Monday, 18 April 2011

Pound vs Euro & Pound vs US Dollar weekly outlook

In this week’s Report:

• Interest Rate expectations continue to drive GBP/EUR
• Keep u
p to date with rate movements with our new i-phone app
Ro
und up of the week’s data that may affect rates

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

Free Currency App for i-phone

Do you have an i-phone? Before we look at the outlook for exchange rates this week, we are pleased to announce the launch of our new i-phone app. You can view live rates, browse the latest news from our research analysts, view historical charts to see past performance and a handy calculator to work out currency values. Click below to find out more and download the app:





Sterling vs. Euro;


The pound continued its downward trend against the Euro last week, with lower inflation figures from the UK weakening Sterling. At one point rates were near a 12 month low, before staging a small recovery at the end of the week:









The Consumer Price Index (CPI) figures released last week showed a fall in inflation for the first time in 8 months. The fall in food and soft drink prices was the main cause. The figure was lower than most analysts had expected, and lower inflation means that initial expectations of a rate hike in the UK have now been pushed back to November.

Earlier in the year the consensus was for a rate hike in the UK as soon as May, to combat rising prices. The latest numbers however have pushed this expectation back to the end of the year. The news weakened Sterling and pushed GBP/EUR rates close to the lowest in 12 months.

Adding to Sterling’s woes was a survey last week showing the biggest drop in retail sales in nearly 6 years, highlighting the problems facing the UK as the government's tough austerity measures hit consumer spending, and jobs data on Wednesday will also be closely watched.

"The economic data that we've had out of the UK gave a lot of ammunition to sterling bears," said Audrey Childe-Freeman, EMEA head of currency strategy at JP Morgan Private Bank. "Lower-than-expected inflation, weaker growth, that's taking off pressure from the BoE to raise interest rates and Sterling is a loser in that environment.

We’ll know a bit more about the Bank of England’s take on interest rates this Wednesday when the minutes to the recent decision to hold rates are released. These minutes released at 09:30am on Wednesday will show how the 9 member committee voted including differences of view.

As the chart above illustrates, there was some respite to the downward trend, with a slight recovery in rates towards the end of the week as the EU’s debt problems resurfaced. Following Portugal’s request for support, there was speculation Greece would again have to re-structure its debts, weakening the Euro slightly.

In summary, rates are low and despite slight Euro weakness, interest rate expectations have and will continue to drive rates. With markets closed on Friday and next Monday for Easter and limited UK data being released this week, if you have a currency requirement click below to register a no obligation trading facility for free, and take advantage of a free consultation on our currency services.

Sterling vs. US Dollar;

Last week Sterling rose against a broadly weak dollar, helped slightly by an improvement in UK consumer confidence. As time elapsed over the course of the week, the deteriorating U.S. dollar traded at its lowest levels in 16 months versus a currency basket.











This was not necessarily as a consequence of strength in other currencies, but more an outcome of the expectations that the Federal Reserve would stick with loose monetary policy for the foreseeable future. Although the pound enjoyed partial gains as a reflection of this greenback weakness, it failed to rally like other currencies. It is therefore fair to say that the British pound didn’t fully capitalize on the weakness of the US dollar in the past week, nevertheless Sterling traded with gains of around 0.5 percent against the dollar, just shy of the 14-month high we witnessed last week.

GBP/USD is seemingly currently stuck in somewhat of a strange form of consolidation. While we have witnessed relatively big downward movement, it soon recovers back to where it began. The pair continues to fluctuate between the 1.60 and 1.65 areas. It is also worth considering the impact of any indication of Japan slipping into an economic slump, or indeed if the situation in Fukushima deteriorates, then the US Dollar may well make gains from significant safe-haven support.

Weekly Economic Data that may affect exchange rates

Below we list the main data released for the week ahead. For a free consultation on how they 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
The only UK data of note was yesterday evening when Rightmove released UK house price data, which showed an annual 1.7% rise and a 0.1% monthly increase. We have a measure of consumer confidence for the EU, and the US has housing market data in addition to a speech by members of the FED.

Tuesday
No data for the UK today. The EU releases inflation data however which could cause GBP/EUR to drop should the figures be high. Australia releases its minutes from the most recent interest rate decision. Elsewhere we have Canadian inflation figures and housing data from the USA.

Wednesday
Today we see the Bank of England (BoE) minutes from the recent decision to hold rates. If this shows that some members voted for a hike, it could strengthen the pound. There are also inflation figures from Germany and further home sales data from the USA.

Thursday
Today from the UK we see Retail Sales, Mortgage Approvals and public sector borrowing. The US has a raft of unemployment and jobless data. There are also some confidence measures from Germany.

Friday
Markets closed for Good Friday.

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