Currency Forecasts

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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Sterling falls on risk sentiment

Good Morning,
Today we’ll have a quick review of where rates moved last week, and then look at what data releases we have this week. As usual, let’s have a quick look at where rates stand…

Exchange Rates as at 08:30am 17th August 2009 :

  • GBP/EUR 1.1567
  • GBP/USD 1.6336
  • GBP/AUD 1.9923
  • GBP/NZD 2.4427
  • GBP/CAD 1.8115
  • GBP/ZAR 13.355
  • GBP/CHF 1.7624

Last Weeks Trading
The main story of last week was the good data from the EU, and a reverse of risk sentiment, both of which caused rates to fall.

French and German economies both grew by 0.3% between April and June, bringing to an end year-long recessions in Europe’s largest economies. Because markets had expected a 0.3% decline, the surprisingly good results strenghtened the Euro and caused rates to fall.

Sterling eased against the dollar on Friday and fell more than 1% on the day versus a resurgent yen after a report showing U.S. consumer confidence fell in early August dampened demand for riskier assets.

“It does reinforce the view that there’s still a long way to go before you see a sustainable turnaround in sentiment … It just underscores the vulnerability of the recovery so far,” said Samarjit Shankar, director of global strategy at Bank of New York Mellon.

The balance of risk appears to be the key to interpreting the direction of cable (GBP/USD) over the coming months. As I’ve mentioned before, gone are the days of “Traditional Trade” whereby good figures create a strong currency.

The Dollar has been the main Safe haven currency over the past year and has therefore strengthened dramatically as investors run for the relative safety of the dollar and away from equities and riskier currencies such as the pound.

As the recent downturn flattens out and world economies show signs of recovery, those investors who had moved to the Dollar are now pulling out hence the move from 1.35 to 1.70 at the high. Therefore, good news out the U.S. produces Dollar weakness as market confidence returns and people move to equities, commodities, commodity currencies (AUD,NZD,CAD,ZAR) and riskier currencies e.g. GBP.

This is what will cause a risk to the pound this week.

This weeks data
For the UK this week, the main data to look for is Consumer Price Index and Retail Price Index tomorrow, and towards the end of the week we have Retail Sales, Public Sector Borrowing and GDP figures. Tomorrows data will give an idea of inflationary pressures facing the UK economy and therefore where interest rates may move later in the year. The retail sales are 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 and as can have a big impact on exchange rates.

GDP figures are important as it will show the pace at which our economy is increasing or decreasing. Last weeks surprise GDP figures from the Eurozone demonstrate the effect this data can have on exchange rates.

A full list of the weeks releases is below, and if you need any further information on how this could affect your particular requirement, please contact us.

Monday
EU – Trade Balance
US – Manufacturing Index
US – Housing Market Index

Tuesday
UK – Consumer Price Index
UK – Retail Price Index
EU – Economic Sentiment
US – Building Permits
US – Producer Price Index

Wednesday
Ger – Producer Price Index
EU – Current Accounts
Can – Consumer Price Index
US – Crude Oil Stocks Change

Thursday
UK – money Supply
UK – Public Sector Borrowing
UK – Retail Sales
US – Jobless Claims

Friday
UK – Gross Domestic Product

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Australian Dollar AUD New Zealand Dollar NZD Forecast 2009

Following several requests of late for more information regards AUD and NZD, today we’ll take a detailed look at the antipodean currencies and where rates may head for the remainder of the year.

First, let’s take a quick look at the Euro. As at 08:30am 14th August rates are as follows:

GBP/EUR 1.1559
GBP/USD 1.6489
GBP/AUD 1.9632
GBP/NZD 2.4296
GBP/ZAR 13.257
GBP/JPY 156.82

GBP/EUR
Yesterday we saw figures that show France and Germany have exited the recession. The French and German economies both grew by 0.3% between April and June, bringing to an end year-long recessions in Europe’s largest economies.The data came as a surprise, with few analysts expecting Germany and France to start to recover so soon. There’s a comprehensive analysis on the BBC website. As the figures were a surprise, we’ve seen Euro strength and GBP/EUR rates unexpectedly fall.

GBP/AUD

Right now, the rate is 1.9612. Here we see GBP/AUD over the last 3 months. As you can see, the last month has seen a steady decline in the rate. This morning the rate has hit a near 11-month low as speculation of eventual interest rate hikes was abound as the central bank chief said rates would be a lot higher than the present level.

The RBA Chief Glenn Stevens said this morning that the current record low rate of 3 percent was an “emergency” level, and that a normal level was “a good deal north” of that.
Australia’s economy has shown a great deal of resilience as aggressive rate cuts, generous government handounts and firm demand from China supported consumption and key commodity exports. As such, the RBA, has started saying in recent weeks local rates need to normalise as Australia’s economy recovers. Stevens has warned that low rates risked inflating a housing bubble.

So, with regards as to where rates will go, if we do indeed see higher interest rates in Aus, then this will strengthen the currency even further, which means lower GBP/AUD rates. It all depends on how the Australian economy performs compared to the UK economy.
I think that the UK economy is in dire straights, and our level of debt is what will hinder our recovery. Thus, for the remainder of the year it is unlikely that rates will climb above the $2 level. The Aus economy is in a better position that the UK, and their rates will likely go up before ours.

We do however have spikes from time to time, and so if your requirement is for 2009, then consider Stop and Limit Orders to try and take advantage of one of these spikes, while at the same time protecting yourself against a continued drop. Rates will eventually recover as the UK economy does, but when this will happen is impossible to predict. I dont expect any significant recover until 2010.

GBP/NZD

    Here we see the GBP/NZD pair over the last 3 months. The trend is similar to the AUD, and the reason is the same – New Zealand has slashed it’s interest rates this year in an attempt to weaken the currency to boost exports, which are very important to New Zealand. This had caused rates to remain steady against the pound, but now rates sit at a record low, analysts expect the next movement to be up. This may happen towards the end of this year, however it may not happen until next year.

    The RBNZ said that bright spots were appearing for the economy for the first time in months, but stressed the risks remain to the downside, noting recent strength in the Kiwi could snuff out any fledging recovery.

    The NZD carried its positive momentum after domestic retail sales rose by more than expected in April, driven mainly by car sales, suggesting consumer demand remained patchy but showed signs of stabilisinstabilizingt data realise showed only a modest pick up in manufacturing sales for the first quarter, but marking the first rise in more than a year.

    Summary
    Speculation of interest rate hikes will keep AUD and NZD low for the coming months. Markets will look to signs of recovery both in the UK, Aus and NZ. It’s really nothing more than a tug of war between the economies, and whoever comes out of recession and wins the tug first, will see their currency strengthen. In the current climate, it would be a brave man who’d bet on the UK recovering before our cousins down under. As rates climb in NZ and AUS, it may also cause a resurgence in the carry trade. This will compound strength in the antipodean currencies.

    So, of course rates will recover, and speculating as to when is nigh on impossible. However I believe it will be into 2010 before the UK catch up with economic recovery. Therefore if your requirement is for the next 3 months, consider a Forward Contract to lock rates in now and protect against further falls.

    If you have longer until you need your currency, then Stop and Limit orders are to be considered. This means you can aim for a higher rate, but not do so blindly without protection if things dont work out. This article on managing fx risk should prove helpful if you would like to know more about the options available.

    South Africa Cuts Interest Rate – South Africa’s central bank has taken markets by surprise by cutting its lending rate from 7.5% to a four-year low of 7%. It was the sixth cut since December, bringing the rate down from 12%. This means a slightly weaker rand, and so any buyers of this currency should consider locking rates in – GBPZAR has not fallen as much as other currencies in the last 12 months.

    Todays Data
    The only real data of note is the Consumer Price Index for both the EU and US. It is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services excluding the volatile components like food and energy. The CPI Core is a key indicator to measure inflation and changes in purchasing trends.

    EU – Consumer Price Index
    US – Consumer Price Index
    Can – Manufacturing Shipments
    US – Consumer Sentiment Index

    Ok, that’s it for another week folks. Of course if you would like more information on anything contained within the blog, do get in touch below.

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    Pound Prediction September October 2009

    Pound / Euro falls
    08:30am 13th August 2009 – The Euro has strengthened this morning following the Germany GDP figures. Gross Domestic Product is a measure of the total value of all goods and services produced by Germany. The GDP is considered as a broad measure of the German economic activity and health.

    The figures were slightly better than forecast, and as Germany is the biggest economy in the EU, the Euro has strengthened. Rates as at 08:30am 13th August 2009 are as follows:

    • GBPEUR 1.1612
    • GBPUSD 1.6554
    • GBPNZD 2.4474
    • GBPAUD 1.9720
    • GBPJPY 159.22
    • GBPZAR 13.238

    We also saw Sterling weakness yesterday, following the Bank of England Quarterly inflation report. The pound hit a 2 week low versus the dollar as the Bank of England’s forecast that inflation would remain well below target cooled speculation of an early interest rate hike. Also we saw UK unemployment rise.

    The central bank said it was “more likely than not” that inflation would fall below 1 percent in autumn, suggesting that markets are pricing in rate hikes too early. UK rates are currently at a record low 0.5 percent.

    “To some extent, the BoE was dovish in that they talked about the potential for inflation to go below 1 percent,” said Lauren Rosborough, senior currency strategist at Westpac in London.

    “So they were dovish, yes, but no more than what Speaking to reporters after the report’s release, BoE Governor Mervyn King acknowledged the pound’s tumble from above $2.10 just over a year ago by saying that a weak currency would have some impact on rebalancing the economy, but his comments had little sway on sterling.

    I believe that we’re now near the bottom of GBPEUR, as we’ve had all the bad news possible from the UK – look however for positive figures from the EU this morning, as better than expected results may show a further slight drop, but I think we have support at around 1.16. Against the USD however, we could see further drops.

    GBPUSD

    Sterling may have more room to fall versus the dollar in the near term if the U.S. central bank does not extend its quantitative easing program, as widely expected. “In the event that Fed gives no new indication on asset purchases, this will leave sterling exposed to deeper losses as the BoE remains the most generous provider of QE,” said Ashraf Laidi, chief market strategist at CMC markets in London.

    Todays Data – At 09:00am we have further GDP figures for the whole Eurozone, and also a monthly report by the ECB. For the US this afternoon, we have Import Prices, Jobless Claims and Retail Sales.

    Finally – after some requests for more information with regards to the Antipodean currencies, AUD and NZD, tomorrow we will look at where rates may go for Sterling to these pairs.

    NEWSFLASH 09:10am – Gemany and France exit recession – The French and German economies both grew by 0.3% between April and June, bringing to an end year-long recessions in two of Europe’s largest economies …http://news.bbc.co.uk/1/hi/business/8198766.stm

    Hardly any effect on rates however, as this was expected.

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