Tuesday, 4 January 2011

Pound vs Euro & Pound vs US Dollar forecast 2011

Sterling vs Euro; Pound steadies against after 7 week low

At the end of the final week of the year a beleaguered Sterling limped towards 2011 and managed to steady against the Euro though it remained weak and near seven-week low . After a flat start to the week sterling suffered steep losses on Thursday dropping nearly 2 cents against the single currency throughout the course of the day - traders attributed the losses to little more than year-end related euro/sterling buying. The drop highlights the effects of thin trading which can happen during the festive period.

Sterling steadied against the Euro on Friday, helped by a survey showing an unexpected rise in UK house prices and on the back of euro/dollar buying.

Lender Nationwide said UK house prices rose 0.4 percent in December, the first rise since May. This confounded forecasts for a 0.3 percent fall and suggested the property market was not in steep decline as it was in 2008.

Analysts said that despite the data investors remain wary about the fragility of the UK economy and the potential negative impact of the government's planned austerity measures, which will begin in earnest in 2011.

With trade very thin, however, sterling was driven mainly by movements elsewhere, prodded higher as the dollar came under selling pressure due to reported sovereign buying of the euro against the U.S. currency.

During Prime Minister David Cameron’s New Year’s speech he spelt out that Next year will be “difficult” as the impact of public spending cuts will be felt. But he concluded: “If 2010 was the year we stopped the rot, we can make 2011 the year that Britain gets back on her feet.” Only time will tell for the UK to see whether this is over-optimistic political rhetoric or whether there is some substance to premiership outlook.

Pound vs US Dollar

The USD had a very positive end to 2010 benefiting against a basket of major currencies as a result of continued economic uncertainty around the globe and in particular in Europe.

While the UK itself is perhaps outperforming the majority of European States it cannot avoid being associated with European Economic Union and with large holdings of European debt, in particular in Ireland, global investors remain weary of the Pound. Market uncertainty has caused cable exchange rates to fall to its lowest levels in some months.

Looking ahead 2011 promises to be another volatile year, with the global recovery expected to gain strength. This could have a number of effects, most notably if the recovery gains pace we would most likely see a resurgence of risk appetite which would probably damage the demand for the USD with its safe haven status. The counter argument hinges on the recovery becoming a protracted and drawn-out affair which may add further demand for the worlds most used currency.

Either way it seems likely that the direction of cable will remain heavily reactive to the constantly developing global economy. For more information on how exchange rate movements will affect your currency purchase speak to your dedicated account manager or open an account online today.

Weekly Economic Data that may affect exchange rates

Below the main data releases that we think will have an impact on exchange rates are listed for the coming week. As we enter the New Year, markets will be looking for direction for the major currencies, and the releases detailed below will be watched closely by investors and will likely have an impact on exchange rates for the Euro and US Dollar.

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.

Tuesday
We start the year with UK data in the form of Mortgage Approvals and Money Supply. The housing market has been faltering of late and we expect 47,000 new approvals. If the figure is lower that this then expect the pound to fall. We have inflation data from Europe and the Federal Open Market Committee (FOMC) minutes.

Wednesday
There is no UK data of note today. The main data from the Eurozone. We have Industrial Orders for the EU, and inflation data for both Germany and the EU as a whole. Despite the debt crisis in Europe the Euro seems to have settled, and good figures today could strengthen the Euro further making it more expensive to purchase.

Thursday
Today we have Purchasing Managers Index from the UK. Usually a high figure would cause the pound to gain, but given the BoE have said interest rates will stay low for some time, this may not be the case. From the EU we see Retail Sales, Consumer confidence and Industrial Confidence, all of which will give the markets an idea how the Eurozone economy is faring as we enter the New Year. Jobless data from the USA rounds off the day.

Friday
Halifax House prices are released for the UK today which will focus attention on the UK housing market. It’s a good barometer of the economy as a whole and so can affect Sterling. We also have GDP figures from the EU along with unemployment data. From the USA we have unemployment data along with Non Farm Payrolls which often causes big swings in GBP/USD rates.

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