as though sterling has been dragged lower by a disappointing equities performance,” he added.

However core figures are still very strong for the UK. Often spikes in the market are followed by dips, and I believe this is what we saw yesterday. The pound has already started to climb slowly back up towards 1.18 against the Euro this morning.

Todays Data

UK
At 09:30 we have Money supply data, also Retail Sales which will show how the high street is performing and give us an idea of consumer confidence. We expect to see month on month figures to show a rise of 0.5%, while the year on year should be a drop of about 0.1%. Watch for the news at 09:30 – if figures are higher than this, expect Sterling exchange rates to climb, and vice versa.

EU
Not much. We have already had the Swiss interest rate decision this morning, where rates were left on hold at 0.25%

US
Jobless data, and also a speech by theTreasury Secretary on how he observes the current US economy. Leading Indicators data also this afternoon, which measures future trends of the overall economic activity including employment, average manufacturing workweek, initial claims, permits for new housing construction, stock prices.

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Security of Funds

Is it safe to use a currency broker, and is my money safe?

Yes – but check that they are registered with the FSA as an Authorised Payment institution. The industry became regulated by the Financial Services Authority on the 1st November 2009.

Not all brokers are registered however. You will be able to check this on the FSA site to see if the companies you plan to deal with are on the FSA’s list. Foremost Currency Group was one of the first brokers to be granted authorisation as an Authorised Payment institution.

What does this mean?
This means that all Directors and key staff are fit and proper to continue trading. Client funds are held in nominated, segregated client transaction accounts thus safeguarding them, and we have ring fenced sufficient capital to comply with the new legislation.

We have been fully vetted and are expected to maintain strict standards relating to capital requirements, safeguarding of client funds and the fitness and propriety of senior staff.

With regards to security of funds, our principle bankers are Barclays. All accounts your funds are held in, both in Sterling and foreign currencies, are nominated segregated ‘client transaction accounts’ with Barclays bank. This means all client funds are kept completely separate to our business accounts as required by the FSA.

The main reason funds are safe however, is because we don’t speculate. Many companies make their profits by speculating on the market, which is nothing more than an educated gamble and inherently risky. We simply make our profits on the margins we buy and then sell the currency at, so at no time are any of your (or our!) funds at risk.

The directors and staff at The Foremost Currency Group are pleased to have been granted FSA authorisation and welcome the opportunity to demonstrate the standards and procedures we have in place to ensure the highest possible levels of service to our clients.

Questions to ask a broker before doing any business

“Are you registered / authorised / regulated by the FSA?” Not all firms have yet been granted authorisation, so check the list.

“Are my funds kept in segregated nominated client accounts?” Safeguarding client funds is a requirement of the new directive, and segregated funds mean that your money is not lumped in with the company’s own funds. This gives you peace of mind that your funds are secure.

“How long have you been trading, and how many clients do you have?” It’s important to use a reputable firm that has an established history, and one that you feel comfortable with. Obviously the longer they have been around, the better the sign. Having a large number of customers for a long time can also help to allay any fears. Ask for client testimonials and indeed case studies to negate any concerns.

The Foremost Currency Group Ltd is fully compliant with the Financial Services and Markets Payment Services Regulations and is registered with the FSA (Financial Services Authority) as an Authorised Payment Institution; our FSA Registration number is 503906.

The Foremost Currency Group Ltd is registered in England and Wales (registered no. 5544575). Registered Office: Sutton Court, Church Yard, Tring. Hertfordshire HP23 5BB.

The Foremost Currency Group Ltd is fully compliant with HMRC (HM Revenue & Customs) Anti Money Laundering Regulations; our Money Laundering Registration number is 12219945.

If you are looking for the best exchange rates, send us an enquiry, and have a free consultation on what’s happening in the currency markets.

Why has Sterling fallen and the pound (GBP) dropped?

A quick update on developments for the pound since this mornings post. Sterling yesterday hit the highest level against the Euro for many months, and topped out at 1.1864. Today however the rise was halted and rates have dropped back – currently rates are 1.1730.

So why the fall?
Unemployment figures this morning showed that UK unemployment rose to 2.261 million in the three months to April, which is the highest in 12 years. The total jobless rate rose to 7.2%, the highest since July 1997. However, these figures while bad were actually much better than forecast, and the pound actually made some gains.

The actual reason for the fall is profit taking from clients that speculate on currency markets.
Sterling was particularly weak against the euro as market participants used the opportunity to take profits after it jumped to another 2009 high yesterday. So, this big sell off of Sterling has flooded the market hence the weakening of the currency. Simple supply and demand.
“We’ve had a pretty significant downward move in euro/sterling and maybe it’s a good time for a correction,” Standard Bank currency strategist Steve Barrow said.
“The labour market data was better than expected, but it just provided an excuse to sell sterling at better levels,” he added.
It’s important to remember however that Sterling remains relatively strong up around 8% so far against the Euro. The recent gains in sterling reflected the belief that the UK economy may be better placed to recover from the current recession than the euro zone.
I believe this will continue, and I still look for rates to break through 1.20 by year end.
More tomorrow as usual.

Pound gains on Inflation data / Best rates for holiday money

Sterling rises on Inflation Data
The pound climbed to its highest level in 7/8 months yesterday after much better than expected inflation data.

The Consumer Price indec fell to 2.2% last month which is bigger than analysts’ forecasts for a fall to 2.0%. The news encouraged the belief that the defaltion risk for the UK economy is now very low indeed. It also followed a raft of UK data which has boosted belief that the economy is on the road to recovery.

So, this is what has caused contined gains for the pound, however this morning some of those gains have been paired back. News that US industrial production fell more than expected in May dampened optimism that the global economy is over the worst. Also, profit taking by traders has caused a slight fall this morning, probably also due to anticipation of the UK unemployment figures today (see below).

So far this month the pound has gained 3% over the Euro, leaving it on course for a quarterly gain of more than 8 percent -this would be the biggest quarterly gain against the single currency since its inception 10 years ago.

Quantitative Easing
Although analysts are wary of drawing too many conclusions on the basis of one month’s data, the inflation figures mean that the Bank of England may not need to implement any additional quantitative easing (QE). It is this QE that has been causing the pound to fall earlier in the year, and it was thought that further funds would have to be made available. Now however this seem unlikely.

Interest Rates
It’s now more likely we could see Interest rate increases for the UK later this year – this will boost the value of Sterling, so another reason for the gains is speculation that this will happen. When a country or zone increases interest rates, the yeild investors get for the currency is increased – this causes more buying of the currency thus increasing its value.

Todays Data
We have UK unemployment data – any increase in the claimant count will likely weaken the pound, althougth this is unlikely. Also watch for the Bank of England minutes for the most recent interest rate decision. This will show how they voted, and can also cause volatility in the pound.

After yesterdays UK inflation data, today we have inflation data for the US at 13:30pm. It is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of USD is dragged down by inflation, so if you are buying or selling US Dollars, watch this closely.

Tourist Money / Holiday Cash
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