Currency Forecasts

Sterling Outlook August/September 2009

Good Morning, & welcome to a new week. Today we’ll have a quick look at where rates stand, some news about an end to the recession, a quick review of last weeks trading and the future for Sterling. Finally as usual for a Monday, we’ll have a detailed look at the weeks data. So, pound rates as at 08:30am 24/08/09:

  • GBP/EUR 1.1518
  • GBP/USD 1.6473
  • GBP/AUD 1.9653
  • GBP/NZD 2.4117
  • GBP/JPY 156.34
  • GBP/ZAR 12.796
  • GBP/CHF 1.7487
  • GBP/CAD 1.7798

Recession to end?
Confidence among business professionals has seen the biggest rise for two years, suggesting the UK recession is at an end, a survey has said. The Institute of Chartered Accountants’ index of business confidence rose to 4.8 in June, from -28.2 in March.

However, chief executive Michael Izza warned against underestimating the challenges ahead for businesses. The institute predicts the UK economy will grow by 0.5% in the third quarter. Its forecast comes after the economy shrank by 0.8% in the second quarter of the year. However, markets have reacted little to the news, with the pound still on the back foot after a raft of poor UK data.

Last Weeks Trading
Sterling fell to a one-month lowagainst the euro on Friday, hit by brighter data that is really positive for the pace of the euro zone’s recovery, although the rise ininvestors’ appetite for risk drove it higher against the dollar.

Sterling is already well down on highs against the USD, and is expected to struggle going forward due to signals from the Bank of England of more Quantitative Easing in the future. The UK economy shrank 0.8 percent in the three months toJune and economists predict a second reading next Friday will be unchanged, although some expect a modest upward revision.

My post on Quantitative Easing last week shows the fact that the UK is likely to take much longer to recover than other major economies. “For now, we still look for further sterling
underperformance going forward with the BoE arguably at the most dovish end of the G10 central bank spectrum,” Barclays analysts said in a note.

Still, many do see the pound gaining over the medium term on the back of improving financial stocks, which move closely with the UK currency, it’s really whether you want to gamble on this and take a risk, or play it safe with a Forward Contract. The choice has to be yours, however do get in touch so you are fully armed with all the information to make an informed choice.

This Weeks Data
A busy week for data releases from all corners of the globe. For the UK watch for House Price Data tomorrow. This shows the value of the houses prices in UK and indicate current movements in the housing market that is considered as a sensitive factor to the UK’s economy. We’re expecting an annual decline of 3.9% and a monthly rise of 0.6%. Any different, and expect GBP rates to move.

Also for the UK, we have Gross Domestic Product data on Friday. This is a measure of the total value of all goods and services produced. Recent GDP figures from Germany and France showed that they have exited recession. A similar result is unlikely for the UK, and so watch for any negative figures here that may weaken Sterling and cause exchange rates to call.

We also have yearly and monthly Gross Domestic Product from Germany tomorrow. This will probably show a decline year on year, but a continued monthly rise. This may cause the Euro to strengthen and cause GBP/EUR rates to continue to fall.

For the US, we have House Price Data, New Home Sales, Jobless Claims, Crude Oil Stocks and a manufacturing index. All of the US data will be important, as positive results may spur risk appetite for riskier currencies such as GBP, AUD and NZD. Negative data will likely cause investors to flock back to the safe haven USD, and weaken the riskier currencies.

So, in uncertain times right now the pound is weak and reacting negatively to any poor economic data. There’s a lot this week that could cause the recent decline in the pound to continue, and so if you have a requirement, contact us today, register a trading facility, and then you are in a position to discuss your particular requirement and be best placed to get the best possible rate from the market.

Monday
EU – Industrial New Orders
Can – Retail Sales

Tuesday
NZ – Inflation Expectations
Ger – Gross Domestic Product
UK – Nationwide House Prices
Swi – Employment Level
US – Consumer Confidence
US – Housing Price Index
US – Manufacturing Index

Wednesday
Ger – Import Price Index
US – Durable Goods Orders
US – New Home Sales
US – Crude Oil Stocks Change
NZ – Trade Balance

Thursday
Aus – Private Capital Expenditure
Ger – Consumer Price Index
Ger – Gfk Consumer Confidence
UK – Business Investment
US – Gross Domestic Product

Friday
UK – Gfk Survey
UK – Gross Domestic Product
UK – Government Spending
EU – Business Climate

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Sterling Euro Outlook 21st August 2009

Pound Rates 21/08/09:

  • GBP/EUR 1.1540
  • GBP/USD 1.6490
  • GPP/AUD 1.9836
  • GBP/NZD 2.4335
  • GBP/CAD 1.7887
  • GBP/JPY 1.5489
  • GBP/ZAR 12.952


Pound falls on weak UK finances
Sterling fell broadly on Thursday, dented by figures showing an unexpectedly sharp deterioration in the UK public finances. The borrowing figures showed a record deficit for the month of July, which is the first time government accounts have been in the red in that month since 1996. Rates for Euro have dropped back into the 1.15’s this morning.

The pound had initially risen on news that British retail sales rose 0.4 % in July – double the expected, but quickly erased those gains and turned lower as attention switched to concerns over the UK’s parlous fiscal situation. I briefly touched on this in yesterdays report, as it’s our finances and debt levels that are likely to keep the pound weak.

“In a nutshell the public finances figures were awful, and the UK economy is looking very shaky,” said Maurice Pomery, managing director at Strategist Alpha.

“People started by buying sterling on the retail sales and M4 headlines, but then started looking at the detail and the public finances data and things turned around,” Pomery said.

He believes the outlook for sterling remains poor and said pound euro rates may drop to €1.14 and GBPUSD rates will drop below $1.60. Whether this will happen remains to be seen, however if you have a requirement in the short to medium term, you may wish to discuss a Forward Contract.

The other thing keeping the pound low is the Quantitative Easing (QE) measures. The jury is still out on whether the Bank of England will need to further expand its QE programme — buying assets with new funds to pump money into the economy (see yesterdays report for a detailed out look on this).

A Reuters poll showed a majority of economists believe the UK central bank will cap its government bond purchase programme at 175 billion pounds. About a third of those polled, however, felt the target would be raised again in November. So, it’s very up in the air, and so Sterling is likely positioned accordingly.

Given the poor UK economy, it’s more likely to drop than suddently rise in the short to medium term. Forecasts for Euro suggest rates will drop and the pound is going to remain weak for some time to come.

Oil Prices
The price of oil rose by more than $3 to settle above $70 a barrel after a surprise drop in crude imports and inventories in the US yesterday.

US crude stockpiles plunged by 8.4 million barrels as imports hit the lowest level since September 2008, the Energy Information Administration said. Analysts had expected supplies to grow in the week to 14 August. They added that the drop in imports may have been caused by firms holding more oil in tankers offshore and waiting for higher prices before importing the extra crude, as is often the case.

Oil prices have a big impact on the value of USD as they import so much oil. This is what weakened the US Dollar yesterday. Likewise Canada exports oil, and so the opposite is true. All of this affects the value of Sterling and Euro also, as a strong or weak dollar determines risk sentiment, and thus also affects investment into riskier assets such as GBP, AUD and NZD.

Todays Data
NZ – Credit Card Spending
Ger – Purchasing Managers Index
EU – Purchasing Managers Index
US – Home Sales


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National Debt, Quantitative easing & Exchange Rates

Pound drops
Sterling fell yesterday, dragged down by minutes from the Bank of England which showed that some policymakers had wanted to extend quantitative easing by more than the amount decided on. More on this in a moment. First, a snapshot of rates as at 08:30am, 20/08/09:

  • GBP/EUR 1.1641
  • GBP/USD 1.6550
  • GBP/AUD 1.9923
  • GBP/NZD 2.4484
  • GBP/CAD 1.8143
  • GBP/ZAR 13.149
  • GBP/CHF 1.7661
  • GBP/JPY 1.5598

Sterling’s woes began in early London trade, when traders used comments from UK opposition leader David Cameron, who said Britain’s high levels of government debt meant it was running the risk of defaulting on its debt, as a reason to sell the currency. Read the full story here.

Remember these comments, as in the medium to long term, it’s likely that these huge levels of government debt are very likely to mean that Sterling will remain weaker than all other major currencies. Other majot economies dont have these huge debt levels, they aren’t doing quantitative easing, and they aren’t trying to spend their way out of the recession. The UK is in many analysts opinion, setting itself up for huge problems in the future, This site gives some good information on this.

The pound fell against both the EUR, USD, AUD and NZD. GBP/USD did recover quite well in the afternoon, buoyed by higher oil prices. Changes in equity prices also helped to push the buying rate for US Dollars up. The main news however remains the BoE comments about Quantitative Easing.

BoE Minutes & Quantitative Easing
Minutes of the bank’s recent Monetary Policy Committee meeting reveal that Mervyn King wanted £75bn rather than the £50bn that was injected. Two fellow committee members also voted for a bigger cash injection.

The decision to pump £50bn came as a surprise, and was already twice the £25bn that the market expected. So, the news hammered the pound and we saw dramatic falls across the board. What is Quantitiative easing? This BBC article gives a good summary.

The bank originally set aside £150bn for buying assets, but the decision to inject an extra £50bn took the total to £175bn. Sterling fell sharply as a result of the minutes, as they expressed concern about the strength of any recovery in the UK economy. The pound fell 1% against the dollar, to $1.639, and by 0.8% against the euro, to 1.162 euros.

The 6-3 split on the MPC shows that views within the bank differ on just how deep the recession is, and the outlook for inflation.This clearly suggests the bank is leaving the door open for additional measures should they feel need a rise. Quantitative easing is still very much in play, also indicating that the UK economy may well be in a worse state than thought. The BoE had recently made indications recovery may well be long and protracted. This does not bode well for GBP rates in the near future.

It suggests that if we see a run of disappointing data, they would not hesitate to pull the trigger on more QE, and thus further Sterling weakness. The net effect? Lower exchange rates for those purchasing foreign currency with Sterling.

Also keeping sterling on the back foot was the Confederation of British Industry’s UK manufacturing trends survey, which produced a reading of -54 in August, slightly worse than forecasts for a -50 reading

Todays Data
For the UK, we have retail sales (Changes in Retail Sales are widely followed as an indicator of consumer spending) at 09:30am, in addition to some public sector borrowing figures. For the USA we have jobless data at 13:30pm. A manufacturing survey for the US also, at 15:00pm.

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Pound falls. BoE minutes & Exchange Rates

Good Morning. Rates for GBP/EUR yesterday broke breifly through 1.17 after better than expected inflation data. We’ll look at this in detail in a moment, but first a snapshot as rates stand as 08:30am 19th August 2009:

  • GBP/EUR 1.1671
  • GBP/USD 1.6450
  • GBP/AUD 2.0029
  • GBP/NZD 2.4526
  • GBP/CHF 1.7711
  • GBP/CAD 1.8213
  • GBP/JPY 154.99
  • GBP/ZAR 13.279

UK Inflation
The Key measure of inflation in the UK has unexpectedly remained at 1.8%. Economists had expected the Consumer Prices Index (CPI) to decline to 1.5% in July. The Retail Prices Index (RPI) inflation measure, which includes mortgage interest payments, also unexpectedly rose to -1.4%, from -1.6%.

The RPI rate has fallen sharply over the past year as the Bank of England slashed interest rates to a record low amid a recession. The figures suggest that deflationary pressures on the economy may be easing. The Bank aims to keep inflation at 2% to maintain price stability and more broadly, economic stability.

Earlier this month, the Bank said it was “more likely than not” that the annual rate of growth in consumer prices would temporarily fall below 1% in the autumn and stay low until the end of its two-year forecast period.

The better than expected figures caused a brief spike, however it was short lived as is often the case, and this morning rates have already dropped back into the 1.16’s against the Euro.

Another reason for the retraction is better than expected German Producer Price Index this morning. This has strengthened the Euro, and pulled rates back.

Other data today
At 09:30am we have the Bank of England minutes. The minutes give a full account of the policy discussion, including differences of view. They also record the votes of the individual members of the Committee. Watch closely for comments regarding the recent Quantitative Easing, as negative comments could cause the pound to fall further. If it shows all members voted for the increase, then expect the pound to fall.

Summary
The pound is very volatile at present, caused by uncertainty over economic recovery, and also risk sentiment being driven by events in the USA as outlined in this blog previously. It’s impossible to predict which way rates will go, however in uncertain times such as this, rates can move very quickly. If you need to purchase currency, dont leave it to chance. Consider the risk, and open an account with us. This will enable you to discuss the options available to you to get the best possible rate.

*** Newflash ***

BoE minutes just released. The pound has plummeted as it was revealed 3 members actuall voted for a futher £75bn to be pumped into the economy. Rates have falled over half a cent against the Euro in the last few minutes. Keep up to date throughout the day on Twitter

*** Newflash ***

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Sterling to US Dollar Forecast August 2009

This morning, we’ll take a detailed look at Sterling GBP to USD. A quick morning glance at the currency exchange rates @ 08:30am 18th August 2009:

  • GBP/EUR 1.1596
  • GBP/USD 1.6394
  • GBP/AUD 1.9833
  • GBP/NZD 2.4376
  • GBP/CAD 1.8102
  • GBP/CHF 1.7628
  • GBP/ZAR 11.380

Sterling to US Dollar
The pound fell broadly yesterday, hitting its lowest level in a month against the US dollar as falling equities and oil prices encouraged investors to shun perceived higher risk currencies.

As we’ve said before, it’s now risk sentiment that’s proving to be the biggest driver of rates, GBP/USD in particular. As commodity prices fall, investors flock back to the safe haven of the US Dollar, causing strength and a decline in the rate.

Here we see the rate movement for the pound against the US Dollar for the last 3 months. AS you can see, the general trend has been a rise, which now seems to have come to an end. If you have a requirement to purchase US Dollars, then consider locking in rates with a Forward Contract.

There are 2 key times that are the best to buy currency. The best time is when the rate is at it’s peak. Of course achieving this is more luck than judgement, as nobody knows where the peak is until it’s been and gone. This brings me on to the second best time to fix rates; just after a peak once you can identify it. Looking at the chart above you can see this is exactly where we are now, so get in touch to discuss your requirement today, and dont be caught out by fast movements in the rate.

There is further concern that the buying rate for dollars may decline, as the pound was also dented by an earlier survey showing a fall in UK house prices, highlighting concerns that the UK economy may not be recovering as well as previously hoped.

The UK currency has come under broad pressure since the Bank of England increased asset purchases under its quantitative easing programme by more than expected earlier this month, saying Britain’s downturn looked deeper than previously thought.

The Bank of England’s quantitative easing move has hit sterling quite hard and in the short term it will probably continue to do so. Whenever there is any rebound in risk aversion like we have today then sterling is a convenient whipping boy.

The market will now watch upcoming data including July consumer prices on Tuesday, BoE minutes on Wednesday, and July retail sales and public finances data on Thursday for fresh clues on the economic outlook. For this week, look for the following data releases from the US:

Today – Building Permits, Producer Price Index

Wednesday – Crude Oil Stocks Change

Thursday – Initial Jobless Claims

Friday – Michigan Survey

Contact us to discuss how this data may affect your particular requirement to ensure you obtain the best possible exchange rate.

Todays Data
The US data is above, however today is also an important day for UK data. At 09:30am we have Consumer Price Index, which 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 GBP is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. We’re expecting a decline of 0.3% month on month, and a rise of 1.6% year on year. Any difference, and expect movement for the pound.

Also, we have The Retail Price Index released at the same time. This is a statistical measure of a weighted average of prices of a specified set of goods and services purchased by consumers. It is widely considered as a key measure of inflation that indicates an accurate reflection of the cost of living. We’re expecting a decline of 0.2% month on month and a decline of 1.7% year on year. Again, any difference, and expect movement for the pound.

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