In this week’s Report:
• EU bailout agreed, strengthening Euro
• US deficit and credit rating threat weaken USD
• Global Markets surge on the agreement
• 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;
The main news of last week was of course the details surrounding the European Sovereign debt crisis. Details of how Greece will restructure its massive debts emerged last week as euro zone leaders agreed a package they hope will help resolve the debt crisis. The share prices of banks seen as most exposed to distressed euro zone government debts rose by more than 5%, led by Lloyds, which ended the week almost 20% higher than on Monday.
The news also strengthened both the Euro and to some extent the pound (against other major currencies), as investors calmed about investing in riskier currencies. Against the Dollar, the Euro stayed near a 2 week high as news of the agreement broke. The latest Greek bail-out by the 17 euro zone governments and the International Monetary Fund is part of a comprehensive package to shore up the single currency unveiled on Thursday.
On the GBP/EUR cross rates were knocked down accordingly. Sterling has also strengthened on the news due to the UK's exposure to Greek debt, but despite the Pound gaining the Euro has become much stronger, and the net result is lower exchange rates to buy Euros.
With the uncertainty over the Euro zone seemingly over, markets will likely focus on fundamental data, and given the UK economy is in a poor state at the moment, we expect further falls for Sterling. It has only been the debt crisis keeping GBP/EUR rates high, and now this is resolved we could see further drops for the currency pair. If however this unified agreement shows any signs of cracking, perhaps if more peripheral EU nations require funding then the potential for a weakening of the Euro is a distinct possibility.
With such uncertainty in the markets it is essential to keep close tabs on your positions. To make the most of our commercial exchange rates, make an enquiry with us now for free.
Sterling vs. US Dollar;
Last week started with Sterling encountering losses of almost 1 cent against the Dollar following concerns about UK banks' exposure to the euro zone debt crisis. However, sterling rallied on Tuesday, helped by a rebound in equities market when banking stocks were hit by concerns Europe's bank stress tests were unrealistic.
Sterling is seen as especially vulnerable to renewed euro zone debt worries, particularly against the dollar due to concerns about UK banking sector health and given the UK's close trade links with Europe. "Sterling's outlook is still very closely linked to sentiment towards Europe. Ultimately the UK is so closely entwined with Europe that a crisis would certainly hit the UK". Lee Hardman, currency strategist at BTMU said.
This is likely to dominate the cross in the coming weeks despite the growing concerns in the US over the problems the growing deficit in the Federal budget as discussed in last week’s report. The most anticipated data release over the course week was the minutes of the Bank of England committee meeting which was held at the beginning of the month. With a 7-2 split in favour of keeping rates on hold at 0.5% there were no great surprises contained within the minutes and as a result virtually nothing happen with regards to the cross.
The problems with the US deficit in the Federal budget continue to rumble on following the threat from ‘Moody’s’ and ‘Standard and Poors to downgrade America from their AAA rating. This is unless a compromise between Obama’s camp and Congress can be made within the next 2 years to find a way to move forward and repair the damage.
Speculation continues however, that many in the Republican camp would prefer that a compromise in not reached and that the country is downgraded - in a political more to try and topple Obama’s government. Sterling finished the week up against the Dollar hanging on the shirt tails of the Euros performance following the conclusion of a draft report created at a Eurozone summit outlining a method to it would go about solving the region’s debt problems.
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Weekly Economic Data that may affect exchange rates
Below are the main releases for the week ahead. For a free consultation on how these releases 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 – Today is quiet for data releases. Mortgage Approval data from the UK at 09:30am, Inflation figures from Australia and Trade balance figures from New Zealand are the only releases of note.
Tuesday – Much more to watch out for today, including UK House Prices and UK GDP which if poor could push the Pound lower. Germany releases measures of Consumer Confidence and Retail Sales. From the USA we have Home Sales and Consumer Confidence.
Wednesday – Onto Wednesday, and today we see Consumer Confidence figures from the UK. In the Eurozone we have inflation figures from Germany. In the USA we see Mortgage approvals, Durable Goods Orders and the Feds beige book which reports on the economic situation in the USA. We also have inflation figures from Australia today.
Thursday – A busy day for the EU today, with German Unemployment, EU Economic, Consumer and Industrial confidence measures. From the USA we have Jobless figures.
Friday – UK figures today are Consumer Credit, Mortgage Approvals and Money Supply. From the EU we see inflation data, and Canada and the USA both release GDP figures.
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Labels: Weekly GBP/EUR, Weekly GBP/USD, Weekly Market Data