Monday, 21 March 2011

Weekly GBP/EUR & GBP/USD forecast

In this week’s Report:

• Pound/Euro in 4th week of decline
• Effect of Tsunami/Earthquake on markets
GBP/USD remaining at good levels
• 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; 4th Week of Decline against Euro;

Sterling lost 2.5 cents in the last 10 days of trade with the pound sliding against the euro, heading for the longest run of weekly declines since October 2010.

The Contributing factors to Sterling’s downfall this past week have been weaker consumer confidence figures and the continued rising unemployment rate (highest level since 1994). Natural disaster has once again played its hand in affecting currency markets over the last week, namely the Japanese earth quake, ensuing Tsunami and the resulting potential nuclear fallout of one of Japans oldest nuclear power plants causing an exit from perceived riskier currencies such as Sterling.

In contrast the Euro has seen gains on the back of interest rate hike expectations with the head of the ECB indicating a rate rise for April, however, with sovereign debt still an unknown factor and another recent downgrade of Portuguese credit rating the regions retracement of gains is never far behind. The single currency is considered to be somewhat oversold and while economic data from Germany is supportive of a stronger Euro the overall EU economy is not as stable as investors would prefer.

Next week is a relatively busy week for economic data from both sides of the channel and further details can be found below in our regular Market Data section. As we’ve witnessed recently the markets are extremely volatile and highly unpredictable to say the least presenting both buying and selling opportunities within short time frames. In order to safeguard your requirements and falling foul of undesirable market movements contact your dedicated broker at FCG.

Sterling vs. US Dollar; Oil prices keep USD weak

Last week saw a relatively quiet week for the GBP/USD currency Pairing, as neither currency managed to mount consistent momentum against the other. In the early part of the week we saw Dollar strength following investors decisions to take the flight to safety and move their money into the global safe haven currency in the wake of the disaster in Japan. Natural disasters like this often cause caution from investors as they seek safer shores and this was no exception to the rule.

As the week progressed we witnessed some light weakness for the Greenback after a clutch of data releases came out worse than expected, most notably housing starts and industrial production figures, these were in addition the Feds decision to keep interest rates on hold at 0.25% for the 27th consecutive month.

The outlook for the pairing at the moment is a tough one to call as both economies are showing signs of weakness. Neither seem to be ready to raise interest rates in the short term making both currencies a less attractive option to that of the Euro, which itself gained 4 cents against the Dollar in the past 10 days and as mentioned earlier in the report 2.5 cents against Sterling.

Data this week for the two economies is plentiful with the most important releases likely to be the MPC meeting minutes, inflation data and retail sales for the UK, with the US posting results for house sales and unemployment levels. Each of these releases could cause high volatility in their own right as investors get ready to make their move in an uncertain market place where the slightest change can have a big impact on any currency exchange.

Weekly Economic Data that may affect exchange rates

Below we list the main data released for the week ahead. Of course the last few weeks have illustrated the other factors that affect rates: Political instability, Natural Disasters and acts of War. These have caused huge volatility in the markets of late, and by their nature are totally unpredictable. What we do know are the scheduled releases for economic data. These are listed below.

Monday
Today we have House price data for the UK from Rightmove. The housing market is seen as a barometer of economic health so could affect Sterling. Nothing of note from the EU. The US also releases some housing data later in the day.

Tuesday
Inflation figures for the UK are released this morning. As inflation dictates possible interest rate movements the markets will be watching this closely. From Canada we have retail sales. These are important as it reflects consumers’ confidence in the economy.

Wednesday
The BoE today release the minutes to their decision to hold rates 2 weeks ago. This is important as it will show how many (if any) of the 9 member committee voted for a hike. It therefore may give clues as to when rates are likely to rise. WE also have UK mortgage approvals and a Budget Report. This report will contain economic forecasts and GDP growth estimates. New Zealand releases GDP and the EU has some confidence measures.

Thursday
EU data today comprises of and EU economic summit, Inflation data for Germany and the EU as a whole. From the USA we have unemployment data. UK Retail sales figures are also released today which show how confident consumers are about the economy.

Friday
The economic summit continues in the EU. There are also many economic measures from Germany today. As the largest economy in the EU, markets will be paying close attention to this. There are some important releases from the US today: GDP figures, Inflation figures and a speech from the FED.

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.