GBP/EUR and GBP/USD forecast

Sterling to US Dollar rose again on Friday. The reason was two fold; slighty better than expected services data for the UK which strengthened the pound. We also saw negative jobs data from the US; the number of people unemployed in the US rose by 663k in March which was much higher than expected.

The jobless rate rose to 8.5% unemployed - almost a half percent increase from February's figure. Unemployment in the states is now the highest since 1983. The bad news on the jobs front followed figures released last thursday showing that claims for unemployment insurance rose to 669,000 last week from the previous week's revised figure of 657,000. This figure was higher than had been expected, and also the highest for more than 26 years.

So, as the figures were worse than had been predicted, the dollar weakened significantly and exchange rates have risen. As you can see from the chart, in just a month rates have increased by almost 10%. In fact, a purchase of $250k today is nearly £17k cheaper than a month ago.

Sterling Euro is also looking not bad at the moment, having risen from 1.0550 to 1.10 in around 2 weeks. Again, the reasons here are two fold - Sterling strength from better than expected service figures. The Euro weakened significantly last week following the ECB's decision to cut EU interest rates by just 0.25%. Most analysts had expected a 0.5% cut.

Expected releases like this are often priced into the market some weeks in advance. So, GBPEUR rates were reflecting the expected half point cut. Because the actual cut was only half of this, the EUR value weakened significantly and rates have risen.

It's an impossible question to answer! Nobody can accurately predict which way exchange rates will go. What we do know, is the reasons for the recent increase in rates is more to do with weakness in the respective economies, rather than any particular recovery for the pound.

So, what we do have is an opportunity to buy foreign currency at rates much better than only several weeks ago. Spikes such as this in the market tend to be fairly short lived, so if you have a requirement to purchase foreign currency, it's worth serious consideration in fixing your rate now so you know the actual cost.

The UK is still in a deep recession and most forecasts seem to suggest no recovery until the end of 2009 or 2010 at the very earliest. In fact news this morning shows that the UKs deficit is about 2.7% more than Alistair Darling originally outlined.

it's been reported that the government will have to find £39 billion a year by the end of over the next 5 years to plug the gap. Mr Darling has also said the recession will be more severe than forecast. Both Mr Darling and Gordon Brown are due to meet the Bank of England governor to discuss measures agreed at the G20 summit.

So, with the UK still in turmoil, and questions still to be answered on how the economy will recover, expect continued pressure on the pound. The weakness of some other major currencies such as USD and EUR may not hang around for long, so consider using one of the tools we have available such as a Forward Contract to ensure you know the cost of your purchase.

For the EU we have Retail Sales and the Producer Price Index. Purchasing Managers Index is also released for Canada in addition to some building permits data. Tomorrow is there is much more for the UK, so check for tomorrows post to see what this may mean for exchange rates.

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