Sterling gains as debt concerns weigh on the Euro; Pound vs Euro Forecast
We have seen a pretty volatile week for the Sterling - Euro exchange rate with the cross starting Monday morning at 1.1551 and reaching a high on Thursday afternoon of 1.1825; which for those buying euros makes a difference of over £2,000 on a €100,000 purchase. Make sure you keep in touch with your account manager at Foremost to ensure you are getting the best exchange rates.
Weaker than expected manufacturing & industrial data from both the UK and Eurozone earlier in the week meant that the rate remained pretty stable but on Wednesday the Bank of Englands monthly inflation report helped the Pound to recover some of the ground it has lost over the last couple of months. When delivering the report, Govenor Mervyn King, said that the outlook for the UK economy remains uncertain and inflation will be higher than expected until at least the end of 2011, giving Sterling bulls some optimism about a possible interest rate hike next year. He also stated that “the government's "substantial" austerity measures and deep cuts should not send the UK into a double-dip recession”.
Thursday & Friday saw further Sterling gains against the Euro as sovereign debt concerns in the Eurozone increased, and figures showed growth rates have slowed in some of Europe’s largest economies.
This week could give some real insight into how the GBP/EUR pair may fair over the coming months with some key data releases from both the UK & EU including inflation figures, unemployment numbers and house price data.
The big one however will be the Bank of England minutes from their November meeting. If the voting shows that only one of the MPC members is still voting for more Quantitative Easing then it could allay fears over the central bank announcing more austerity measures (which would weaken Sterling) and help to force the rate up, but more than one vote for QE could send it spiraling down.
There will almost certainly be more news about the state of affairs in Ireland, Greece and other poorer fairing Eurozone economies too, so without sitting on the fence it really could still go either way.
Sterling Forecast Gains pace after disappointing G20 summit; GBP/USD Outlook
Sterling rallied against the Dollar toward the end of last week after losses earlier in the week. After last week’s announcement that the Federal Reserve are engaging in a stimulus $600M quantitative easing the Pound benefited after the UK announced that it wasn’t going to follow suit. GBP/USD Exchange Rates reached almost a 12 month high at an Interbank level of almost 1.625.
In what was a relatively quiet week for the Greenback with a US market holiday, the main focus of the week for the US was the G20 summit in Seoul. The Financial leaders of the world met with the purpose of discussing and agreeing on how to put the world economy on a sounder footing after the recent financial crisis.
With the world’s media watching, US President Barack Obama lead the meetings as the group hoped to use the two-day summit to recapture unity forged in the depths of the crisis two years ago in order to sooth exchange rate tensions generated by imbalances between cash-rich exporting nations and debt-burdened importers.
However, rather than being a resounding success, the meeting proved to be rather a non-event with more squabbling over closing statements than genuine forged agreements. Even worse for the US, they were effectively accused of double standards by the Chinese regarding their recent announcement for Quantitative easing. The Chinese have been under pressure by many nations including the US for keeping the value of their currency low and therefore giving their export market a huge advantage over the rest of the world. Former Fed Chairman Alan Greenspan aggravated the situation, saying the U.S. central bank's policy was deliberately weakening the dollar.
U.S. Treasury Secretary Timothy Geithner immediately replied back "The U.S. will never do that," .... "We will never seek to weaken our currency as a tool to gain competitive advantage or to grow the economy." Yu Jianhua, an official with China's Ministry of Commerce, said Beijing had no intention to confront the United States over currencies or trade issues. But, Yu added, Washington "should not politicise the Yuan issue, should not blame others for its domestic problems and should not force others to take medicine for its own disease."
With the Dollar on the back foot and in its most vulnerable position for some time, those with a Dollar requirement could see a window of opportunity over the forthcoming days and should remain in close contact with their FCG Account Manager. It is uncertain whether the potential Sterling gains (if any) are sustainable as despite the recent vulnerability of the USD it is still widely acknowledged as a safe haven currency. The use of Stops and Limits could prove invaluable during this period as it could protect you should the Pound slide whilst at the same time maximising your currency position by targeting specific rates of exchange.
Better Economic Data helped Sterling last week, what’s on the agenda this week?
Monday
There is no data of note for the UK Europe releases its Trade Balance figures at 10:00am. This is a balance between exports and imports of total goods and services. A positive value shows trade surplus, while a negative value shows trade deficit. Markets expect a large deficit of €-1.4bn. If figures are better however, expect GBP/EUR rate to fall. From the US we have Retail Sales showing how confident consumers are about the economic recovery.
Tuesday
RBA Minutes as discussed in our Aussie Dollar report. From the UK we have inflation data, which will be watched with interest following the bullish forecast from the BoE last week. There are also inflation measures for the US and EU today, so it could be a volatile day for exchange rates.
Wednesday
A key day for Sterling; in addition to various measures of unemployment, we have the minutes to the recent Bank of England meeting. It will show who wanted more Quantitative easing, and will show if there was a consensus on the decision to hold off more stimulus. If the report shows indecision it could weaken the pound and push rates lower.
Thursday
Retail Sales is the only data of note from the UK today. From the US there are some unemployment figures at 13:30pm.
Friday
A very quiet day for data releases. Some inflation data from Germany is the only release of note.
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Labels: Fundamental Data, Pound vs EUR, Pounds vs US Dollar