Sterling gained yesterday against most currencies, after the Manufacturing and Industrial Production data was much better than expected. At point point the pound hit a four month high against the dollar, however later in the day unemployment figures were released, showing that UK jobless claims are now at 2.2 million. This was higher than expected, and so halted the gains of the pound.
We weren't even expecting the unemployment figures to be released until today, however due to an accidental release of some other figures, the jobless claims were released which surprised the markets slightly.
"That led to the setback we're seeing," said Antje Praefcke who is a currency strategist at commerzbank. She continued "overall it has been a rather positive day for Sterling because of the better than expected data this morning [industrial and manufacturing production] and the dollar generally being under pressure because of a friendly stock market environment pushing the dollar lower."
So, if you need to buy currency with Sterling, it may be worth considering taking advantage of the current rates, as further data today which we'll look at in a moment, could well cause the pound to fall back away. If you do want to gamble on rates going higher, then consider placing a Stop Loss order to make sure if your gamble doesn't pay off, you don't lose more than you can afford to.
Today's Data
EU - Industrial Production
UK - BoE Quaterly Inflation Report
UK - BoE Governor Speech
US - Import Price Index
US - Retail Sales
The most important releases today will firstly be the Bank of England quarterly Inflation Report. This is a detailed economic analysis and inflation projections on which the Bank's Monetary Policy Committee bases its interest rate decisions, and presents an assessment of the prospects for UK inflation over the following two years. It will have an effect on Sterling, depending on what is said in the report with regards to UK economic recovery.
Also we have a speech by the BoE governor Mervyn King. He gives a press conference as to how the BoE observes the current UK economy and the value of the GBP. His comments may determine a short-term positive or negative trend. Again, these comments will be closely watched as investors worry about when the economy will recover. Things could go either way today, so consider Stop and Limit Orders if you have a requirement and you're worried which way things will go.
This afternoon we also have Retail Sales data for the US. This will also be important, as if the figures are good then it may strengthen the dollar and cause rates to fall. of course if the figures are poor, then we could see the GBP USD rate go to the highest of 2009.
Summary
So, the pound is sitting at mid to high levels for the year against both the Euro and US Dollar. We have some important data for both the UK today and the US, with no consensus on what effect the data will effect. This is where Managing Risk is very important, as otherwise all you're doing is gambling. The sums of money used for property purchases abroad are large amounts to put to chance. So, what can you to to manage the risk?
Do Nothing – This high risk strategy means relying solely upon a spot contract and you won’t know the rate of exchange achievable until the actual point of buying the currency. The volatility and unpredictability of the currency markets makes this strategy high risk and speculative. The markets do move both ways, so it could result in a win (or lose) situation, however it does make budgeting for the future virtually impossible.
Secure a Forward Contract – This will enable you to lock into a rate of exchange the moment you know you have a currency requirement in the future. It will protect you against any market movement, both positive and negative and you will know exactly how much the transaction will cost you. The benefits extend to being able to calculate budgetary forecasts for at least the term of the Forward contract.
Use Currency Options –The two key tools are a Stop Loss order, which will protect you against adverse exchange rate movements and secure your currency if it falls below a pre-agreed level. The other is a Limit order, which is placed at the top end of the market to secure currency at a specific price that may not be currently available. This type of contract is particularly useful when the markets are moving in a positive direction for you.
To discuss any of these contracts in more detail, click on the banner below, open a free, no obligation account with FCG, and then you are eligable for a free consultation on your particular requirements.
