3rd September 2010
Good morning. Sterling fell against the euro and the dollar yesterday as weaker-than-forecast housing and construction data added to concerns that a fragile UK economic recovery could be running out of steam.
Pound falls on housing data
The pound hit a three-week low versus the euro after data showed growth in the UK construction sector slowed markedly in August, adding to the view the economic improvement seen in the first half of the year may not be sustainable. There are fears that if the UK slips back into recession, the pound will fall and this is what happened yesterday.
So, sterling is very vulnerable at the moment so any further poor data will likely push the pound further down. If you need to buy currency with Sterling in the next few months, then you should consider either a Stop Loss order, whereby your currency is bought if it falls below a pre-agreed level, limiting any loss. Alternatively, you can fix today's rates with a Forward contract and only pay a 10% deposit. This means you know the cost of any currency required for up to 2 years.
ECB raises growth forecasts
The European Central Bank (ECB) has raised its forecast for eurozone growth for this year and next year. ECB President Jean-Claude Trichet said the upgrade reflected the "stronger-than-expected rebound" in the zone's economy. Mr Trichet said the eurozone recovery has been supported by global growth and reflected "temporary domestic factors".
He added, however, that "uncertainty still prevails".The figures confirmed that the eurozone is growing faster than the US, which grew by 0.4% during the quarter. Mr Trichet said he expected eurozone growth to "moderate" during the rest of the year.
If this continues then the Euro will become stronger than the pound, and thus more expensive to purchase. The net effect will be a drop in the exchange rate
We have some Retail sales and inflation data for the Eurozone this morning, so there may be some volatility in GBP/EUR rates. Later today there is a raft of jobs and unemployment data from the US, so GBP/USD may also be affected today.
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Labels: EU Growth revised up, Pound falls on housing data