25th October 2010
Good morning. Sterling is down again against the Euro this morning, continuing it's downward trend. At 08:30am rates are as follows:
Pound vs Euro
- GBP/EUR 1.1200
- GBP/USD 1.5725
- GBP/AUD 1.5798
- GBP/NZD 2.0868
- GBP/CAD 1.6021
- GBP/CHF 1.5234
- GBP/ZAR 10.805
- GBP/JPY 126.54
- GBP/HUF 305.66
- EUR/USD 1.4037
In a week which saw ‘Wayne Rooney’ take most of the headlines it was almost forgotten that Chancellor of the Exchequer ‘George Osborne’ had stepped up and spoken about the radical changes he was going to implement to the British economy.
Fiscal deficit in the UK is up at a whopping £178 Billion and while cuts are absolutely essential it is going to hit the spine of Britain a lot harder than first thought. The coalition Government has to be very careful that they don’t drive the British economy into another deeper and darker recession.
The economy is currently precariously balanced by the fact the spending cuts are positive for the pound, while there is also the risk the cuts could push the UK back into recession. Data this week could easily tip the scales depending on the results, so we expect another volatile week for the pound.
Pound vs US Dollar
The volatility of the GBP/USD pairing was back to it’s volatile best this week with highs pushing through 1.5992 and lows sitting at 1.5682. With the pound apparently weakening against the dollar this week, Sterling is looking vulnerable following the release of the Bank of England minutes and George Osborne’s announcement of the Treasury’s austerity measures, realisation of just how deep the budget cuts will go affecting investor confidence across the board.
Analysts believe next week could see major volatility in both currencies due to the Fed’s continuing talk of QE and the much anticipated data release due on Tuesday of this quarters UK GDP figures. This is a major data release as it tells us of any change in the inflation-adjusted value of all goods and services produced by the economy.
There are 3 versions of GDP released a month apart – Preliminary, Revised, and Final. This is the Preliminary release, it is the earliest and thus tends to have the most impact.
Based upon previously released minutes from the Fed, a further round of Quantitative Easing is widely expected in the US. It is speculated that this will have a negative impact upon the value of the currency. This said, the dollar still retains its hard earned status as a safe haven currency and in turn may fair better than the pound in the week ahead.
This week’s data
After the anti-climax of last weeks spending review, this week we revert back to the usual fundamental data releases. As the spending review contained few surprises, the currency markets were surprisingly unaffected. So, the main driver for Sterling exchange rate movements this week will be the scheduled releases below.
Contact us today to discuss how these releases may affect the cost of your currency purchase, and make sure you’re well placed to make an informed decision on when to fix your rate.
We start the week with Industrial Orders from the EU. An increasing number of Industrial New Orders predicts enhanced production and a growth in the GDP. So, better than expected figures may cause the Euro to strengthen and GBP/EUR rates to fall. From the US we have data showing the health of the housing market. There is no data of note from the UK.
UK GDP data is the most important release today. GDP is considered as a broad measure of the UK economic activity and health and often affects exchange rates. We expect a quarterly figure of 1.2% and an annual figure of 1.7%. If the actual figures differ then expect the pound to be affected. From the US we see Consumer Confidence figures.
Germany releases Consumer Prices today, which show how inflation is faring. High inflation increases the chance of an interest rate hike and could strengthen the Euro making it more expensive to purchase. From the US we have home sales data. From New Zealand there is an interest rate decision. If they follow Australia and decide to raise their rate from 3% GBP/NZD rates may well fall.
A host of data from Europe is released today, starting with German Unemployment. As the largest economy in the EU, markets pay close attention to German figures. EU wide, we have economic and industrial confidence measures. These indicate the trend of the overall Euro Zone economy and so can affect GBP/EUR rates. From the UK, we have Consumer Confidence. Following last weeks poor retail sales, a low confidence reading may push Sterling lower.
German Retail Sales starts the day, and will show how confident consumers are. EU wide unemployment will also be released today. From the USA and Canada we have GDP figures so expect some volatility in GBP/USD and GBP/CAD rates.
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Labels: Fundamental Data, GBP/EUR, GBP/USD