Pound to Euro Forecast
Last week we witnessed a volatile week for the GBP/EUR pairing with a massive 4.1% difference between the high point and low point of the week, in monetary terms this would mean a huge difference of £8,200 on a £200,000 trade. The high point of 1.18370 was near the highest level seen since June of last year and represented some excellent buying opportunities.
Confusion and unrest seem to have gripped the Eurozone following Nicolas Sarkozy’s statement at a Brussels summit of EU leaders on Friday that unless drastic measures were taken France would pull out of the Euro. Share prices dropped across Europe and the Euro has slid to an 18-month low against the dollar on fears that the Eurozone bailout of Greece will fail.
Reports have surfaced that French president threatened to pull his country out of the single currency altogether to force Germany to agree to the rescue plan. Sarkozy reportedly demanded "a compromise from everyone to support Greece ... or France would reconsider its position in the Euro." This obliged Angela Merkel to bend and reach an agreement. As if this didn’t put the Euro under enough strain, the panic selling was stoked by news that Spain's underlying inflation rate turned negative in April for the first time on record, adding to fears that the country is facing a cash crunch.
Summary
All of these factors have put the Euro under a considerable amount of pressure and it is fair to say that it has never looked quite so fragile, potentially we could see the Euro continue to depreciate further. If you are looking to sell your Euros it may be prudent to contact your account manager at Foremost and ensure your trade is executed at the most profitable time in accordance with your requirements.
Tuesday saw the release of The Bank of England Interest Rate decision, this was largely ineffective as it remained at 0.5%, meaning it had little to no effect on investor confidence And therefore the currency markets.
Wednesday saw the release of the UK Jobless Claims Change, Jobless Claims fell less than expected in April as the Claimant Count dipped to 4.7%; Unemployment remained at 8%. Once again this had little effect on the markets. The same however, cannot be said of Bank of England Governor Mervyn King’s statements during the central bank's quarterly Inflation Report.
King has persisted with his view that a weak pound is good for the UK economy, and his huge influence inevitably caused the pound to depreciate in strength slightly as investor confidence was shaken. Similarly, New Business Secretary Vince Cable’s planned reform of the UK banking sector has dented investor confidence also, and as a result, put Sterling under pressure on Wednesday, encouraging the decline against the Euro down to 1.165.
Contract Types
The pessimistic view of investors is likely to continue in the short term as the new UK government begin to put in place the necessary changes to claw back some ground against the nations economic deficit. This means now could be an ideal time to lock in a rate with The Foremost Currency Group by way of a forward contract, of which your account manager will be able to navigate you through the process of placing a forward option to protect against further Sterling depreciation. Contact us today to find out more information and discuss all of the tools at your disposal.
This Weeks Data
Below is a breakdown of the weeks’ data, day by day. The biggest driver in exchange rate movements this week however will be unexpected developments such as continued fallout from the EU bailout of Greece, and further political developments from the UK. With the election over with however, focus is returning to the deficit; so watch for any comments from the government or central banks regarding this.
While scheduled economic data releases can have an impact on the exchange rates, it’s important to remember they will already have been forecast and priced into the market to some extent. It’s if the data is significantly different from these forecasts that an effect can then be seen in exchange rates. For example, high jobless claims for the US could still strengthen the currency if the increase is less than expected. It’s rarely as simple as good news/bad news.
Data releases will affect you in different ways depending whether you need to buy or sell a foreign currency, and of course which currency you need to trade. Contact us today for a free consultation with one of our expert FX traders; put yourself in a position where you’re in control, and don’t let the markets control you.
Monday
House prices from the UK yesterday evening caused slight movements on the market. Elsewhere today we have some manufacturing and housing data from the states. The US Dollar has gained much strength in the last week, so more good data may reduce GBPUSD rates. Producer Prices from New Zealand this evening may affect GBP/NZD rates.
Tuesday
We see the minutes from Australia’s recent interest rate decision could cause volatility for the Aussie. The main news today will be for Sterling and Euro. For the UK we see various measures of inflation and retail sales. This will give an idea how the UK is recovering from recession. From the EU Trade Balance data and inflation measures are a good barometer of the EU economy, along with the ZEW survey that measures sentiment and confidence. The bailout is likely to continue to take centre stage though. There are also inflation measures from the USA, so we expect volatility for all major currencies today.
Wednesday
Today’s all about the UK, US and EU central banks. The BoE minutes are released today; Interest rates and Quantitative Easing will be largely ignored – what we’re looking for is further information on their view of plans to cut the UK deficit, which they touched on in a speech last week. There’s also a speech by the ECB today and Federal Reserve today. Their comments often affect exchange rates significantly. We have further inflationary measures from the states today also, which could cause further strength for USD if above forecast.
Thursday
A quieter day, with Retail Sales for the UK giving an idea how confident the public are about the economy. Consumer confidence measures from the Eurozone will likely impact on the single currency, and jobless data will be watched closely from the USA.
Friday
GDP from Germany will play a part in the Euros value, along with measures of business confidence. Those needing Canadian dollars should also pay attention today, as we have inflation measures and retail sales.
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