Currency Forecasts

Pound remains weak against EUR, AUD, NZD & USD

The pound had a torrid week last week, as poor UK data from the banking sector and the Bank of England caused rates to hit a 4 month low against the Euro. At 08:30am monday 21st September, rates stand as follows:

  • GBP/EUR 1.1036
  • GBP/USD 1.6175
  • GBP/AUD 1.8744
  • GBP/NZD 2.2946
  • GBP/CAD 1.7377
  • GBP/ZAR 12.118
  • GBP/JPY 148.77

Why did the pound fall?

Sterling slumped to a 4 month low against the euro last week, stung by news that the UK government was tightening the terms for one of the nation’s banks to exit its asset-protection scheme, which underlined the ongoing fragility of the UK banking sector. Sterling suffered broadly, hitting a two-week low versus the dollar, a 4 month low against EUR, and hovering around a two-month trough against the yen.

The pound clawed back from some of those levels after figures on UK public sector finances were not as dismal as markets had been expecting, although they were the worst for an August on record. Lloyds Banking Group said on Friday it was in talks over a possible reduction in the number of toxic assets it might place in the so-called asset protection scheme, encouraged by “improving economic conditions”.

The market has been swinging between optimism and pessimism about the UK financial sector, and the Lloyds story is obviously not so good for sterling right now. Signs of weakness in the UK and global banking sector tend to hit sterling hard given the large role that the financial sector plays in the British economy. Also knocking the pound were comments from Bank of England policymaker David Miles, who told the UK’s Independent newspaper the UK could be out of recession in six or nine months, but that the road to recovery could be long and slow.

As we will see in a moment, there isnt much UK Data this week other than the mintutes from the Bank of England, so the pound will likely remain under pressure this week.

This Weeks Data
This week is fairly quiet in terms of UK data, with the main release of note being the Bank of England Minutes to their recent interest rate decision. The MPC meetings are published two weeks after the interest rate decision. The minutes give a full account of the policy discussion, including differences of view. With recent Sterling movements being largely influences by Bank of England policy, we will watch any comments closely, as they are likely to affect pound exchange rates.

In Europe, we have various inflation data that will give a good idea where interest rates may go for the EU. If figures support the case for higher rates, then expect GBP/EUR rates to drop.

For New Zealand, watch for the Gross Domestic Product data on Tuesday. This is a measure of the total value of all goods and services produced by New Zealand. The GDP is considered as a broad measure of New Zealand economic activity and health. A rising trend has a positive effect on the NZD, while a falling trend is seen as negative (or bearish) for the NZD.

In the US, we have the majority of this weeks data releases. Watch for the FED interest rate decision, Consumer Confidence Data, Mortgage Approvals and Jobless data. This US data will likely be the main driver for rates this week, due to risk sentiment. Good US figures at the moment drive investment into riskier currencies with a higher yeild such as AUD and NZD, which strengthen these currencies and weaken the dollar. Poor figures drive investors back towards USD strengthening the reserve currency.

Aus – New Vehicle Sales
NZ – Credit Card Spending

NZ – Current Accounts

Can – Retail Sales
US – Housing Price Index
US – Manufacturing Index
US – Consumer Confidence
NZ – Gross Domestic Product

Ger – Purchasing Managers Index
EU – Purchasing Managers Index
EU – Industrial New Orders
UK – Bank of England Minutes
UK – Mortgage Approvals
US – Mortgage Applications
US – Fed Interest Rate Decision

Ger – IFO Business Climate
US – Housing Starts
US – Jobless Claims

Ger – Producer Prices
EU – Current Accounts
UK – Money Supply

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Pound falls again on Banking News

The pound has weakened massively yesterday and again this morning against the USD, AUD, NZD and the Euro on renewed concern the financial crisis in Europe will be prolonged, damping demand for the region’s assets including Sterling. Rates at 08:30am stand as follows:

  • GBP/EUR 1.1101
  • GBP/USD 1.6310
  • GBP/AUD 1.8781
  • GBP/NZD 2.2999
  • GBP/CAD 1.7462
  • GBP/ZAR 12.143
  • GBP/JPY 148.80

Pound falls on Banking News
Sterling dropped against 15 of its 16 major counterparts after the Daily Telegraph said Lloyds Banking Group Plc had been forced to abandon a move to withdraw from the U.K. government’s asset protection plan.

The dollar pared weekly losses against the Australian and New Zealand dollars as Asian stocks retreated, reviving demand for the relative safety of the U.S. currency. The Telegraph article enhanced views the Bank of England can’t exit its accommodative monetary policy stance any time soon, and the renewed concern in this area is weighing heavy on Sterling.

The Telegraph said Lloyd’s Chief Executive Officer Eric Daniels is understood to have presented the Financial Services Authority with plans to raise more than 15 billion pounds. The FSA decided Lloyds would require more capital to withstand rising bad debts and to lend an additional 28 billion pounds to businesses and households this year and next, as agreed with the government.

The pound also weakened after British Bankers’ Association data showed the cost of three-month loans in sterling between banks fell for a 13th day in a row. That spurred speculation and traders sold the pound to fund investments in higher-yielding assets in carry trades.

Bank of England Governor Mervyn King said this week that policy makers may lower the interest rate paid to hold reserves at the central bank, and the market is now focusing on which central banks of the developed countries will be the first to pull out of quantitative easing. It’s not likely to be the UK.

Aussie Dollar & Kiwi Dollar
Falling equities are spurring risk aversion. This is causing buying back of the dollar, which has been used as a funding currency for carry trades. Australia’s and New Zealand’s dollars trimmed weekly gains as technical indicators signaled their advances versus the dollar may stall. Rates for Sterling to these currencies have also dropped, as the pound weakens and these currencies strengthen as investors buy them to benefit from the higher interest rates.

Given the fact that the global economy has not rebounded to pre-financial crisis levels, currencies such as the Australian dollar that have already fully recovered may face headwinds in extending their advances. Benchmark interest rates are 3 percent in Australia and 2.5 percent in New Zealand, compared with 0.5% in the UK, 0.1% in Japan and as low as zero in the USA attracting investors to the antipodean currencies higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

Todays Data
UK – Money Supply
UK – Public Sector Borrowing
EU – Current Accounts
Ger – Producer Price Index
Can – Wholesale Sales

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Pound struggles to recover in September ’09

Sterling eased against the euro and dollar onyesterday, remaining under pressure in the wake of Bank of England Governor Mervyn King’s dovish comments the previous day. Rates this morning @ 08;30am 17/09/09 are as follows:

  • GBP/EUR 1.1210
  • GBP/USD 1.6530
  • GBP/AUD 1.8897
  • GBP/NZD 2.3150
  • GBP/CAD 1.7560
  • GBP/CHF 1.7031
  • GBP/ZAR 12.081
  • GBP/JPY 149.70

Data yesterday on the UK labour market was broadly in line with expectations, but did provide some respite for Sterling as the figures were not as bad as some had feared. Unemployment rose by 210,000 in the three months to July, taking the jobless rate up to 7.9 percent, its highest in nearly 13 years. This was expected however, and so didn’t cause a further drop for the pound.

“The pace of unemployment increases has slowed sharply and the recent trend has been consistent with an economy that is growing again, albeit moderately,” said Nick Kounis, chief European economist at Fortis Bank.

However, pound is seen underperforming other major currencies as UK government bonds yields fell on lingering speculation of monetary easing. BoE policymaker Andrew Sentance was quoted as saying in a regional UK newspaper yesterday that Britain’s economy probably returned to growth in the third quarter of this year, but doubts remain about the strength of any recovery. This goes back to what I mentioned recently, that the fear is the UK may be in a W shaped recession.

A Reuters poll on Wednesday showed economists polled raised their growth forecast for the UK economy to 0.3 percent this quarter compared with 0.1 percent in an August poll.

US Recovery?
Shares worldwide have risen strongly after the latest signs of an economic recovery in the US.
Shares on Wall Street continued upwards thanks to better-than-expected industrial production data. But there have been warnings that investors should not get too carried away while money is still being pumped into stimulus packages, which flatter the economy.

So, the story hasn’t really changed. The UK seems to be recovering, but while the BoE pump money into the economy, and the government continue try and spend their way out of the problem, Sterling will remain on the back foot.

All the while, the US economy is in recovery, and this then spurs investment into other currencies such as EUR, AUD and NZD that give a better return. This will keep exchange rates low until the BoE & government decide that they will change their policy.

In volatile times such as this, clients obviously want to achieve the best rate. Simply hoping for a better rate has left many dissapointed this week as rates have fallen. Stop Loss and Limit orders are tools that let you aim for a higher rate, while protecting you in case things move the wrong way.

Open a free trading facility with us today. It doesn’t obligate you, and simply means that you can have a free consultation with one of our expert currency dealers to make sure you get the best rate you can.

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Todays Data
The main UK data today is Retail Sales. This 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. Other data is listed below.

Jap – Interest Rate Decision
UK – Retail Sales
EU – Construction Output
EU – Trade Balance
Can – Consumer Price Index
Swi – Interest Rate Decision
US – Jobless Claims

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Sterling to AUD & NZD Forecast Sept Oct 2009

Good Morning. Today we will have a look at where rates may go for the Antipodean currencies, Aussie Dollar (AUD) and New Zealand Dollar (NZD). First, we’ll look at where rates stand now, and a quick look at the pound, as this is the main driver of low rates for all currencies at the moment.

  • GBP/EUR 1.1218
  • GBP/USD 1.6486
  • GBP/AUD 1.8978
  • GBP/NZD 2.3234
  • GBP/JPY 148.79
  • GBP/CHF 1.7026
  • GBP/CAD 1.7646
  • GBP/ZAR 12.131
Sterling Outlook
The pound hit a 4 month low versus the Euro yesterday after Bank of England Governor Mervyn King said a UK economic recovery would take a long time and that he was considering cutting the rate paid on reserves which UK banks park at the central bank. This really surprised the markets, and exchange rates tumbled as a result.

The pound erased early gains made on a rise in UK house prices and data showing a slower than expected fall in domestic inflation, as King’s statement fuelled speculation the BoE may use yet another device in its quantitative easing toolkit.

The possibility of lower bank reserve rates bolstered the view that UK lending rates will remain at a record low of 0.5 percent for some time as the BoE keeps buying domestic assets from the market to boost liquidity and stimulate the economy. Aggravating sterling’s slide were broad gains in the dollar, which rose on the back of strong U.S. retail sales data.

The pound fell more than 2 full cents from the day’s high hit earlier in the day, when sterling had rallied after higher-than-forecast UK data. Clients that had placed Stop Loss orders managed to minimise any losses, as unforseen events such as this can cause big drops in rates.

New Zealand Dollar (NZD)

As you can see from this 3 month chart, the rate to buy NZD has been steadily dropping away. The main reason for this is Sterling weakness. We’ve had Quantitative Easing, low interest rates, and news yesterday that UK recovery is going to take much longer than first anticipated. Our interest rates are likely to remain very low for some time, whereas New Zealand’s Interest rate is currently at 2.5%, with many analysts expecting it to go up in coming months.

As our interest rate is lower, investors get less return. As more return is available on NZD, then investors sell pound to buy NZD. This weakens Sterling, and strengthens NZD, and the net result is lower exchange rates. As the interest rate differential is likely to remain low for some time, this will probably not change.

Another reason for low rates, is risk appetite. In times of turmoil, investors flock to the safe haven of the US Dollar. When we get good figures from the states signalling recovery, investors have more risk appetite, and then invest in riskier currencies such as NZD. So, as the rest of the world recovers and the UK lags behind, the pound remains weak and other currencies strengthen.

The New Zealand dollar has remained generally well bid as gold continues to flirt with the key $1,000 per ounce mark. Stock markets are also performing well, keeping investor risk appetite buoyant and supportive of high yielding currencies. Strong bank lending data from China also helped the Aussie and Kiwi dollars.

While sterling’s technical outlook against the Euro and US dollar have improved on yesterday’s bounce, the Sterling/Kiwi rate is still on shaky ground, with no clear sign that a low may now be in place. Clients with NZD requirements should remain cautious, and consider covering at least half their requirements at current levels.

In short, there is no reason to think that the pound’s decline is coming to an end. Buyers of NZD should strongly consider hedging any exposure now to avoid the risk of further downside. Open an account with us today for a free consultation on the tools we have available to help you do this.

Austrlian Dollar

Here we have the GBPAUD movements over the last 3 months. You will see the chart is very similar to the Kiwi dollar chart. The reason is the currencies tend to move in tandem. The main driver is Sterling weakness due to the policy of Quantitative Easing from the BoE, coupled with the way the government are trying to spend their way out of the problem.

Both NZD and AUD are commodity driven currencies, so as commodities such as gold increase in value as the world exits recession, so do the currencies, making them more expensive to purchase.

Rates have been in free fall of late, and it’s mostly to do with poor UK economic performance. With more interest rate cuts, and further measures expected from the BoE, this is not likely to change.

Of course the pound will recover at some point, along with exchange rates. Predicting when this will be is the hard part, but for AUD and NZD it will probably be well into 2010. If you need funds converted in the next 3 months, then you should seriously consider hedging your exposure.

Here at FCG, we can get you commercial rates that are much better than available at UK Banks. Whilst the natural inclination is to go to your local High Street bank to transfer funds abroad, this is usually a fairly expensive way of doing it. Exchange rates and commissions provided by high street banks are significantly less favourable than ours, and so the savings can be considerable.

So, what you should do now is click here and register an account with us.
It’s free to do and does not obligate you. What it does mean, is that you can discuss the tools we have available to protect you from market drops, and help you get the best exchange rates possible. We look forward to hearing from you.
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Pound & US Dollar forecast

The Euro initially strengthened against the pound last week, despite contradicting evidence about the German economic recovery. A surprise 0.9% decline in German industrial production in July was countered by a stronger than expected 3.5% rise in German factory orders over the same month.

European investor confidence data released this week helped to suggest that the Euro zone economy is beginning to see a steady improvement as a result of the better than expected business conditions throughout August. However, most of the Euro’s gains against Sterling were pared later in the week following the Bank of England’s decision not to expand QE measures.

Rates stand as follows as at 08:30am 15/09/09:

  • GBP/EUR 1.1375
  • GBP/USD 1.6621
  • GBP/AUD 1.9286
  • GBP/NZD 2.3622
  • GBP/CAD 1.7990
  • GBP/ZAR 12.371
  • GBP/JPY 151.47

This week will see the release of the German ZEW research institute’s survey of investor sentiment on Tuesday and Euro zone international trade data on Thursday. Better than anticipated results supporting the Euro zone’s economic recovery could lead to further strength for the Euro.

The current pressures facing Sterling look to increase this week with the looming prospect of poor inflation data being released on Tuesday. This coupled with the increasing stability of the Euro would suggest any GBP/EUR exchanges would be best completed earlier in the month rather than later.

Finally, last week GBP/EUR closed 0.24% down at 1.1433, compared with 1.1460 a week earlier leading to a positive outlook for any clients wishing to sell.

The US Dollar weakened against all the major currencies, including Sterling, towards the end of last week, as rallying global stock markets lowered the demand for the Dollar as investors pulled money away from the safe-haven of the U.S to fund investments around the world.

Support for the currency was also undermined by a report that the United Nations would like a new reserve currency to replace the US Dollar. This has also been regularly suggested by the Chinese and given the substantial holdings the Chinese government have of US$ Reserves, it is becoming a growing concern and will almost certainly have some impact on the value of the dollar.

The fear in the U.S is that theoretically if a global reserve currency were introduced and the Chinese were to move their holdings away from the Greenback then there would be an immediate and substantial weakening of the $. In further damaging news, consumer credit across the pond fell for a sixth consecutive month, whilst the US trade deficit widened as the rise in imports outpaced exports. While this news paints a negative view for the $, there was more positive news, the latest mortgage approvals data and consumer confidence data recorded a better than expected improvement.

At present the direction of the dollar is subject to a great deal of debate and if factors continue in the same manner as last week with stock-markets rallying and the U.S economy struggling to sustain a prolonged recovery then the dollar could continue to weaken favouring those with a need to purchase $’s. However, it is important to keep in mind that up until last week there had been much sentiment that the U.S had reached the end of the recession, if so there may be further dollar strength to come.

US data releases this week include retail sales data (Tuesday), consumer price inflation data (Wednesday) and housing construction starts data (Thursday). Even if the data reflects positively on the US economic outlook, the overall impact on the US Dollar could be uncertain if it raises investors’ tolerances towards risk.

To ensure you are protected in what promises to be another volatile week of trading, contact us today about the benefits of Limit and Stop-Loss Orders.

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