Monday, 14 March 2011

Pound vs Euro & Pound vs US Dollar predictions

In this week’s Report:

• Interest Rates left on hold in UK
• Japan earthquake shocks markets
• Round up of the week’s data that may affect rates

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

Sterling vs. Euro;

Sterling had another poor week last week heading toward a 6 week low against the Euro. The main blow to Sterling was landed at Thursdays Bank of England meeting where the Monetary Policy Committee again voted for a hold on interest rates.

This hold coupled with the news that chief rate hawk Andrew Sentence is to step down from the MPC in May triggered most analysts to reduce their expectation of a UK rate rise in 2011. The knock on effect to the currency market saw many UK banks & traders cut their pro GBP long positions on Sterling, deciding instead to sell the pound short with little confidence in the future performance of the pound.

These moves came in the backdrop of Jean Claude Trichet’s statement last week that the ECB could raise rated as soon as April, so acting as a second quick blow that appears to have left the Pound on the ropes.

Indeed, callous as it sounds the earthquakes and tsunamis that tragically struck Japan and the Pacific Rim on Friday only worsened the pounds plight, with a knock on effect felt from a dip in UK stocks to a 3 month low.

Obviously your currency requirement can be affected by events ranging from the commonplace such as central bank meetings and unemployment figures and by the unimaginable events like those last week. Keeping in contact with an experienced broker is your only way of trying to navigate the notoriously volatile currency markets.

We can’t predict the markets, but we do have the tools, in Stop Loss and Limit orders to be able to set the parameters for your trades so you know your worst case scenario at all times. To discuss these tools, market movements and expectations, or anything at all to do with your currency requirement, call or email for a free consultation.

Sterling vs. US Dollar;

What started off looking like it could be a promising week for the Pound against the Dollar ended with Sterling losing 2.5 cents against the Greenback in less than 48 hours.

Sterling had at first maintained levels close to a 4 month high of nearly 1.63 in the run up to the Bank of England’s interest rate announcement on Thursday. The rate was held at 0.5% which was in line with market expectations but many investors had speculated that the bank were going to raise rates, and we therefore saw a sharp Sterling decline after the decision with GBP/USD retreating back towards 1.60.

We then woke on Friday morning to the sad news that Japan had experienced the worlds 6th biggest earthquake on record and that a Tsunami was quickly spreading out through the Pacific from its epicentre, bringing back memories of Boxing Day 2004. Natural disasters can have a huge bearing on the currency markets as it causes investors to be more “risk averse” and they will normally start to switch their investments from perceived risky assets to those of a safe haven status.

Unfortunately for anyone looking to buy Dollars with Sterling, the Pound is a still seen as a risky asset even with our record low interest rate, while the Greenback is “the world’s safe haven currency” and on the back of these moves we saw the Sterling/Dollar mid-market level hit 1.5977 at the low of the day.

Cable could be pulled in both directions over the coming weeks due to a multitude of factors; rising oil prices, poor US unemployment data (expected next week), and declining US consumer confidence could all stand to weaken the Dollar and force the rate up, while the renewed confidence we are seeing in emerging markets, the aftermath of the tsunami and a what looks like a severe lack of confidence in not just the UK economy, but also the BoE’s ability to control inflation while maintaining growth could force it back into the mid 1.50’s.

With all this in mind make sure you contact your FCG account manager at your earliest convenience to keep abreast of any changes in the rate and avoid any potential losses.

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. 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
Speech by BoE governor today could cause volatility for Sterling. In addition we have a measure of consumer confidence in the UK from the nationwide. The EU releases industrial production data at 10am.

Tuesday
We have UK house prices today, but most data is EU based. We see unemployment data and a survey which shows economic sentiment. From the US we see import prices, housing data and an interest rate decision by the FED.

Wednesday
Today we have UK unemployment and earnings data. From the EU various inflationary measures are released which could support the cause for a rate hike and push GBP/EUR down. UK also releases inflation data today although rates stateside are likely to remain on hold for some months to come.

Thursday
No data of note for the UK today. The EU has some construction data, but most economic releases today are from the US. We have further inflation data, Jobless claim and industrial production figures.

Friday
We end the week with UK mortgage approvals and public sector borrowing figures. Trade balance figures from the EU are also released today, in addition to Canadian inflation numbers.

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