Monday, 7 February 2011

Pound vs Euro / Pound vs US Dollar forecast

Good morning. In today's Report:

• Pound gains against Euro on interest rate expectations
• UK Manufacturing pushing GBP higher against USD & EUR
• Outlook for remainder of February
• The week’s data that may affect exchange rates

(For currencies other then EUR and USD, contact us for a consultation)

Sterling vs. Euro; up on weaker single currency

Sterling recovered last week from some of the losses incurred the week previous off the back of positive UK data and the Eurozone Interest Rate announcement. The Pound made steady progress throughout the week ending almost 2 Cents higher than it started.

In the UK important data of note in the early part of the week was strong manufacturing data in the form of ‘Manufacturing Purchasing Managers Index (PMI.) Broadly speaking, this is an indicator of economic health of the manufacturing sector. The result exceeded expectations and indeed was the highest reading since the survey’s inception in 1992.

Such was the strength of the reading, it over shadowed the release of mortgage approvals for January which was worse than expected and furthermore prompted renewed speculation of an interest rate rise and therefore pushed the Pound higher against the Euro.

There was more good news for Sterling on Thursday as the Services PMI showed that the services sector expanded at the fastest pace in 8 months. This was followed with UK house price data which came in well above expectation at 0.8% growth.

By this point the raft of positive data had led analysts to speculate that an interest rate rise could occur in the UK as soon as May – However, with more important data releases this week, such speculation over this matter could prove to be a little premature.

In the Eurozone the currency’s performance was stunted as expectation were dampened with the news on Thursday that interest rates were kept low at 1%. Trichet’s comments and viewpoint disappointed investors who were hoping for a much more Hawkish statement especially after inflation data earlier in the week which came out above expectation.

Sterling vs. US Dollar; Rates hit 4 month high

Sterling continued its recent good form against the Greenback in the early stages of last week, finally seeing the pairing break the tough $1.60 technical barrier that seemed so elusive. The pound ended up reaching a four month high of 1.6279 which in fact was perilously close to a 1 year high, missing that feat by less than 0.1%:

This spike came following positive information from the UK with Services and Manufacturing PMI (Purchasing Managers Index) both significantly better than expected, and represented excellent buying opportunities.

As is often the case this spike was short lived as on Friday afternoon trading saw investors begin to return to the safe haven currency following an improvement in unemployment figures for the US, a sign that their recovery is gathering pace.

It would take a very brave person to call the outlook for the pairing at the moment as so many conflicting views suggest strength or weakness for either currency. On one hand the Pound appears to be in a worse position with the US posting better unemployment levels as mentioned earlier, and the UK recently announcing 4th quarter GDP results being negative therefore meaning if the first quarter of this year follows suit the UK will again be in recession.

The flip side of this is the news that NIESR (National Institute of Economic and social research) predict the bank of England will raise interest rates 3 times this year, the first expected in May, normally this is a decision which would strengthen Sterling’s position greatly and with the US seemingly further behind that makes the greenback potentially a less attractive option for investors looking for a suitable return.

Weekly Economic Data that may affect exchange rates

Below we list the main data released for the week ahead. The main things to watch for are the inflation figures for the UK. The implication of these economic releases will differ depending on the currency you need to buy or sell. For a free consultation on how this could affect the cost of your currency requirement, open an account with us today. This is free to do, doesn’t obligate you in any way, and simply gives you access to our market knowledge and commercial exchange rates.

Monday
Today’s data is most EU based. We have Factory orders from German and a measure of investor confidence. The Euro is weaker due to a low chance of an interest rate hike. Low confidence could compound the weakness. From the USA we have some information about consumer borrowing.

Tuesday
UK data today is Retail Sales and House Price information. The last measure of Retails Sales was much worse than expected. We expect an annual 0.3% decline and if it’s lower Sterling may weaken. There are also some Industrial Production figures from Germany today.

Wednesday
Very quiet day with only German Trade Balance figures. This is a balance between imports and exports. A Steady demand for German exports would strengthen the Euro, making it more expensive to purchase.

Thursday
Focus shifts back to the UK today, with Industrial Production and Manufacturing production figures. As these sectors are driving the UK’s economy at the moment, these are very important releases and could cause volatility for Sterling. There is also an interest rate decision, but it’s very likely rates will remain on hold at 0.5%.

Friday
We end the week with Inflation data for the UK. High inflation supports the case for an interest rate hike, and it’s this speculation that’s driving strength in the pound at the moment. So, higher than expected figures could give the pound a lift. US Consumer Sentiment ends the week.

If you are looking for the best exchange rates, click the link below to send us an enquiry, and have a free consultation on what's happening in the currency markets.