Good morning. As is customary for Monday mornings, today we'll take a detailed look at the movements in Sterling/Euro Sterling/US Dollar and a round up of the weeks data that may affect exchange rates
In this week’s Report:
• Sterling starts to fall on poor UK data
• UK Interest Rates going to remain on hold for some time
• GBP/USD falls from 2 year high
• 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;
After the previous week saw more than a 2% gain in the Sterling/Euro exchange rate, we hoped that last week would at least provide some degree of calm for the volatile pairing, but unfortunately this wasn’t to be.
Tuesday saw better than expected CBI industrial order data from the UK which was closely followed by a large fall in Eurozone economic sentiment from the ZEW. This is a key indicator for the health of the EU economy over the coming months and such a large fall does not look good.
These concerns were compounded when on Wednesday both German IFO business climate figures and Eurozone industrial new orders were worse than expected and the industrial order figures actually showed a negative reading.
Later in the week UK consumer confidence rose and GDP figures remained at 0.2% after fears they could be downwardly revised, so surely with all the poor EUR data and some reasonable figures for the UK the rate went up? Unfortunately not...
MPC member Martin Weale gave a speech in Dublin on Thursday in which he explained the reasons for him to abandon his call for a 25 basis point hike in the UK interest rate at the latest policy meeting. The main reason is the sharp deterioration in economic data since the start of the year and there are now suggestions that we could see a coalition in favour of renewed asset purchases (Quantitative Easing) between members of the Bank of England should the UK economic outlook deteriorate significantly.
It has forced the Pound to retreat by 1.5% against the Euro since Wednesday of last week and just goes to show that even if the data suggests one thing, the rate can do quite the opposite. We had already expected the interest rate in the UK to remain at the current all time low until at least May 2012 but now the MPC has a unanimous 9-0 vote in favour of keeping the rate at 0.5% it could stay there until late 2012 or even 2013.
There doesn’t seem to be much out on the data front this week so we expect the rate to mainly be driven by continuing debt problems in the EU and any more news about a stagnating UK economy. The mid-market rate should remain range-bound between 1.12 & 1.15 and even though this doesn’t seem like a huge movement, it can make a £4,600 difference on a €200,000 trade.
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Sterling vs. US Dollar;
Sterling maintained its march against the dollar early last week bolstered by profit taking and support from a slight recovery in risk appetite after less gloomy than forecast China manufacturing data and German factory activity numbers marginally eased global growth worries. Further gains were expected to be limited due to concerns about the UK's faltering economic recovery.
