Currency Forecasts

Interest Rate expectations hurt the pound

The pound continued to fall throughout trading yesterday, after government bond yeilds fell, and also interest rate differentials caused the Euro to gain against the pound. Rates at 08:30am 27th August are as follows:

  • GBP/EUR 1.1369
  • GBP/USD 1.6210
  • GBP/AUD 1.9542
  • GBP/NZD 2.3814
  • GBP/CAD 1.7805
  • GBP/CHF 1.7305
  • GBP/ZAR 12.706
  • GBP/JPY 151.61

The pounds continued weakness
Sterling hit a near 3 month low against the Euro yesterday after the yield on 2 year UK government bonds fell to a record low. This makes short-dated British debt less attractive than its euro zone counterpart.

Also, lower short-term UK yields hurt the pound across the board, pushing it to a 6 week low against the US Dollar. We also saw a strong reading of German Ifo business sentiment, and this boosted the euro against sterling, compounding the problem and causing rates to fall into the mid 1.13’s.

“When the BoE is so cautious about keeping rates low and the Ifo is so positive, it’s hard not to push Pound Euro rates lower,” said Geoffrey Yu, currency strategist at UBS in London.

Analysts said the widening spread had prompted investors to pull out of UK assets in favour of euro zone ones in European trade. As investors sell Sterling and buy Euros, it increases the value of the Euro and rates fall. Also, month end demand for euros from European central banks also helped to boost the single currency. As demand increases for anything, be it currency, eggs, cars or bread then the price increases.

Interest rate spreads are widening against those in the euro zone, as investors forsee rates in the Eurozone climbing before ours, then they move funds to Euros in anticipation of a higher returm. Investors have scaled back expectations on how aggressively the BoE will raise rates over the coming year. This has caused the rates to fall.

We seem to be hitting support levels at around the mid to low 1.13’s, and so the fall is probably over, and rates should either stabilise or rise slightly. of course, we have quite a bit of data for the UK today (see below) – if any of this is negative then dont rule out a further fall, although given 4 consecutive days of drops for the pound, we’re due a spike!

German Condidence Strengthens Euro
The business sentiment indicator from the Ifo Institute rose to 90.5 in August from a revised 87.4 in July. The unexpectedly strong rise was the fifth consecutive monthly increase, taking the figure to its highest since September 2008. The euro rose to 87.82 pence, which was up 0.43% on the day. The short to medium term outlook for GBP/EUR therefore is very poor.

US Consumer Confidence Climbs
US consumer confidence rose more than expected this month, a report has found, in the latest sign that the economy may now be recovering. The closely-watched Consumer Confidence Index from the Conference Board business organisation rose to 54.1 from a revised 47.4 in July.
While the latest number beat market expectations, it is still below 90, the minimum to indicate a healthy economy. Rates for USD remain at around 1.62 at the time of writing.

Todays Data
Ger – Consumer Price Index
UK – Nationwide House Prices
UK – Total Business Investment
UK – CBI Trade Survey
UK – GFK Consumer Confidence
US – Gross Domestic Product
US – Personal Consumption Expenditure
US – Jobless Claims
NZ – Building Permits
Jap – Consumer Price Index
Jap – Consumer Spending

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Pound continues to fall

Pound continues to fall
Sterling hit a 2 1/2-month low against the euro on Wednesday as investors continued to dump the UK currency after the yield on the two-year gilt hit its lowest level ever.

Asian markets appreciated this morning on the back of the second consecutive increase on U.S. housing prices and consumer confidence. The Euro has remained rangebound, while the Pound declined further. This has caused Sterling exchange rates to continue the recent downward trend. Rates at 08:30am 26th August are as follows:

  • GBP/EUR 1.1397
  • GBP/USD 1.6328
  • GBP/AUD 1.9484
  • GBP/NZD 2.3708
  • GBP/CHF 1.7313
  • GBP/CAD 1.7731
  • GBP/ZAR 12.668

Sterlings Weakness
Sterling hit its lowest mark in two-and-a-half months against the euro yesterday as interest rate and bond yield spreads moved against it, and lost ground against the dollar despite equities recouping earlier losses.

The news was concentrating on the fact that British mortgage data on Tuesday showed that mortgage approvals in July jumped to their highest in 17 months, an increase of 7%, but growth in net lending was the weakest in nine years.

“We’ve had a cumulative build in risk appetite during the day … but one thing that’s been striking has been the powerful upswing in cable is starting to peter out, and euro/sterling is starting to trend higher,” said Robert Minikin, senior currency strategist at Standard Chartered in London.

As you can see from the drop in rates, markets reacted little to the mortgage news, instead concentrating on the deteriorating UK budget position and Bank of England’s aggressive quantitative easing programme will weigh heavily.

The US budget deficit will soar to almost $1.6 trillion (£979bn) this year, the highest on record, both the White House and Congress have warned. Fuelled by President Obama’s $787bn stimulus package and reduced tax revenues due to the recession, it compares with a $455bn deficit in 2008.

The White House says the deficit will grow further, predicting it will hit a cumulative $9tn from 2010-2019. However, it continues to expect the US economy to start to recover this year.

Usually you would expect this to weaken the US Dollar, and cause GBPUSD rates to rise. However, in the current economic turmoil, news like this simply spooks investors that are worries about the global economy, and actually drives these investors back to the US Dollar strengthening it, which is why rates have not risen.

Todays Data
We have already had import price data from Germany, coming in roughly as expected. There’s nothing much for the UK, with the rest of todays data all from the US. This could well affect pound rates against all currencies, as good news from the US will spur investment into risker currencies such as the pound, and negative data causing a flood back to the dollar which will cause the pound to fall.

US Data
13:30 Durable Goods and Mortgage Applications
15:00 New Home Sales,
15:30 Crude Oil Stocks Change
17:00 Fed Speech

Converting Your Currency
If you need to convert one currency to another, dont use your bank. Here at FCG we can get you commercial rates that can be up to 5% better than those offered by the banks. When converting large sums, even a small difference in the rate can make a huge difference to how many Euros, Dollars etc you get for your pound.

If you’re looking to transfer less than £10k, then open an online trading account. See rates yourself, book currency 24/7 when you decide.If you are looking to convert more than £10k, then a standard trading facility is for you.

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Sterlng Euro & Sterling Dollar September 2009

Sterling Falls
Sterling fell to its lowest level against the euro in two and a half months on Tuesday, as a bout of weakness in global equities helped darken the pound’s near-term technical outlook. Today we’ll focus on Sterling rates to Euro, US Dollar, and Aussie Dollar. First we’ll have a quick look at how low rates have dropped:

  • GBPEUR 1.1463
  • GBPUSD 1.6364
  • GBPAUD 1.9558
  • GBPNZD 2.3876
  • GBPCAD 1.7635
  • GBPCHF 1.7378
  • GBPZAR 12.775
  • GBPJPY 154.03

Sterling fell away last week and again slipped further on Monday, hovering around its lowest level against the Euro in over a month. The fall was attributed predominantly to the comments that UK interest rates will stay low as the economy struggles, while strong Euro data boosted optimism about the pace of the Eurozone’s recovery.

The Pound slipped towards the 87 pence level against the single currency in the aftermath of strong European purchasing managers’ indices last week. Also last week, Bank of England policy meeting minutes showed that there had been a push to extend quantitative easing more than was ultimately decided.

Minutes from the BoE’s August policy meeting last week shocked markets as some policymakers, including Governor Mervyn King, had voted for an even bigger increase of 75 billion pounds to its quantitative easing programme. The surprise 6-3 vote, which decided on a 50 billion-pound boost, raised bets that British rates would stay at a record low of 0.5 percent until well into next year.

Analysts said Sterling would remain under broad selling pressure in the short term on the view that the BoE is delving deeper into quantitative easing while other central banks may be winding down measures to stimulate their economies.

Meanwhile the Euro advanced to its highest level in more than a month against Sterling following on from data showing that the Eurozone economy contracted only 0.1% during the second quarter, the latest survey data supported confidence that the economy could soon return to growth.

The German ZEW research institute’s economic sentiment survey surged to its highest level in more than three years. Furthermore the Purchasing Managers’ Indices confirmed that business activity in France and Germany rose in August, helping to provide some stability to Eurozone economic activity for the first time in fifteen months.

The US Dollar initially strengthened last week against Sterling, as weaker global stock markets and sentiment about the strength of global recovery encouraged safe-haven demand for the Dollar. However, Sterling was able to gain back some of these losses throughout the remainder of the week, despite a worse than expected budget deficit for the UK (The deficit now stands at a staggering £8 bln.)

The US data generally confirmed improving housing and manufacturing sectors, supporting weekend comments from Federal Reserve Chairman Bernanke that the economy is beginning to emerge from recession. Both the New York and Philadelphia Federal Reserves reported stronger than expected rises in manufacturing activity in their regions.

Furthermore, US mortgage applications rose and existing home sales surged 7.2% in July to 5.24 million units, the highest level in almost two years. Traditionally all this would have meant just one thing, the dollar should strengthen and the pound should weaken, however, as regular readers are aware, the current global climate is far from ‘traditional’.

The contrasting opinion, held by many analysts, is that as data from the U.S shows the recession reaching an end there will be an increase in the amount of investors pulling money away from the safe-haven of the U.S. economy and investing in more high-risk assets elsewhere. This could have the opposite effect and weaken the USD and even potentially strengthen the Pound as investment in the UK rises.

All things considered, the direction of Cable is currently the subject of much debate amongst investors as well as analysts and with a plethora of factors pulling the Dollar in different directions the outcome remains unclear.

The second estimate of US GDP on Thursday could weigh on the US Dollar if the economy contracted more than expected and is worth keeping a close eye if you have any future requirement for $’s. For all additional information on data which could affect your Dollar purchase please contact your FCG Account Manager.

The minutes of the Reserve Bank of Australia’s 4th August policy meeting revealed that the Central Bank remains wary of raising interest rates too early whilst confidence remains fragile. This led markets to pare back some expectations of an interest rate rise in the near-term and undermined the Australian Dollar slightly.

However, the higher interest rate Australian Dollar was buoyed by rising risk appetite over the latter part of the week. The economic outlook also continued to improve, notably with a $50bn contract to sell liquefied natural gas to China.

The GBP/AUD rate closed at 1.969, down 0.8% from 1.985 a week earlier, benefiting those converting Australian Dollars into Sterling.

This week is relatively quiet for domestic releases. However, construction work data (Wednesday) and business investment data (Thursday) could boost the Australian Dollar if they raise expectations that next week’s economic growth report could be better than previously expected.

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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.

EU – Industrial New Orders
Can – Retail Sales

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

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

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

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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