Sterling GBP US Dollar USD Forecast.

Today we will look at UK and US data released that are likely to cause volatility in exchange rates. First, lets take a quick look at where the markets are this morning....

The euro hit its highest in over six weeks against a very weak pound yesterday, as investors tried to position for UK jobs data, minutes from the Bank of England's last policy meeting and the Fed's policy decision. Generally investors will move their funds in anticipation of data releases, in order to get the greatest yield. This is what causes rates to move before actual data releases.

At the time of writing, GBPEUR is 1.0715 and GBPUSD is 1.3945. For up to the second prices, see the live currency feed in the sidebar of this blog >>>>>

So, as today has so much economic data that's likely to cause a turbulent day, todays post will take a detailed look at the data releases and what this may mean for the currency markets.

UK Data
BoE Minutes
The most important release today is the Bank of England minutes. The details of the Monetary Policy Committee (MPC) meetings are published today, two weeks after the interest rate decision to cut rates again to 0.5%.

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. Because it gives an idea as to the BoE's view of the UK economy, it often causes volatility. Anticipation of a gloomy outlook is what has caused rates to fall already today.

Unemployment
3 different releases today regarding UK unemployment, all released at 09:30. Official figures due out are expected to show that unemployment has risen to more than 2 million for the first time since 1997. Analysts predict that the data for November to January will show that the number of people without work rose by more than 150k during the period.

UK unemployment totalled 1.97 million during the October to December quarter. There are now 10 jobseekers for every vacancy advertised in UK jobcentres, the TUC claimed earlier this week. Again, this is likely to weigh heavy on Sterling, as the economy sinks deeper into recession.

US Data
Interest rate decision
The Fed announces the decision at just after 6 o'clock UK time. Interest rates affect the whole range of interest rates set by commercial banks, building societies and other institutions for their own savers and borrowers. It also tends to affect the exchange rate. Rates are already close to zero in the US, so its unlikely they will be moved today.

Consumer Price Index
4 different measures for US inflation released at 12:30 today. They are a measure of price movements by the comparison between the retail prices of a representative basket of goods and services. The purchase power of US Dollar is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Again, its a strong indicator of economic performance so expect volatility is GBPUSD (cable) today.

Other News
More gloomy news for the UK I'm afraid. The recession will last longer in the UK than in any of the world's other major economies, the International Monetary Fund has predicted.

The IMF warned the UK will be the only member of the G7 group of leading industrial countries that will continue to see its economy contract in 2010. The UK fell into recession in the second half of last year after two consecutive quarters of falling output.

The IMF said the UK economy will shrink 3.8% this year and 0.2% in 2010. By contrast, the G7 nations will see their economies decline 3.2% on average in 2009, before growing 0.2% next year, the IMF predicted

What does this mean for exchange rates?
If you are buying currency with Sterling, then its really not good news. Unemployment set to go up again, economy in recession, and a very dire prediction that the UK will be the only major economy still in recession this time next year. This all points to the pound continuing to perform worse than other major currencies.

If you are buying with Sterling, consider locking rates in now with Forward Contract to protect you from further loss.

If you are selling currency for Sterling, then rates are close to record highs. Holding out for better rates may be risky though, as outlined above current gloom is already partially priced into rates. Given that current levels are so attractive, is it worth holding our for an inch only to lose a yard? Protect yourself against this with a Stop Loss order. This still lets you hope for a better rate, but give you a 'worst case' scenario so if levels do move the wrong way, you are protected.

Tools like this are what make trading with Foremost Currency Group so attractive. Control your risk, and dont let the markets control you!

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