Monday, 10 January 2011

Pound vs Euro breaks through €1.20

Sterling vs. Euro; Pound Strengthens over Euro debt fear

The pound reached the strongest in 3 months against the euro breaching the 1.20 mark as speculation that the British economy will be more resilient than the euro region in the next coming months.

The BOE have predicted the economy will grow by 2% this year which is 0.5% higher than the predicted 1.5% growth expected in the Euro zone.

However the need for additional Stimulus measures may still result in the Pound losing ground against the Euro in the near future. “We’ve got this massive, very open type debate about U.K. interest rates which I think will create volatility for the pound, and we’ve already begun to see that this year,” said Jane Foley, a senior foreign-exchange strategist at Rabobank International in London.

European Central Bank President Jean- Claude Trichet warned governments not to rely on the ECB to get Europe out of its debt crisis and urged them to step up efforts to tighten fiscal rules. Sources have also revealed that the ECB have bought Portuguese government debt today which could be a leading factor in the rise against the Euro last Friday with the low of the day at 1.1869 and a high of 1.2021.

With the pound steadily increasing over the last 2 weeks it is imperative you keep in touch with your account manager here at FCG. We can keep you updated with news and data releases which may affect your purchase so you can buy or sell at the correct time.

Pound vs. US Dollar

Last weeks economic data from the US had been a mixed bag with signs of a relatively robust recovery. The US dollar rose to highs not seen since August 2010 against a basket of currencies as reports showed services industries expanding in December at the fastest pace in four years and employers adding jobs for a consecutive third month. At its lowest point Sterling fell 1.5% and the euro fell 3.6%, in its biggest weekly drop since August.

Typically we have seen dollar strength when the global economic outlook has been deteriorating (so called “safe haven” buying), and dollar weakness when the global economic recovery appears to be accelerating. Over the last few weeks data has been inconclusive but it looks like investors appear to be giving the dollar the benefit of the doubt as speculation over the UK and Europe’s recovery come into doubt.

Richard Franulovich, a strategist at Westpac Banking Corp. New York said “The U.S. economy is on much sounder footing going forward, which means the dollar is a more attractive currency, especially versus European currencies, for a lot of people, you’ve reached an important milestone where finally the dollar can benefit from good data.”

Weekly Economic Data that may affect exchange rates

This week is incredibly quiet for data releases, but what is there is very important, and of course ongoing problems with Eurozone debt will likely continue to drive GBP/EUR rates.

To find out the forecasted figures and the effect the below releases may have on the currency you need to buy or sell, open an account with us today. It’s free to register, doesn’t obligate you and simply provides access to our market knowledge and commercial exchange rates.

Monday
Building Permits from Canada is the only data of note. It’s very minor data but could affect GBP/CAD rates.

Tuesday
Today we have the British Retail Consortium (BRC) Shop Price Index. This measures price changes in Retail Outlets and is a good barometer of overall consumer confidence. Retail has suffered recently due to the snow, with only John Lewis bucking the trend. It’s also an indicator of inflationary pressures and so can affect Sterling. We also have House Prices today for the UK.

Wednesday
Today we have UK Trade Balance Figures, and EU Industrial Production. Expect some volatility for Sterling to Euro exchange rates.

Thursday
By far the most important day for data. We have interest rate decisions for the UK and EU. We expect both zones to leave rates on hold at record lows, however any comments made after the decision could affect market sentiment and cause GBP/EUR volatility. We also have Industrial and manufacturing production figures for the UK along with a GDP estimate. US Jobless Claims rounds off the day.

Friday
To end the week we some UK & German inflation figures which could impact future interest rate movements.


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