Pound vs Euro
Last week we witnessed a relatively quiet week for Sterling/Euro exchange rates with little more than a 1% movement between the high and low of the week prior to Fridays trading session. The movements did show greater volatility on Friday seeing a 1.3% drop for Sterling across the day. This movement came as a surprise to many after the Eurozones trade balance figures came out significantly worse from a prediction of 0.8bn to an actual reading of -3bn.
The strength for the single currency following this was a shock and shows that the obvious doesn’t always happen in the currency markets. One of the tools best suited to this kind of scenario is a stop loss order, where a minimum level can be placed in to the market protecting clients from any market downturn. Speak to your account manager today for more information on the various tools at our disposal to maximize your individual requirement.
One of the principle theories behind Fridays rally for the Euro came from comments made by the president of the Eurogroup of eurozone finance ministers Jean-Claude Junker, when speaking about this weeks stress tests for Eurozone banks.
When asked by an Austrian newspaper if he expects some banks to fail, he said: "I am not expecting any big catastrophes. “He added that the eurozone's single currency remains strong. ""The euro will outlive its critics, it is not in danger," he said.
Other news of note last week saw UK unemployment fall to 7.8% when forecasts had predicted this figure to remain at 8%. This didn’t have the impact many would have hoped for as the markets barely reacted to the news when it would have been expected to gather strength for the Pound.
The week ahead sees a host of data releases which could affect GBP/EUR exchange rates with the most important from a UK perspective likely to be on Wednesday in the form of the Bank of England minutes released at 9:30am.
The main news that will be highlighted is how the 9 members of the MPC voted on the subject of the UK interest rate. Last month member Andrew Sentence surprised many by voting for a rate increase and we will learn if any other members have followed his lead.
If more of the committee have backed the idea it could suggest the UK is finally ready to move up from the base rate of 0.5% which has been held since March 2009. A move like this could give Sterling back the edge over the Euro and start to make some gains come the next Interest rate decision in August.
This Weeks Data
A relatively varied assortment of data releases across the globe this week, the main event of note coming from the UK GDP figures release on Friday, which could have a big impact on the Sterling cross exchange rates depending on content. The US have busy days on Thursday and Wednesday respectively. Contact us today for a free consultation on how economic data can impact on the cost of your currency purchase.
A reasonably quiet day for data releases, Rightmove house prices are released for the UK, in the Eurozone we have the current account and construction output figures, if lower than expected we could see Euro weakness. In the US we have the NAHB Housing Market Index.
M4 Money Supply released by the Bank of England today, which measures all the sterling in circulation. It is considered as an important indicator of inflation, as monetary expansion adds pressure to the exchange rates. Normally, an acceleration of the M4 money is considered as positive for the GBP, whereas a decline is negative.
The Net Borrowing released by the National Statistics captures an amount of new debt held by the U.K. governments (the financial deficit in the UK national accounts). Generally speaking, if the Net Borrowing is negative, it means the UK Accounts are surplus, and that should be positive for the GBP.
Wednesday sees the Bank of England minutes release in the UK , this could prove to be positive for Sterling. In the US, the MBA Mortgage Applications is released by the Mortgage Bankers Association. It is considered as a leading indicator of the U.S Housing Market. A Mortgage growth represents a healthy housing market that stimulates the overall US economy.
Normally, a high reading is seen as positive for the USD, while a low reading will be seen as negative. Australia has the Westpac Leading index release, which sometimes has an impact on AUD volatility.
A reasonably busy day for data release across the globe, in the UK we have the retail sales figures, in the US jobless claims data, In the Eurozone we have the Industrial new orders released by the Eurostat, which captures the value of new contracts for goods in the manufacturing sector.
An increasing number of Industrial New Orders predicts enhanced production and a growth in the GDP. Normally, a high reading is seen as positive for the single currency, while a low reading is seen as negative. In Australia, we have the RBA foreign exchange transaction release and in Canada, the monthly retail sales figures.
In the UK we have the second quarter Gross Domestic Product release by the Office of National Statistics. This 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. Generally speaking, a rising trend will have a positive effect on the GBP, while a falling trend will be seen as negative.
In Australia we have the release of the Import Price Index. This displays the changes in the price of imported products. It is released by the Australian Bureau of Statistics. The higher the cost of imported goods, the stronger the effect they will have on inflation, resulting in a higher probability of a rate rise. Therefore, a high reading should be taken as positive for the AUD.
In Canada the Consumer Price Index is released by the Statistics Canada. This is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of CAD is dragged down by inflation. Generally speaking, a high reading is seen as anticipatory of a rate hike and is positive for the CAD.
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