Snapshot
GBP/EUR 1.1358
GBP/USD 1.4963
GBP/AUD 2.0705
GBP/NZD 2.6138
GBP/JPY 147.73
The pound continued its gains yesterday against most major currencies, breifly breaking through 1.50 against the US Dollar and smashing through 1.13 on the Euro. Prices at the time of writing are above, and live prices can be seen in the sidebar of the blog.
Why did Sterling gain?
Well, the pound got a boost after figures yesterday showed house prices in the UK fell again last month, however the fall was the slowest in 12 months and sales actually picked up from record lows.
Geoffrey Yu, currency strategist at UBS commented "The pound's rise is a combination of bona fide sterling strength from the housing data and the Europeans playing catch-up with regard to quantitative easing," said.
GBPEUR Sterling Euro Forecast
So, as the pound made gains following the good housing news, speculation that the European Central bank will make a foray into 'Quantitative Easing' also weakened the single currency, helping to boost the exchange rate. Interest rates will likely be cut by the ECB next month to 1%, which will then leave no other tools available to them other than printing more money to pump into the economy.
This has weakened the Euro, as investors anticipating lower interest rates, and therefore a lower return, start selling Euros to move into currencies with a higher yeild. This sell off weakens the currency, reduces the price, and the net result is higher exchange rates.
Be aware though, that this boost in rates could well be short lived. There is actually little good news for the UK at the moment, as summed up by Daragh Maher, deputy head of global foreign exchange at Calyon:
"For a currency as badly battered as sterling, the simple lack of bad news is proving enough for its revival,"
Yes, we have had more enquiries about property, hence Sterling strength, however actual mortgage approvals remain low, so the renewed interest in housing can be taken with a pinch of salt. The economy is still not recovering, and it's important to remember that the gain in rates is mostly Euro weakness, rather than Sterling strength. Exchange rates will always move up and down, but given that they have been consistently rising recently, we could be due a correction as I beleive Sterling is currently overvalued.
For that reason, consider fixing your rate now while levels 7% better than a month ago. If you do want to continue gambling that the rate will increase, at least cover yourself with a Stop Loss order so you don't risk losing all the gains the pound has recently made.
If I had to buy Euros, I would be seriously worried about the rate dropping. My recent article about managing risk may prove useful if you have a requirement to buy Euros.
Todays Data
Nothing of note again for the UK, but lots from the EU that could change GBPEUR prices and also figures from the US, New Zealand and Canada.
EU
Consumer Price Index (CPI) - this captures the changes in the price of goods and services in the EU. It's a good way to measure changes in purchasing trends and inflation in the Euro Zone. if figures support the case for a rate cut in the EU next month, we could see furhter weakness in the Euro.
Industrial Production - production from manufacturing and factorys. again, a good indicator of these sectors of the economy.
US
Building Permits, Jobless Claims and Housing Starts, all released at 13:30. If you are worried rates will fall, call to fix yours before the figures are released, and protect yourself.
Philly Fed Survey - This is about manufacturing conditions, and is an important indicator of the US economy as a whole. This is released at 3pm.
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