Pound vs Euro
Last week we witnessed another tough week for Sterling exchange rates versus a basket of currencies including around a 3.5% drop against the Euro at its lowest point. The decline came after speculation mounted that the UK could see a hung parliament when the election takes place in May.
Political uncertainty is one of the biggest market movers and with such uncertainty it’s no surprise Sterling is seemingly on free fall. Many of our clients are in the process of buying a property abroad and this drop could have increased a transaction by over £6000 based on a €200,000 transfer.
Even with this downward trend and outlook for that matter there is one word of caution from this trader. The currency markets are extremely volatile and often unpredictable so those with a transfer of Euros to Pounds may not see their requirement continually increasing. It is well documented of the problems currently being seen in Greece and this issue could turn rates around should increased negativity come to light.
One of the tools available to private clients and businesses alike, would be a forward contract. This is a contract set up to protect clients from adverse market movements by locking in a rate of exchange today for anything up to two years in the future. All that is required is a 10% deposit to take the contract and protect yourself from future losses whichever way your currency needs to be moved.
Other news last week saw both the Bank of England and European Central Bank keep interest rates on hold for another month at 0.5% and 1% respectively. As expected the market did not react to this in any particular fashion however there is still further uncertainty as to whether the UK will increase its Quantitative Easing program in the months ahead.
Many will be looking to the Bank of England minutes released in just over a week to see if the program was discussed in last weeks interest rate meeting, and what affect this could have on future exchange rate movements.
This week sees a limited number of data releases for the UK. Figures to be released will show Februarys GDP estimate and manufacturing production figures. Please see This weeks data section later in the report.
Pound vs US Dollar
During the past week we have seen the GBP/USD rate fall from a high on Monday to a low on Wednesday only to recover slowly for the remainder of the week. The inherent volatility in the currency paring is largely due to Sterling weakness with the UK economy currently facing; rumours of further quantitative easing, large debt deficits and the prospect of a week majority or hung parliament in the looming election.
The 1.9% fall between the high and low of the week with the limping recovery exhibited since, reinforces the importance of opening an account with FCG in order to exploit any possible short term gains. To move quickly and take full advantage of any fluctuation in a currency paring, click here to open an account free of charge that carries no obligation.
The GBP/USD rate remained above the psychological barrier point of 1.5000 at end of trading after the important ‘Non-Farm Payrolls’ release on Friday. The better than expected jobs data, despite stormy weather on the East Coast last month, led the government to forecast temporary contractions in payrolls and work hours. This has contributed to growing optimism and confidence in the U.S. economy.
The aforementioned data coupled with a rise in consumer borrowing for January, the first gain in a string of 11 straight declines, boosts the ‘Greenbacks’ reputation as the current safe haven currency. Those clients looking to safe house their currency deposits should get in touch today.
Moving on to the week ahead, there is a selection of important data releases towards the end of the week. Of particular importance will be figures for the US Trade balance on Thursday and retails sales on Friday. Positive readings for both will bolster the US economy, likely leading to dollar strength and a fall in GBP/USD rates.
This Weeks Data
For the UK, the main data to watch for is the GDP estimate and Industrial and Manufacturing production data. The GDP estimate comes out a month before the official announce. The report is highly reliable and would influence the UK monetary policy. The figures is expected to show growth of 0.4%, however UK recovery is fragile, and differing figures could harm the pound. The Industrial and Manufacturing Production data measures outputs of the UK factories and mines and the manufacturing output. The figures are seen as a short term indicator of the strength of UK manufacturing activity that dominates a large part of total GDP and so can affect the pound.
For the EU, we have data from Germany. Given it’s by far the biggest economy in the EU, German data has a big effect on the Euro. Watch for Industrial production data for Germany and the EU, and also Trade Balance and Consumer Price Index for Germany only. These figures give an indication of the health of the EU economy, and so good figures may strengthen the Euro making it more expensive to purchase. Not on the data list but of upmost importance is the continuing problems with Greece’s debt. Keep an eye on any developments that may weaken the Euro if Greece is bailed out.
For the USA, we have jobless claims and retail sales. Again, these are a barometer of the economy as a whole. The US seems to be recoving well from the recession, and so further good figures may strengthen the US Dollar and push rates back below $1.50.
As always, contact us to discuss your particular requirements, and one of our brokers can explain the particular data releases that may impact on the cost of your currency.
Monday
EU – Investor Confidence
Ger – Industrial Production
Can – Housing Starts
Tuesday
UK – Retail Sales
UK – Trade Balance
Swi – Consumer Price Index
US – Consumer Confidence
Wednesday
Ger – Consumer Price index
Ger – Trade Balance
UK – Industrial Production
UK – Manufacturing Production
UK – GDP Estimate
NZ – Interest Rate Decision
Thursday
Aus – Unemployment
EU – ECB Monthly Report
US – Jobless Claims
Swi – Interest Rate Decision
NZ – Retail Sales
Friday
EU – Industrial Production
Can – Unemployment
US – Retail Sales
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