In this week’s Report:• EU interest rate talk pushes GBP/EUR down
• Oil prices weaken USD; still near 13 month high
• Interest Rate speculation continuing to drive rates
• 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 vs. Euro exchange rates have not fared well over the last week. Through most of the week Sterling had actually recovered quite well against the Euro, supported by better than expected housing data and inflation figures early in the week. All that was overshadowed however when the European Central Bank (ECB) president said on Thursday that interest rates were going to rise in the EU as soon as next month. As the chart below shows, this caused rates to fall close to a 3 month low:
European Central Bank President Jean-Claude Trichet said on Thursday that euro zone rates could rise next month -- stunning markets which were expecting a rise late this year. He also pledged "strong vigilance" on rising inflation, a phrase that in the past has signalled a forthcoming rate rise.
"There are significant risks on the upside for euro/sterling and yields spreads have moved in favour of the euro after yesterday's comments from the ECB," said Adrian Schmidt, FX strategist on Friday.
For most of the year so far, most analysts thought the UK would raise interest rates by mid year, with the ECB following suit much later in the year. This is reflected in the upwards trend shown in the graph above. Now however it seems that the tables have turned, and the EU will be raising rates before the UK. This has reversed the trend, and the Euro is now gaining on Sterling.
Higher interest rates strengthen a currency because of the higher return on offer to investors. The recent comments have therefore strengthened the Euro significantly, making it more expensive to purchase. So the gains the pound has made all year have now been largely eroded. Given the harsh austerity measures on the way in the UK there is not much to suggest rates will bounce back any time soon.
For this reason if you need to purchase Euros in the next 6 months, click below to register an account. This is free to do, doesn’t obligate you in any way and simply means you can discuss all the options available to you to protect against adverse rate movements. Don’t leave it until the last minute; the sooner you speak to us, the more time you have to achieve the best possible rate within your time frame.Sterling vs. US Dollar;
Sterling rose to a 13-month high versus a broadly weaker dollar on Wednesday last week as the U.S. unit struggled with expectations that U.S. interest rates wouldn’t rise with those in the UK and most other G10 economies. As the chart shows, GBP/USD rates are close to the highest in over a year:
The dollar index skidded to its lowest levels since November as markets continued to short the currency after recent comments from Federal Reserve Chairman Ben Bernanke did little to alter the view that U.S. official rates would be on hold at current ultra-low levels for a protracted period.
The dollar fell to a four-month low against major currencies in volatile trading on Friday and looked set to extend losses after above-forecast U.S. jobs data did little to alter expectations the Federal Reserve would maintain its loose monetary policy.
Nonfarm payrolls increased to 192,000, the U.S. Labour Department said, topping forecasts of 185,000 jobs. The unemployment rate dipped to 8.9 percent, the lowest since April 2009, versus 9.0 percent in January. Analysts said while the data sent a strong signal the labour market recovery has become self-sustaining, the number was close to forecasts, disappointing investors who hoped for an even stronger report.
"We are seeing some gradual improvement in the labour market but not dramatic enough to change Fed policy," said Steven Englander, head of G10 strategy at Citigroup in New York. "The Fed will look at this data and see no reason to change policy."
With rising hostilities and the call to revolution across North Africa, the price of oil has risen beyond $100 a barrel, with the US being a major importer of ‘black gold’ this is resulting in a slow but steady decreasing of the greenbacks value, the events taking place in Libya in particular will be watched very closely by traders over the coming months.
So while rates for GBP/USD are close to a 13 month high, it’s important to note this is mostly due to USD weakness than any strength in the Pound. With UK austerity measures on the way, and oil prices unlikely to remain so high for long, it’s more likely rates will fall back away than continuing to increase.
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.
We start the week with confidence data from the Eurozone, followed by a speech by ECB president Jean Claude Trichet. Further Hawkish comments could push GBP/EUR rates lower. We have a speech by the US Fed later in the day.
UK data starts in earnest in the shape of UK House prices and Retail Sales data. These will give an idea of how the UK economy is performing and so could affect Sterling. Late morning we have Factory orders from Germany. In the afternoon US housing data and economic confidence measures are released.
Quite important data for the UK today in the form of Trade Balance data. From Germany we have Industrial production. There are various US releases also regards mortgage data and housing figures.
A UK GDP estimate could cause significant volatility for Sterling this morning. We also have UK industrial production, manufacturing production and an interest rate decision. We don’t expect rates to change. For the EU there is a report from the ECB which could cause further falls in GBP/EUR. From the states we have various unemployment measures and Trade Balance figures.
We end the week with various measures of inflation from the UK. Recently talk of a rate hike in the UK has been overshadowed by the fact it’s likely to happen in the EU sooner, but never the less high figures today could cause the pound to gain. Low figures could send it lower though, so get in touch to discuss the options available to protect against adverse rate movements.
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