Currency Forecasts

Pound falls on UK Banking news.

Good Morning. Sterling dipped against the US Dollar yesterday after the UK Treasury announced a major shake up of British banks and investors braced for a possible extension of asset purchases by the Bank of England this week. The pound rose against a broadly weaker Euro. Rates @ 08:30am are as follows:

GBP/EUR 1.1165
GBP/USD 1.6479
GBP/AUD 1.8193
GBP/NZD 2.2770
GBP/CAD 1.7512
GBP/CHF 1.6872
GBP/JPY 149.46
GBP/ZAR 12.735
EUR/USD 1.4753

The news that the major banks that the government bailed out will be split up shook Sterling yesterday. You can read a report on the issue on the BBC website here: http://news.bbc.co.uk/1/hi/business/8340627.stm

As finance is one of the biggest parts of the UK economy, this will likely affect the pound. Indeed Sterling fell against the US Dollar yesterday, but due to weakness in the Euro, GBPEUR rates actually rose slightly despite the news.

“Clearly this is not good news for UK PLC, but it is not happening in isolation – the banking sector in general across the euro zone is under pressure too,” said Jeremy Stretch, strategist at Rabobank. This explains why the news didn’t affect GBPEUR as much as other currency pairs.

In other banking news, HSBC has announced a cut of 1,700 jobs in the UK. The job losses will come from retail banking, but will come from support services rather than branches. HSBC employs 40,000 people in its UK retail operations, and more than 300,000 employees worldwide.

The main news remains the BoE meeting, which starts today with the announcement tomorrow lunchtime. We expect rates to be left on hold at the record low, but most analysts do expect further Quantitative Easing measures. This will likely hold back any gains for the pound, and could in fact cause rates to fall. We await the announcment tomorrow and will look to see what the effect of further measures will have on exchange rates.

Those that are risk averse, and dont wish to take a gamble on rates falling should consider fixing a rate in advance with a Forward Contract, or place a Stop Loss order to protect against a fall, while still allowing you to aim for a higher rate should the BoE not announce QE.

Aussie Dollar
Australia has raised its main interest rate for the second month in a row, to 3.5% from 3.25%.
The move by its central bank was not unexpected as the Australian economy was the only one in the developed world to expand in the first half of 2009. In fact, Australia managed to avoid recession, only seeing its economy contract in the last quarter of 2008.

Also, the release of the lowest inflation figures in 10 years last week added to expectations of a modest rate rise. “With the risk of serious economic contraction in Australia now having passed, the board view is that it is prudent to lessen gradually the degree of monetary stimulus that was in place when the outlook appeared to be much weaker,” he added.

So, higher rates strenghten the currency and make it more expensive to purchase. Rates in Australia have historically been high, and this could signal a return to higher rates in the near future. So, if you need to buy AUD, with the weak pound and the Aussie getting stronger, it’s likely that rates may continue to struggle.

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Pound remains weak on speculation of more QE

Good Morning. The pound fell slightly yesterday despite good manufacturing data. Sterling’s rally has stalled, pulling the UK currency back from its highest levels versus the dollar and the euro in more than a month hit in late October, and analysts said traders were unwilling to take on big bets before the BoE policy announcement on Thursday. Rates @ 08:30am are as follows:

  • GBP/EUR 1.1056
  • GBP/USD 1.6311
  • GBP/AUD 1.8193
  • GBP/NZD 2.2770
  • GBP/CAD 1.7597
  • GBP/CHF 1.6701
  • GBP/JPY 146.71
  • GBP/ZAR 11.654
  • EUR/USD 1.4749

GBP/EUR
The Euro stabilised towards the end of last week after early losses against Sterling. Consumer prices in the Euro zone fell 0.1% during the year and combined with a slowdown in money supply growth, to 1.8% in September from 2.6%, made October the fifth consecutive month that the annual rate has remained negative.

In turn this raised fears that the European Central Bank (ECB) may need to keep interest rates low in order to maintain support for the economy. Finally, the week ended with the announcement of a 9.7% unemployment rate, the highest since the Euro’s introduction.

The GBP/EUR rate closed up 2.66% last week at 1.1159, from 1.0870 a week earlier, benefiting those converting Sterling into Euros. Those looking to do so in the future should discuss the possibility of a forward contract in order to take advantage of today’s rates up to two years into the future.

This week sees the release of the latest interest rate decision by the European Central Bank on Thursday. With a no-change decision widely expected the Euro is likely to gain strength and with it weaken GBP/EUR exchange rates.

Finally, coupled with the prospect of further Quantative Easing by The Bank of England on Thursday those looking to purchase Euros should perhaps be considering the possibility of doing so before rates fall further. As mentioned above, despite much better than expected manufacturing data, the fact that more QE is expected overshadowed the good news, and is keeping the pound weak.

Many in the market expected further sterling downside as the BoE is seen keeping interest rates at a record low of 0.5 percent until at least mid-2010, while continuing to buy domestic assets to pump funds into the market.

“We expect to see considerable sterling-downside as Thursday’s meeting approaches, and an extension to the QE programme is likely to be greeted with renewed sterling weakness,” analysts at UBS said in a research note.

US Dollar (USD)
The US Dollar lost ground against Sterling last week, but finished higher relative to most other major currencies. As investor confidence in global economic recovery prospects waned, the US Dollar generally found support amid the weakness in global stock markets a characteristic relevant to its safe haven status. The GBP/USD rate closed up 0.85% at 1.6445, from 1.6306 a week earlier.

Brighter news came as the US economy exited recession, with US GDP expanding at a year on year rate of 3.5%. This was the first positive reading since the second quarter of 2008, but the US Dollar weakened slightly following an associated lift in investor risk appetite benefiting some major currencies such as Sterling.

Several key releases this week could induce greater volatility in foreign exchange markets. The US Federal Reserve’s interest rate policy meeting is scheduled for Wednesday. Whilst no major policy changes are anticipated, changes in its assessment of economic conditions might impact on US Dollar exchange rates.

Finally Friday’s Non-Farm Payroll report which has played an important role in the past with exchange rate movement will clarify conditions in the US Employment Market.

Conclusion
Christmas could come early if you need to repatriate your funds from the Dollar or Euro as the majority of the financial industry is expecting further QE which will result in sterling weakness however, if risk appetite plays another role in the markets the initial weakness may well be short lived.

If, however you wish to buy a currency with Sterling, to avoid getting stung it would be wise to consider doing so before the BoE’s announcement on Thursday. Even if your currency is not needed for up to 2 years, you can still fix the current rate if you have a 10% deposit of the total. This then protects you from any downturn, and gives you peace of mind in knowing exactly what your currency will cost.

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Pound Outlook November 2009

Sterling was steady against the US Dollar and Euro on Friday, generally consolidating its recovery this week after data showed another rise in UK house prices this month and improving consumer confidence. However, with poor news expected from the BoE this week, these gains could be short lived, and have infact already started to fall. At 08:30am this morning rates are as follows:

  • GBP/EUR 1.1085
  • GBP/USD 1.6377
  • GBP/AUD 1.8044
  • GBP/NZD 2.2652
  • GBP/CHF 1.6728
  • GBP/CAD 1.7680
  • GBP/ZAR 12.849
  • GBP/JPY 147.64
  • EUR/USD 1.4771

The pound’s rebound from a steep decline triggered by the surprise fall in 3rd quarter UK output announced a week ago has been strong. It is on track for its biggest weekly rise against the euro in nine months. Also, Figures from the Nationwide Building Society on Friday showed that British house prices rose for a sixth month running in October to register their first annual gain since early 2008.

The pound’s bounce this week, also underpinned by solid U.S. growth figures on Thursday, has lifted trade-weighted sterling to its highest in six weeks, as sentiment toward currencies more closely correlated with global growth and rising asset markets has recovered.

But given the extent of the pound’s rebound this week and lack of any major UK economic data or event on Friday, some analysts say the pound may give back some of those gains as attention turns to the Bank of England’s policy on Thursday.

We will look to whether the MPC will expand its quantitative easing programme. Given the surprise third-quarter UK GDP contraction, speculation has grown the BoE may expand its 175 billion pound asset-buying programme. Quantitative easing, under which the central bank floods the market with cash, has stung sterling in past months.

If it’s increased, expect the pound to take a nose dive.

This Weeks Data
We have interest rate decisions for both Australia the UK and the EU.

The Euro’s prospects are likely to be driven by any comments about its strength from European Central Bank President Jean-Claude Trichet following the interest-rate meeting. The BoE is expected to increase its current stance on asset purchases, and inject further funds into the economy, and also keep interest rates at a record low.

The European Central Bank expected to keep rates on hold but may make further talk on exiting its loose monetary policy. This could cause further Sterling weakness, so contact your account executive early to discuss the possibilities of locking in current rates before the market prices in these future movements.

Wednesday also sees various measures of the economy and inflation for the UK, while Friday sees US non Farm Payrolls. 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 often affects the value of USD.

Monday
Ger – Purchasing Managers Index
EU – Purchasing Managers Index
UK – Purchasing Managers Index
US – Home Sales

Tuesday
Aus – Interest Rate Decision
UK – PMI Construction
US – Factory Orders
US – Consumer Confidence

Wednesday
UK – Nationwide Consumer Confidence
Aus – Retail Sales
Ger – Purchasing Managers Index
EU – Purchasing Managers Index
UK – Purchasing Managers Index
UK – BRC Shop Price Index
US – Fed Interest Rate Decision
US – Unemployment
NZ – Unemployment

Thursday
Aus – Trade Balance
Swi – Consumer Price Index
UK – Industrial and Manufacturing Production
EU – Retail Sales
EU – Interest Rate Decision
UK – Interest Rate Decision

Friday
US – Non Farm Payrolls

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Pounds gains on US Data may not last.

Good Morning. The pound rose yesterday after strong US GDP Data showed that the US is now out of recession. This economic data bolstered the view of an improving global economy, spurring demand for currencies considered to be higher-risk such as the pound. Rates @ 08:30am 30th October 2009 stand as follows:

  • GBP/EUR 1.1152
  • GBP/USD 1.6528
  • GBP/AUD 1.8099
  • GBP/NZD 2.2659
  • GBP/CAD 1.7644
  • GBP/CHF 1.6843
  • GBP/JPY 150.33
  • GBP/ZAR 12.811
  • EUR/USD 1.4813

Sterling strength, but why?
There was actually negative data for the UK yesterday. Data showing weak growth in UK money supply was pretty much overlooked, and also the figures kept speculation intact that the Bank of England may expand its programme of buying UK assets to help stimulate the economy.

In other negative data, comments from a BoE policymaker that a weak domestic currency had helped UK exporters also attracted little notice from the currency markets. BoE board member Paul Fisher on Thursday was quoted as saying that a lower sterling rate had given exporters an advantage, and that they have seen some pick-up in the market.

Despite this poor economic outlook, the US GDP figures overshadowed this, and caused the pound to rise.

US GDP
The US economy grew at an annual pace of 3.5% between July and September, its first expansion in more than a year. The growth was helped by a substantial government spending plan, including a scrappage scheme to boost car sales. The official figures indicate recession has ended, but some economists think there could be further setbacks.

President Obama said while it was welcome news, the US was still a long way from recovering from the deepest downturn since the Great Depression. While economists may be celebrating, it is too soon for the rest of us. The recent weakness of the dollar won’t help Americans buy goods from the rest of the world and with the unemployment rate in the US currently at 9.8%, life is still very hard.

The reason this news has strengthened the pound is due to the safe haven status of the US Dollar. In times of economic turmoil as we have had recently, investors move funds to the percieved safe haven status of the USD. This strenghtens the currency, and others like the pound weaken as a result.

Now that the US is out of recession, this spurs those investors to return to higher risk currencies such as the pound.

Will rates keep rising?
These gains are very likely to be short lived, as the rise is really only due to risk sentiment rising. We have to look back at the other data and comments yesterday that paint a bleak picture of our own economy. The fact remains that we are the only major economy still in recession, and it’s very likely that the Bank of England will increase their Quantitative Easing programme next week. This will weaken the pound yet again, and could wipe out all the gains made in the last few weeks.

Therefore, don’t get caught out by these gains, and hope that this is a new trend. it’s very likely we will see the pound retract into next week as the poor state of our economy again takes center stage.

It is times like this that Stop Loss and Limit orders are very useful. You don’t want to lose out on the recent gains, so you can place a Stop Loss order to secure your currency should rates indeed fall back to recent lows, therefore protecting yourself against adverse movements.

If you have a requirement to purchase currency with Sterling, then contact us today to have a free consultation on the current market conditions, and take advantage of our commercial exchange rates that are significantly better than the high street banks will offer.

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Pound up, US GDP Figures today

Today we’ll see if the US has exited recession, and this may cause some volatility for the pound today, even though there is little UK data. This morning rates are as follows:

  • GBP/EUR 1.1148
  • GBP/USD 1.6437
  • GBP/AUD 1.8207
  • GBP/NZD 2.2655
  • GBP/CAD 1.7694
  • GBP/CHF 1.6846
  • GBP/JPY 149.20
  • GBP/ZAR 12.894
  • EUR/USD 1.4740

US Gross Domestic Product

Official figures due later are expected to show that the US economy has come out of recession, but analysts warn the continuing recovery will be slow. The data, set to be released by the Commerce Department at 1230 GMT, is tipped to show that the US economy grew about 3% between July and September.

If so, then it will leave the UK the only major economy still in recession, other than Spain that entered recession after the UK. This positive news from the US may boost risk sentiment, and drive investment towards riskier currencies such as the pound.

Commentators say the growth has been greatly helped by President Obama’s $787bn (£480bn) stimulus package. Some now fear growth will fall markedly when this impetus comes to an end.

“It’s good to have the economy growing again,” said Brian Bethune, economist at IHS Global Insight. “But we don’t think that rate of growth is sustainable because it is distorted by all the government stimulus.” He added. So, as the US is already expected to exit recession, and there are fears that growth will slow in the coming months, this may mean investors keep funds in the safe haven US Dollar.

Sterling

Attention is already turning toward the BoE’s Monetary Policy Committee meeting next week and whether its 175 billion pound quantitative easing programme will be expanded.

A poll conducted by Reuters between Oct 26-28 found that roughly two thirds of economists surveyed expected the MPC to expand QE. Of these, a slight majority see an increase of 25 billion pounds, the rest forecast a 50 billion rise.Under its QE programme, the Bank of England has since March been buying assets to inject liquidity into the economy, contributing to sterling weakness.

Shock news last week that the UK economy contracted by 0.4 percent in the third quarter prompted investors to reassess their previous expectations that quantitative easing may be paused in November and snapped a two-week rally in the pound.

So, if more QE is announced next week, expect further Sterling weakness. Markets are now in limbo awaiting this news to see where the pound may go in the coming months.

Todays Data

Ger – Import Prices, US – Gross Domestic Product, US – Personal Consumption, EU – Consumer Sentiment, EU – Business Climate, US – Jobless Claims.

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