23rd August 2010
Pound vs Euro
Good morning. Last week saw a relatively quiet trading range for Sterling/Euro which moved less than 1.5% between the high and the low of the week (1.2070-1.2238) with the rate finishing a mere 40pips higher than where it started on Monday morning.
This was mainly due to a mix of data releases from both the UK and Eurozone which started with a 1.7% drop in UK house prices on Monday but was countered on Tuesday by poor Eurozone data; the EU current account figures were worse than expected (-€4.6bn) which shows less demand for Eurozone exports and therefore less demand for the Euro itself, and German economic sentiment from the ZEW was lower also.
The ZEW is a leading indicator of German economic health and outlook for the following 6 months and therefore gives a view to the Eurozone economy as a whole as Germany makes up over 25% of total Eurozone GDP.
The reading was much worse than expected; 14 down from 21.2 the previous month (a reading of 0 & below shows pessimism from investors and analysts alike) and helped the rate hit it’s weekly high of 1.2238 that afternoon. This was supported later in the week by better than expected UK retail sales and also a falling reading of public sector net borrowing, sparking investor confidence in the Pound as it shows the UK government are making cuts as promised and trying to reduce our budget deficit.
The relative quiet of last week could all be forgotten this week if, and only if, data is released as it is currently expected to be. At the time of writing this report we are expecting to see a raft of Eurozone inflation, industry and business climate figures during Monday-Wednesday that are all expected to be worse than previous readings.
Then, on Friday, we have the main release of the week which could spark quite a movement in GBP/EUR, especially when you consider it is a UK market holiday the following Monday. The reading is of course the revised UK GDP which on it’s first release (23rd July) helped the Pound gain nearly 2 cents against the Euro as it was much better than expected.
If the reading is maintained or even revised upwards from the initial 1.1% then we could see further Sterling strength, but if it is revised down as we have seen in the 2nd reading in 2 of the last 3 quarters, the Pound may start to lose ground which could be exacerbated by the 3 day weekend as investors will be looking to limit there exposure to any downward trends.
This Weeks Data
Below we list the main data releases for the week that we think may affect exchange rates. Fundamental data often has a big impact on the currency markets, and so can reduce or increase the cost of any currency purchase significantly.
We offer a free consultation to anyone that has a requirement to buy or sell a foreign currency. A consultation specific to the currency you need to trade, and the timescales you’re working to can help to maximise the rate you achieve, and being fully informed of data releases and other factors can help you make an informed decision on when to trade, and limit any impact market volatility can have. Contact us today to have your consultation, and make the next step to taking control of your currency requirements.
Monday
It’s likely to be a choppy day for GBP/EUR. The German and EU Purchasing Managers Index captures business conditions in the manufacturing sector. As the manufacturing sector dominates a large part of total GDP, the manufacturing PMI is an important indicator of business conditions and the overall economic condition in the Euro Zone. The figures today therefore may well cause some volatility for GBP/EUR exchange rates. Also from the EU is Consumer Confidence, which measures the level of consumer confidence in economic activity.
Tuesday
Gross Domestic Product from Germany is the most important release today. It’s a measure of the total value of all goods and services produced by the largest economy in the EU. The GDP is considered as a broad measure of the German economic activity and health, and may affect the value of the Euro. Retail Sales from Canada could move GBP/CAD today at 13:30pm. From the USA later in the day, we have home sales and the Manufacturing Index. The industry inflation can be seen from the survey, and so a high reading could cause GBP/USD rates to fall.
Wednesday
There are various measures of Business Confidence today for Germany, which may affect GBP/EUR rates. Those needing to buy or sell US Dollars should also contact us to discuss the release of Home Sales and durable goods orders.
Thursday
Yet more data from Germany today when the Consumer Confidence figures are released at 9am, coinciding with the Money supply release from the EU; expect some movement for GBP/EUR. From the US, markets will be closely watching the jobless and employment data from the US at 1.30pm.
Friday
Consumer Prices is the final German release of the week. This is the main indicator to measure inflation and changes in purchasing trends and so a high reading could strengthen the Euro, pushing exchange rates down. The main release before the bank holiday break though is Gross Domestic Product data from the UK and USA. This shows if the economy is growing along with forecasts. The figures can often vary significantly from the experts predictions, and so major currency pairs such as GBP/EUR, GBP/USD, and EURUSD could well be in for a rocky ride today.
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Labels: Fundamental Data, GBP/EUR Forecast