Currency Forecasts

Quantitative Easing & Currency Exchange Rates

Pound climbs, but doesn’t last
Yesterday the pound climbed against the dollar, but fell against the Euro. This morning, the pound has retracted it’s gains and is falling again. All this on the backdrop of the headline news that the FTSE broke through 5000 for the first time in nearly a year.

However, the currency markets took a different view to the headlines proclaiming that we are now in recovery. Now, if that was the case, surely the pound would be getting stronger, not weaker?!

Today we’ll look at whether the BoE will announce further Quantitative Easing, how this may affect exchange rates, and whether the economy is indeed recovering. Pound Exchange Rates as at 08:30am 10th September are as follows:

  • GBP/EUR 1.1331
  • GBP/USD 1.6510
  • GBP/AUD 1.9241
  • GBP/NZD 2.3745
  • GBP/CAD 1.7833
  • GBP/CHF 1.7172
  • GBP/ZAR 12.457
  • GBP/JPY 152.13

Bank of England Interest Rates and Quantitative Easing
The Bank of England will announce their decision on interest rates and Quantitative Easing at lunchtime today. We expect them to hold interest rates at 0.5% for the sixth month in a row, when it announces its decision later.

It is also likely to maintain its programme of pumping money into the economy – called quantitative easing – but is not tipped to extend it. However, there is an outside chance that the amount of money being created and pumped into the economy will be raised.

Last month, they announced a further £25 billion, and it later transpired that 3 members wanted an extra £50bn. So, markets are in limbo awaiting this news. Recent data has suggested that the UK has begun to climb out of recession, but the Bank has warned recovery is not assured and that it will take months for its policies to have full impact.

3 of the 9 member committee, including the Bank’s governor Mervyn King, voted last month for an increase, to £200bn.The aim of quantitative easing is to encourage individual banks to expand their balance sheets – moving their reserves into something that offers a higher return, such as making new loans – and so increasing the supply of money in the economy.

A recent member of the MPC recently turned on the bank, criticising it for not spotting the recession and then not acting decisively enough to avoid it. Read more here.

If we do see further Quantitative Easing, then expect the pound to be hit hard and for exchange rates to fall. For those that need to buy currency with Sterling, consider locking in rates prior to the announcement to protect yourself against adverse movements. Those selling foreign currency back to Sterilng may wish to wait and see what the Bank says.

Bear in mind however that no-one can accurately predict which way rates will go, so ultimately it has to be your decision when to fix your rate.

Recessions Compared

Here we can see how recent recessions compare. You can see the depression on the 30’s has been the worse, but the charts also clearly show the W shaped recession, where you get recovery, only for things to get worse again before recovery proper.

The danger as you can see from the black line showing the current downturn, is that we could be in for a W shaped recession.

You can see the signs of recovery, but no-one knows if this will continue to move this way. We have had some more positive figures recently for the UK, but fundamentally the problems remain – lack of lending, high unemployment, low interest rates, and the governments insane policy of throwing billions of pounds at the problem in the hope it will go away.

Finally, some regular readers could not view our recent appearance on CNBC. If you couldn’t view it, then watch it here on You Tube now. We have a regular 3 weekly session on CNBC, so I will post the video every fortnight as it gives an interesting insight into the currency markets.

Todays Data
EU – ECB Monthly Report
UK – Halifax House Prices
UK – BoE Interest Rate Decision & QE
US – Jobless Claims
US – Trade Balance
Can – Interest Rate Decision
Ger – Wholesale Price Index
NZ – Food Price Index
Jap – Gross Domestic Product

Get in touch to discuss your requirements today. Be fully armed with all the information you need to make sure you control your position in the market, and dont let the market control you!

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Currency Markets discussed on CNBC

Today for something a little different, we’ll watch our Director of Foreign Exchange discuss the currency markets on CNBC. First as usual, a quick look at where rates stand…

GBP/EUR 1.1385
GBP/USD 1.6478
GBP/AUD 1.9224
GBP/NZD 2.3741
GBP/CAD 1.7821
GBP/ZAR 12.419
GBP/JPY 152.41

The pound fell away in trading yesterday, with markets reacting poorly to the forecast UK budget deficit, as already discussed here on the blog. Alastair Darling said that spending would need to be cut, but will actually be spending more in the near term. This attempt to spend the UK out of the financial mess we’re is is alarming analysts, as it stores up further problems and is keeping Sterling fragile.

We now wait for tomorrows BoE announcement to see which way Sterling will move.

Watch our Director of Foreign Exchange :

UK Jobs
The UK jobs market is starting to show signs of recovery, according to a survey of recruitment agencies. The research, produced by Markit Economics, finds “marginal increases” in both permanent and temporary appointments in August. For permanent staff, this is the first increase since early 2007.

“This is first time we have seen really positive news for the UK jobs market in 17 months,” said Bernard Brown from KPMG, co-sponsor of the survey. Despite this, it’s still expected unemployment will rise above 3 million, which will put further pressure on the pound.

Todays Data
We have already had German Consumer Price Index, that came in exactly as expected.

At 09:30am we have Trade Balance Data, which is a balance between exports and imports of goods A positive value shows trade surplus, while a negative value shows trade deficit. It is an event that generates some volatility for the GBP.

10:30am sees the UK Shop Price Index which measures price changes in the popular retail outlets in the UK. The changes in the SPI are widely followed as an indicator for inflationary pressures.

Elsewhere we have Canadian Housing Starts, an Interest Rate Decision from New Zealand where we expect rates to be held at 2.5%.

At the end of the day, we have the GDP estimate report that comes out a month before the official announce. The report is highly reliable and would influence the UK monetary policy.

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Pound remains poor in run up to BoE decision

Sterling was pressured against the dollar and euro yesterday as speculation of further easing by the Bank of England later this week overshadowed the market. The UK currency failed to capitalise on a mild boost in risk sentiment from a rise in global equities and as G20 finance ministers pledged over the weekend to keep stimulus policies in place until recovery took hold.

This means markets now wait to see what the BoE will do this Thursday. Rates at 08:45am 08/09/09 are as follows:

  • GBP/EUR 1.1391
  • GBP/USD 1.6432
  • GBP/AUD 1.9072
  • GBP/NZD 2.3579
  • GBP/CAD 1.7607
  • GBP/CHF 1.7320
  • GBP/ZAR 12.379
  • GBP/JPY 151.92

Pound to Euro
Eurozone economic activity rose in August for the first time in 15 months, The latest Purchasing Managers’ Index (PMI) figure rose to 50.4, raising hopes that the Eurozone could soon emerge from recession.

Any score above 50 shows an increase in economic activity. This is the first time the index has been above this benchmark score since May 2008. in addition the ECB kept its key interest rate unchanged as expected at a record low of 1 percent. The head of the bank said there was an expectation that “severe contraction” would now be followed by a period of ” stabilisation and gradual recovery”. So, the Euro strengthened, which is likely to be the case going forwards, due to fears of more QE from the BoE.

Sterling hit a one week high against the euro on Thursday on news the UK services sector grew at its fastest pace in almost two years, easing concerns about the UK economy. Still, the backdrop for sterling remains negative on the growing view the Bank of England will keep interest rates low for some time.

With it being Labor Day in the US on Monday we expect a quiet start to the week. Focus in the UK will be on the Bank of England Interest Rate Decision due Thursday 10th September. The base rate is expected to remain on hold at 0.5% but it is possibility of the BOE increasing quantitative easing further that will keep investors on their toes.

It is important to keep things in perspective though. While we can find the fuel for a GBP rally the fundamental health of the economy will act as a constant drag. Economic data due over the coming week could add fundamental weight to the GBP.

Europe this week starts with Tuesday’s German Trade Balance, Current Balance and Industrial Production. Recent releases have indicated that the German economy is very slowly turning around however these figures should provide an indication as to the pace of this so called recovery. Wednesdays German CPI and Thursday’s French Manufacturing Production, Italian Trade Balance and GDP all have the ability to move the EURO.

Pound to US Dollar
Sterling rose for the fourth consecutive day against the Dollar during early trading on Monday morning, repairing the losses seen early last week. The lower than expected PMI (Purchasing Managers Index) Manufacturing figures last Tuesday, showing weak demand in the UK manufacturing sector, were the cause of the sell-off with the pound hitting lows of just above the $1.61 level.

Nevertheless, Thursday’s release of strong PMI Services numbers helped cause the rally towards the end of the week, with the figures coming out at 54.1, higher than the expected 53.9. Traders paid particular attention to these figures due to the fact that the service sector accounts for a larger proportion of the UK economy than manufacturing.

The US non-farm payroll data on Friday showed a contraction in the US job markets in August, but was less than forecast, boosting confidence that the global economy is pulling out of recession. However, the unemployment rate still rose more than expected to a 26 year high of 9.7% meaning this confidence is fragile. Overall, this data and the general environment of improving risk appetite assisted Sterling’s rise versus the Dollar, which is seen as a safe haven.

These gains were extended on Monday morning with the pound reaching $1.6425, the highest level in almost two weeks. This was caused by the British Chambers of Commerce raising its forecast for U.K. economic growth for 2010 to 1.1 percent, up from June’s forecast of 0.6 percent.

However, some traders were still tentative of the pound’s strength, with recommendations to lock in these gains against the Dollar at the current level. This was due to the Bank of England previously announcing it is expanding its asset-purchase program by 50 billion pounds to 175 billion pounds, meaning Sterling could fall as the Bank will be selling the pound to buy other assets, putting downward pressure on the UK currency.

Therefore, it would perhaps be advised for buyers of US Dollars to consider using a Stop-loss order to minimise any losses resulting from the pound falling again in coming weeks. Alternatively, fix the rate immediately by securing a spot or forward contract, protecting your payment against any market pitfalls.

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Interest Rates, Quantitative Easing & Exchange Rates

Good Morning. It was a year ago this week, that the financial crisis really took hold, with bank bailouts and emergency world interest rate cuts. This started a big decline in Sterling exchange rates, as it became clear the global economic situation, and the UK’s in particuler, was much worse than thought.

Crisis Timeline 2008
7 SEPT: Fannie Mae nationalised
15 SEPT: Lehman bankruptcy
18 SEPT: Lloyds takes over HBOS
19 SEPT: $700bn US bail-out plan
29 SEPT: Bradford and Bingley nationalised
5 OCT: Bail-out plan agreed by Congress
12 OCT: UK bails out RBS and Lloyds-HBOS

It was during these months that we saw huge swings on exchange rates, demonstrating how quickly and unpredictably the currency markets can move. The UK faces years of damage to their public spending plans as the rescue and the economic collapse has led to huge government deficits. Each UK household is on average £40,000 worse off – it is for these reasons that the pound is so weak in comparison to other world currencies, and is likely to remain so for some time.

We had some good UK financial news last week however, which has caused rates to climb after more than a week of steady declines. At the time of writing, rates are as follows:

  • GBP/EUR 1.1443
  • GBP/USD 1.6419
  • GBP/AUD 1.9201
  • GBP/NZD 2.3690
  • GBP/ZAR 12.497
  • GBP/JPY 152.98
  • GBP/CAD 1.7732

UK Interest Rates & Quantitative Easing
This week we see an interest rate annoucnement by the Bank of England, and markets will be focusing on whether the Bank of England will stick to its loose monetary policy.

The BoE is widely seen keeping interest rates unchanged at a record low 0.5% leaving investor focus on whether it will stick to its ultra loose monetary policy going forward.

We still feel that the quantitative easing process from the Bank of England is at the start of a winding down process, and the monthly amount of QE the BoE is doing is beginning to diminish and we think it will continue to do so that negative sterling is at least starting to disappear.

However, remember last month when analysts thought the same, but in fact the Bank annoucned a further £25bn in ‘new money’ and when the minutes to the meeting were released, it showed that 3 members, including the Governor Mervyn King actually wanted double that, so markets will watch nervously for any further announcements this week.

This Weeks Data
Lots of data this week, that will no doubt cause big swings in what has been a very volatile currency market of late. Interest Rate decisions will feature heavily, as we see announcements by the Bank of England, Reserve Bank of New Zealand, and also Canada. For the UK, we expect rates to be left on hold at a record low of 0.5%, which has helped keep the pound low in recent months. However, in recent months the bank has surprised the markets in announcing further Quantitative Easing measures which have weakened the pound. Watch the decion and comments closely as GBP rates will likely be affected.

Also for the UK, we’ll see Industrial & Manufacturing production data, which are both short term indicators of the strength of UK activity that dominates a large part of total GDP. We have a GDP estimate for the UK on Wednesday, that comes out a month before the official announcement. The report is highly reliable and would influence the UK monetary policy.

For the EU Investor Confidence, and an ECB monthly report that contains a detailed analysis of the prevailing economic situation and the risks to price stability. It also provides articles on a wide range of topics related to the tasks of the ECB. A high reading anticipates a hawkish attitude which will be positive, or bullish, for the EUR, while a low reading is seen as negative, or bearish.

As always, should you have any questions about how any of the below releases could affect exchange rates for your requirments, get in touch today for a free consultation.

Ger – Factory Orders
UK – RICS House Price Balance
Jap – Trade Balance

Aus – NAB Business Confidence
Swi – Unemployment
Ger – Trade Balance
UK – Halifax House Prices
UK – Industrial Production
UK – Manufacturing Production
UK – Nationwide Consumer Confidence
Ger – Industrial Production
US – Consumer Credit

Aus – Home Loans
US – Investment Lending
Ger – Consumer Price Index
UK – Trade Balance
UK – BRC Shop Price Index
UK – Mortgage Applications
NZ – RBNZ Interest Rate Decision
UK – GDP Estimate

Aus – Inflation
US – Jobless Claims
US – Trade Balance
Can – Interest Rate Decision
NZ – Food Price Index
UK – Interest Rate Decicion

Jap – Consumer Confidence
EU – ECB Monthly Report
UK – Producer Price Index
US – Import Prices
US – Consumer Sentiment
Can – House Price Index

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Sterling gains, but not likely to last

Sterling Gains
Sterling hit a 1 week high against the dollar and the euro yesterday on news the UK services sector grew at its fastest pace in almost two years, easing concerns about the UK economy. The PMI index for the services sector rose to 54.1 for August from 53.2 the previous month and this was the strongest reading for close to two years. This caused the pound to rise and pull exchange rates up slightly. Rates stand as follows at 08:30am:

  • GBP/EUR 1.1450
  • GBP/USD 1.6353
  • GBP/AUD 1.9423
  • GBP/NZD 2.3921
  • GBP/CAD 1.7973
  • GBP/ZAR 12.488
  • GBP/JPY 151.61

Sterling got an added boost from waning risk aversion as global equity markets regained some ground led by banking shares and after the European Central Bank held its key interest rate unchanged at a record low 1 percent.

Still, the backdrop for sterling remains very negative on the growing view the Bank of England will keep interest rates low for some time, as reflected by falling UK bond yields, which have been keeping the currency under selling pressure, market participants said.Sterling secured a firmer tone on Thursday with relief from domestic and international factors.

Following recent weakness, the data revived some degree of optimism over underlying economic conditions, although confidence is still likely to be extremely fragile given the extremely important issue of rising government debt. Fears over the overall policy requirements during the next few months will remain a negative Sterling factor.

So, yes the pound has risen, and many clients may wish to hold in the hope rates will continue to rise. However, if you are holding out for a higher rate, then consider the fact that the UK government debt means analysts think the pound is going to remain weak for quite a while.

UK Economy, and Sterling exchange rates unlikely to recover
This BBC Article outlines how the EU economy is now set to rise, and another article from the BBC also shows how the downturn in the US is coming to an end.

World Recovery – UK will lag behind
Britain will be the last major economy to exit recession, according to alarming forecasts. The UK will fail to record a single quarter of positive growth in 2009, the highly respected Organisation for Economic Co-operation and Development predicted yesterday.

While trading partners such as Germany, France and Japan have already exited recession, Britain’s economy will not return to growth until 2010. The OECD says it expects the economy to contract 4.7 per cent this year – much more than the 3.5 per cent predicted by Alistair Darling in April.

In the fourth quarter output will be flat, the report says, meaning Britain is likely to return to growth nine months later than Germany, Japan and France. Even beleaguered Italy is expected to muster a 0.4 per cent expansion in the final three months of 2009.

So, if you are holding hoping for a continued rise in rates, in my opinion you will be dissapointed. We are seeing the occaisional spike, but as the UK lags behind other major economies, Sterling exchange rates are likely to remain poor.

Forward contracts are available to lock in todays rates, even if you dont need the currency for some time.

If you’re holding out for a higher rate, you need to ask yourself why you think that rates will rise, given all the negative information about the UK economy. If you cant answer that question, then you are simply ‘wishing’ the market will move in your direction.

Now, wishing is not a sound economic tool when dealing with large amounts of money! Look at the facts, then contact us to tell us your requirements, and let us help you achieve the best possible rate within your timeframe.

Dont leave it to chance, and dont let the markets control you. Take control of your situation by opening an account with us today and discussing the options available to you.

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