28th September 2010
Good morning. The pound rose against the USD yesterday, and also slightly against the Euro. Today we'll look at the reasons why, the impact of today's GDP data and also where rates may head for the remainder of the year. In addition today, we have an extra report on the Swiss Franc. First as usual a snapshot of where rates stand as at 08:30am:
Pound rises against US Dollar
- GBP/EUR 1.1787
- GBP/USD 1.5786
- GBP/AUD 1.6481
- GBP/NZD 2.1569
- GBP/CAD 1.6341
- GBP/CHF 1.5559
- GBP/ZAR 11.095
- GBP/HKD 12.246
- GBP/JPY 132.79
- GBP/HUF 327.19
- EUR/USD 1.3387
Sterling hit a 7 month high against the dollar yesterday. The reason is that markets expect the US to pump more money into the economy through Quantitative Easing. This is where money is created and pumped into the economy to help the recovery. The fact that this is needed worries investors on the state of the US economy, and USD has weakened as a result. Buying levels for USD are very good at the moment, so get in touch if you need the best rates for US Dollars.
Sterling also rose slightly against the Euro yesterday, but only slightly. The IMF supported the governments plans for fiscal cuts, effectively endorsing the approach that the coalition is taking. Markets liked the comments, and the pound rose slightly.
However, we're still around a 4 month low against the Euro. Any negative market data may well push the pound lower. Indeed we think there's more chance of a further decline rather than rates increasing. GDP data today will be key; see below.
Germany today releases Retail Sales and Consumer Prices. Both of these will give an indication of the economy, and as Germany is the largest economy in the EU, it can affect the value of the Euro.
From the UK, GDP data will likely have an impact on Sterling. We expect a 1.2% figure – less than this expect exchange rates to fall, more than this expect them to climb. GDP is very important, as it shows if the economy is growing at the expected pace. It's also very hard to predict, so watch for the figures at 09:30am this morning, and expect some volatility.
Pound vs Swiss Franc (CHF)
A dovish outlook from the Swiss National Bank at the beginning of the week sent the Alpine Unit tumbling as it raised the prospect of intervention. The statements took on added weight following the Bank of Japan’s recent efforts to de-value the yen, as despite being situated across the globe, both central banks’ face similar issues, reinforcing the uncertain state of the global economy.
Concerns over future growth have predictably fuelled support for the safe haven currencies as investors exercise their right to risk aversion. The Swiss Franc has appreciated this past week to a level which is threatening demand for exports and importing deflation, which is a major threat to growth.
Further appreciation can’t be ruled out, especially if a broader flight to safety occurs with investors heading for sanctuary in the Franc. Additionally, and of particular relevance to British buyers of CHF, there are still risks that the Bank of England could add to their stimulus efforts, which may be a weighing factor for GBP/CHF, leading to a resumption of the bearish trend.
Sticky inflation in the U.K. and signs that growth is sustaining makes a case for an MPC rate hike, although this is seemingly not as obvious to the MPC members as it is to the rest of the financial world.
More importantly however, Swiss National Bank intervention is the greatest case for a more positive Alpine position, which makes buying CHF a low risk proposition with equal potential for reward. If you are looking to purchase CHF it may be the case that now is the best time to do so depending on your time scale. In order to ensure you attain the best possible rate of exchange for your purchase, stay in contact with your account manager here at FCG for an up to the minute evaluation and informed opinion of the markets.
If you are looking for the best exchange rates, click the link below to send us an enquiry, and have a free consultation on what's happening in the currency markets.
Labels: CHF, GBP/USD up., GDP Figures