Monday, 14 February 2011

Pound vs Euro & US Dollar Forecast Outlook

14th February 2011

In this week’s Report:

• Pound vs. Euro; moving on interest rates
• Sterling vs. Dollar forecast
• The impact of interest rates on exchange rates
• Round up of the week’s data that may affect

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

Sterling vs. Euro;

The Pound endured widespread losses against the vast majority of the 16 most actively traded currencies in the FX Markets on Friday morning last week, and the UK currency also retraced back towards 1.18 against the Euro, after encountering strong resistance in the region of 1.1850

.







All in all a bit of an anticlimax for Sterling this past week as highly anticipated data releases in the form of an interest rate decision from the Bank of England on Thursday, Retail sales and House prices on Tuesday and PPI input on Friday all failed to have a heavy impact on the strength of the pound, despite positive results in all areas other than the interest rate decision, which remains at 0.5%.

UK producer prices rose twice as much as initial forecasts in January, which will only serve to add to concerns that the Bank of England is losing the battle to keep a lid on rising prices. PPI input rose 1% from December, the most since April, and exceeded the 0.5% forecast. The Pound also came under heavy selling pressure, after former BoE policy maker Kate Barker said that the MPC may be wary of raising interest rates because of the subsequent impact on the Pound and the threat to the economic recovery.

The UK currency has gained against all but one of the 16 most actively traded currencies this year, as markets priced in a rate hike by June, due to persistent inflation concerns. The comments, combined with concern that that BoE is losing control of inflation, has weakened the Pound and the UK currency will continue to be susceptible to any suggestion that the BoE will refrain from raising rates this year.

Economists are sceptical as to whether the Central Bank will raise rates before the first quarter of 2012, while the National Institute of Social and Economic Research anticipate three 25 basis point increases this year. If you would like a live quote, or to discuss the use of stop and limit orders in managing your currency risk, please call The Foremost Currency Group.

Sterling vs. US Dollar;

A very quiet week on Sterling/Dollar ended with a sudden drop of over 1 cent as we saw the rate move back below the psychological 1.60 level after it had hit a 4 month high just a week earlier.








The rate had traded in a very tight range at the start of the week between 1.6070 & 1.6120 but data towards the end of the week caused some optimism that we could see the Pound recover more ground moving forwards, even though the Bank of England held interest rates, as UK GDP estimate was revised up to -0.1% from -0.5%, and PPI figures also read better than expected.
This optimism was washed away by Friday lunchtime as Sterling slipped away against most major currencies as traders looked for some sort of clarity on the Bank of England’s current position regarding interest rates.

We will not see the minutes from Thursday’s meeting until later this month; it looks as though the markets still lack clarity on how close the BoE really is to increasing rates as inflation pressures continue to mount (further reinforced by Friday’s PPI data).

“This ongoing uncertainty helped to put the Pound on the back foot on Friday”, said John Hydeskov, currency strategist at Danske Bank, adding that the market was also keenly awaiting the BoE’s inflation report next week to gauge its outlook on prices.

“We’re not clearer on the central bank’s stance than we were before the decision. We still don’t know whether the MPC has more hawks”, he said.

It also looks like the Pound may have struggled due to renewed risk appetite after President Hosni Mubarak’s refusal to step down, after it looked highly likely on Thursday that he would, as investors flocked back to the Dollar and helped the Greenback rise 0.5% against a basket of major currencies.

Our view on Cable (GBP-USD) appears to be the same as most analysts as we think that while we should see it return to the 1.70+ levels not seen since 2008 at some point this year, uncertainty over economic growth on both sides of the Atlantic, and how the Bank of England will handle the current stagflation in the UK, mean we could easily see it back at 1.50 before this happens. As ever, should you have any upcoming USD requirements, make sure you get in touch with your FX Trader at Foremost Currency Group at your earliest convenience.

Weekly Economic Data that may affect exchange rates

Below we list the main data released for the week ahead. The implication of these economic releases will differ depending on the currency you need to buy or sell. With lot’s of data from the UK and Eurozone on Tuesday and Wednesday, we expect a volatile week for Sterling exchange rates. 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
There is no UK data of note today. The main data is Industrial Production from the EU. This is an inflationary measure and with all the speculation of interest rates in the UK and EU at the moment, high figures may push GBP/EUR lower. There is also some housing data from the USA.
Tuesday
A very busy day for data. We have lots of UK data; Gross Domestic Product, Consumer Price Index, House price info and Retail Sales. Lots here that could affect the value of Sterling against other currencies. For the EU we also have GDP along with Trade balance figures and economic sentiment. Expect GBP/EUR volatility today. From the US we have Retail Sales and inflation measures.

Wednesday
Consumer Confidence figures from the UK are released today, in addition to a raft of unemployment and jobless figures. Staying in the UK we also have a BoE Inflation report and a speech by the banks governor. Expect Sterling weakness if he is dovish about inflationary pressures indicating no rise in interest rates soon. From the UK we have some housing data, inflation measure and the FOMC minutes.

Thursday
Today is much quieter with no UK data of note. From the EU there is a measure of confidence, but most data today is from the USA. US data includes jobless claims and Inflation data.

Friday
We end the week with UK Retail Sales and further inflation data from Germany and Canada.

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.