GBP/EUR rates
Today is extremely heavy with UK economic data, so expect big volatility in exchange rates. Before we look at what's being released, the budget, and the effect on exchange rates, lets take a quick look at where the markets are now after yesterday.
Exchange Rate Summary
Sterling did gain slightly yesterday, after inflation measures showed that the UK has not yet entered the dreaded deflation. Some newspapers had dramatic headlines to the contrary, but of course they were looking at the RPI - Retail Price Index. The true official measure of inflation remains the CPI - consumer price index. These figures were slightly better than expected, strengthening the pound through 1.13 on the Euro.
The Pounds rise
The pound has had a steady run over the last 6 weeks, with GBPEUR rising from 1.0550 to where we are today. GBPUSD recently was in the 1.35's and has now risen to over 1.50 before dropping back away. Prices for purchasing foreign currency with Sterling are significantly better than they have been of late, and with lots of negative data expected for the UK as outlined below, we could well now see the end of this run.
Sterling has been boosted by a climb in the euro and also other currencies that are perceived to be higher risk. Gains for Sterling have been limited by a fall in stock markets which have performed poorly following weak corporate earnings reports.
Investors and the currency markets are now bracing for what is expected to be an extremetly dismal budget.
Todays Data
We of course have the budget statement which is due at 12:30 today. This is by far the most important thing to look at today, but we also have:
The Bank of England minutes from the recent interest rate meeting- UK Jobless Claims
- Average Earnings Reports
- Unemployment Data
- Public Sector Borrowing
All of this is released at 09:30am. Unemployment is predicted to have risen by 130'000, pushing the total figure over 2 million. This will be the worst unemployment since labour came to power in 1997.
The borrowing figures are also likely to be poor, and so even before the budget statement, the government is bracing itself for bad news.
UK Budget Statement
This is due at 12:30. The BBC have a great analysis of the total budget, which you can see here. Here today however, we will just look at the parts of the budget which are likely to have an effect on the value of the pound and therfore Sterling exchange rates.
The budget is widely tipped to be the gloomiest for decades. The expected announcements will be big tax rises from 2011, huge cuts in public spending and also a massive rise in borrowing. It's also expected that growth forecasts will be slashed.
Its expected that it will confirm we are now in the worst recession since WWII. Borrowing will increase to almost £200bn. It will pay for all of this through 'efficiency savings'. Hmmm.
So, expect short term tax relief, following by the promise of huge borrowing, slow growth and big tax hikes in the future to pay for it.
It will not escape many peoples notice that it would seem the government are now blindly tying to borrow and spend their way out of the problem, safe in the knowledge there is an election in 2010 that not many people expect them to win.
So, the problems of how all this massive borrowing will be repaid will be left to the next government. The current one simply says 'Efficiency Savings' will cover the cost. So, if it works they'll be hailed as heroes. If it doesn't, then someone else will pick up the pieces. So they really have nothing to lose. The UK public however, have everything to lose.
Remember that most of the headlines and announcements you will see are just government spin, and we will have to read between the lines to see what the actual future for the economy looks like. Rest assured the currency markets will do this very quickly and correct the value of Sterling accordingly.
Given the bad news that's expected today, anybody that expects the pound to Strengthen and exchange rates to rise is likely to be sorely dissapointed. The news today is likely to frighten investors away from the pound, and I would not be surprised to see massive falls in Sterling as the day progress's, if indeed the economic announcements and budget statement is as expected.
If you have a requirement to purhcase currency with Sterling, then I would give serious consideration to getting a rate fixed as soon as possible so you can limit your exposure to a very volatile pound. Various contract types are available such as Forwards, Stops, and Limits that will mean you don't end up losing out if rates do indeed plummet.
Get in touch today to discuss your requirements or any of the above further.
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