Review of last week
Last week was an extremely volatile one for exchange rates, with huge swings seen in both pound rates for the Euro and the Dollar.
The most important day was Wenesday evening, when we saw the US announce a total of $1.2 trillion is to be created and injected into the econonmy, in a similar move to the UK's recent foray into Quantitative Easing.
The move was unexpected, and caused a big swing in rates. The news propped up the US stock markets, but the currency markets reacted with a severe weakening of the US dollar. Over the course of 2 days the GBPUSD rate jumped from 1.39 to 1.46. This is becuase as the dollar weakened as investors worried about the value being diluted due to more money being created.
The big sell off of dollars caused rates to climb as the currency became cheaper to purchase.
The GBP EUR rate moved the opposite way, dropping from over 1.10 down to 1.0550. It then recovered slightly to 1.0650. This morning it has climbed a bit further, just under 1.07.
Why did GBPUSD climb and GBPEUR fall?
Well, as the news of the rescue plan was announced, as explained above investors moved funds from USD weakening the dollar. When the Dollar weakens, the Euro very often benefits, as these investors move the funds from USD to EUR. So, as the dollar got progressively weaker, the Euro became progressivley stronger and therefore more expensive to purchase. This is why rates moved in opposite directions on one piece of news.
Volatile rates
Last week is a perfect illustration of how economic news can dramatically affect exchange rates in a very short period of time. It also shows how volatile the markets are presently with huge swings in rates. this week sees lots of data releases, so keep a close eye on this blog to see what the effects on exchange rates may be.
If you have a currency requirement and are worried about the curreny volatility, then get in touch today to discuss the different options we have available to protect you from loss.
What next for Sterling?
Sterling has faced a battering for months by a financial and economic crisis that has engulfed a the economy; our economy is heavily reliant on the banking and financial services sector.
After dismal figures last week showing a record surge in unemployment and a survey revealing that manufacturing orders fell at their fastest rate in 17 years, investors are now turning their attention to this weeks UK data releases (see below).
Inflation figures for February are due for release Tuesday, followed by key retail sales numbers on Thursday and the final estimate of fourth quarter gross domestic product on Friday, alongside the current account balance.
"We will get important information, such as the current account position for the UK and the household savings rate. So that will get a lot of attention," said Paul Robinson from Barclays Capital. He added that at these levels he considers sterling to be undervalued and expects it to make gains against both the dollar and the euro over the next few months.
So, if you are waiting to sell Euros, remember we are close to the best levels ever, and we may not see them last for long. However Euro buyers should also be cautious; in such a volatile market its impossible to predict with any degree of certainty which direction the pound will go.
More UK Job Losses
The Daily Mail has announced it is to cut 1,000 jobs, as the advertising slump continues to hurt newspapers. The job cuts are more than double what it estimated last November, and the company said it expected advertising revenue at its newspapers during the three months to March to drop by an underlying 24%, and to fall at Northcliffe Media as a whole by 37%.
The recession has hit advertisers and newspapers hard, with local publishers being especially affected. This may be only the beginning of job losses in this industry, as in the US many newspapers have disappeared in the recession. It is often said that when the US sneezes, the UK catches a cold. Well at the moment the US seems to have norovirus and we are severely affected aswell.
The news of job cuts combined with more negative data releases expected this week for the UK, will likely weigh heavy on the pound.
This weeks data
This week is extremely busy in terms of economic data releases for the US, Japan, the EU and the UK. We are likely to see some extreme volatility in exchange rates this week.
As mentioned above, for the UK we have Inflation figures for February are due for release Tuesday, followed by key retail sales numbers on Thursday and the final estimate of fourth quarter gross domestic product on Friday, alongside the current account balance.
Today we have the following data releases:
UK - Nationwide House Prices.
EU - Construction output and Trade Balance. (This is is a balance between exports and imports of total goods and services. A positive value shows trade surplus, while a negative value shows trade deficit.)
US - Home sales data, and also of note today is a speech by Timothy Geithner. He became the 75th Secretary of the department of Treasury in the US in 2009. In the press conference he will speak about how the Treasury Secretary observes the current US economy. His comments may determine a short-term positive or negative trend.
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