Pound vs Euro
Over the past week we have seen a steady positive movement for the Sterling-Euro currency pairing. This morning we're near €1.14 which is the best it's been for some time.
With the bullish behaviour exhibited by the Pound, Euro prices rose 1.8% from the lows to highs of the week. Starting the week with bad news for Sterling was the data released stating that the number of home loans weakened during this last quarter. This suggests the expectation that the Bank Of England and Monetary Policy Committee are likely to remain dovish in outlook, maintaining their current currency policy throughout the second quarter as the economy continues it’s protracted recovery.
The final revision of GDP for the 4th quarter on Tuesday coupled with data for the House Price Index; saw better results than in previous forecasts. This aided the Pounds’s ascent against all major currencies, only slowing slightly on Wednesday as Germany announced a contraction in unemployment figures.
Thursday saw a statement from the Bank Of England addressing the home loan issue previously mentioned; “some lenders commented that much of the fall in demand in Q1 was driven by temporary factors, such as the cold weather and the ending of the stamp duty holiday.” The feeling is that next three months will see a positive stance adopted by lending institutions giving Sterling strength in the currency markets. This good news as well as unexpected drops in German retail sales meant a rise in the GBP/EUR rate to it’s high of the week.
The trends displayed this past week demonstrate the worth of staying up to date in order to maximise your currency purchase potential. By contacting your account executive here at the Foremost Currency Group for a free consultation, we can help you to optimise that purchase. For example, buying €200,000 this past week on Thursday instead of Monday, could have meant a saving of over £3200.
In the financial markets, as we moved onto the 4 day Easter weekend; the Greek debt crisis reared it’s head. The market’s were apparently unconvinced by the EU’s IMF-assisted scheme to bailout the debt-ridden southern European economy, should they fail to finance their gaping fiscal shortfall. Against a backdrop of lackluster interest rate outlook, last week’s dismal auction of 12-year Greek bonds saw only €390m sold, compared to the €1bn on offer.
The market seems intent to test the resolve of the EU by actually forcing through a bailout, making the Euro’s performance reliant on the brevity of policymakers.
The sloppy approach to the situation so far also bodes ill for the single currency. Indeed, if the Euro Zone can’t muster a response to troubles in a small member state like Greece – just 2.6 percent of the currency bloc’s economy – this surely invites unfavorable expectations about the kind of havoc that could be caused if a country like Spain (11.8% of Eurozone GDP) or even Italy (17% of Eurozone GDP) meet a similar fate.
Improvements in the GBP/EUR rate are subject to pressure this coming week as the economic calendar presents major event risks with the BoE rate decision and PMI Services both due this week.
Expectations are that the central bank will keep it’s benchmark lending rate at 0.50% and continue to pause its quantitative easing program at £200 billion.
It is difficult to gauge market reaction to such a move as previous months have shown a stark difference in reaction to the same news. Closing the curtain on the program shows a vote of confidence in an improving economy and could lead to an extension of the recent rally seen by Sterling.
As we move ever closer to an impending General Election, news has shown that the Conservatives have managed to widen their lead in opinion polls (conducted by YouGov Plc), commanding 39 percent of the vote against Brown’s ruling Labour at 29 percent suggest a 20 seat majority and no hung parliament at the upcoming elections set to take place on the 6th May.
Pound vs US Dollar
The Pound rose against the US Dollar towards the end of last week after better than expected manufacturing data, while a poll indicated that the Conservatives could win a clear election victory also increased investor appetite.
The Pound hit a two-week high against the Dollar over the Easter break, hitting $1.529 before paring these gains yesterday. The data last week reduced the slim risk that UK growth could slip back into negative territory in the first quarter, but the risk of the recovery continuing at a muted pace remains as demonstrated by the fact rates have already dropped this week.
Sterling slipped versus the Dollar yesterday as mixed UK opinion polls took the shine off the Pounds recent rally, and political uncertainty came back to the fore with a national election to be called today. GBP/USD was trading down around 0.7 percent versus the Dollar at $1.5180, having hit a two-week high of $1.5320 on Monday in holiday-thinned trade.
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