Pound vs Euro & US Dollar forecast

Pound vs Euro
Last week saw the most volatile GBP/EUR trading for some months, with the pound benefiting throughout the week from the continuing financial crisis in Greece as well as early estimates of UK quarterly GDP figures suggesting that the UK economy has reached the end of recession.

This proved a massive boost for the pound which reached a 5 month high at around 1.1550, an improvement which would mean a saving of roughly £3000 on a £100,000 transfer to Euros compared with the exchange rate a week earlier.

Sterling did lose some ground on Friday following worse than expected UK Retail Sales Data, closing the week at around 1.14, highlighting the importance of capitalising on exchange rates quickly when the chance presents itself.

Looking forward to this week more volatility can be expected with Tuesday morning’s announcement of the official UK GDP figure for last quarter likely to be extremely significant. Any deviation from the predicted 0.3% rise would almost certainly move the market dramatically one way or the other. If the figure were to show that the economy is still in recession then the all the recent Sterling gains could be completely wiped out which would obviously have a seriously detrimental effect on anybody with a substantial Euro purchase to make in the near future.

With market prices rising and falling so quickly it is more important than ever to stay in regular contact with your account manager who will be able to explain the benefits of forward contracts and limit and stop-loss orders to maximise your return from your currency transfer.

Pound vs US Dollar
Sterling and US Dollars were the two strongest currencies of the majors last week, which led to a slightly narrower trading range than other Sterling pairs. The market closed out the week at 1.6258, down slightly from 1.6287 where it started the week.

The strength of Sterling has been well documented, with the upcoming official GDP figures on Tuesday predicted to show the UK is exiting recession, the last of the G8 economies to do so. The Bank of England minutes were relatively uneventful, with members voting unanimously to hold the base rate of interest at 0.5%, and maintain the quantitative easing at the current £200bn, with many analysts now believing the asset purchase scheme is now over, and we could see an increase in the base rate later this year.

Across the Atlantic, we have seen the Dollar also looking strong. President Obama proposed new banking reforms to prevent any bank becoming “too big to fail” as in the cases of AIG and many other institutions at the start of the economic troubles. These proposals received a lukewarm reception from the banking sector, creating the uncertainty which we have come to see causes a fall in risk appetite and thus dollar strength.

Looking to the week ahead, the headline news will be the UK GDP figure for Q4 of 2009, published on Tuesday. It is predicted to show the UK is out of recession. The National Institute of Social and Economic Research (NIESR) published an estimate of 0.3% growth, and analysts are expecting the official figures to confirm this. The US also publishes their Q4 GDP on the last day of the month, Friday 29th, alongside their unemployment figures for the quarter. The Federal Reserve will meet and review their base rate on Wednesday evening, with no change expected.

With the major figure releases throughout the week, speak to your FCG account manager about all the tools available to take advantage of the market highs.

This Weeks Data
Last weeks movements in the currency markets demonstrated the importance of economic data releases on the currency markets. At the beginning of the week, we listed the known figures and the date of publication. Analysts already forecasted what the results would be, and investor’s bought/sold currency on the basis of these estimates. When the actual figures are better or worse than expected, the markets correct as a result.

A good example is last weeks Consumer Price Index data; it was much higher than expected and boosted the pound in one of Sterling’s strongest weeks in some time. Remember, markets often move more on rumour than fact.

So, what does this week hold?
We have some significant data for the UK. Firstly on Tuesday we will see the official Gross Domestic Product (GDP) figures. GDP is a measure of the total value of all goods and services produced by the UK. The GDP is considered as a broad measure of the UK economic activity and health. We’ve already had the estimate, and the official figures are expected to show the UK is out of recession. This is expected though, so may not have a huge impact, however if the figures are significantly different than forecast, expect Sterling volatility. There are also GDP figures for the USA and Canada later in the week.

In the Eurozone, there are unemployment figures and confidence surveys. Fears over the fiscal position of some EU countries contributed to Euro weakness last week causing GBP/EUR rates to climb, so watch these releases closely for an indication of EU risk appetite.

There’s an interest rate decision for the USA also, although we expect no movement for the FED.

For detailed information on how releases can affect your particular requirement, contact your account manager at FCG today for a free consultation. In this way, armed with expert knowledge you can make an informed decision when to buy, thus controlling the markets rather than letting the markets control you.

Monday
Aus – Producer Price Index
US – Home Sales
Ger – Consumer Confidence

Tuesday
Jap – Interest Rate Decision
UK – GDP Figures
US – Consumer Confidence

Wednesday
Aus – Consumer Price Index
NZ – interest Rate Decision
US – Interest Rate Decision
US – new Home Sales

Thursday
Ger – Unemployment
EU – Consumer Confidence
EU – Economic Confidence
US – Jobless Claims
NZ – Trade Balance

Friday
UK – Consumer Confidence
EU - Unemployment
US – Gross Domestic Product
Can – Gross Domestic Product
US – Employment

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