Good morning. As usual for Monday's, today we'll take a look at how the currency markets fared last week, with a detailed look at Sterling vs Euro and Sterling vs US Dollar exchange rates.
In this week’s Report:
• GBP/USD falls to 1 year low
• Eurozone crisis continues
• Safe Haven currencies gaining strength
• 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;
An all too familiar week for the Sterling Euro cross saw a high of 1.1526 and a low of 1.1373 as concerns about the Euro play off against a weak pound, currently governed by further talks of Quantitative Easing. Mediocre data releases continue to have less effect on a market currently driven heavily by investor movement and risk aversion.
Greece continues to play a leading role in Eurozone developments, despite its inferior percentage share of the Eurozone economy as a whole. With the French and Germans in particular heavily invested in the Greek recovery, European stocks tumbled early Friday on fears the region's banks would take more write downs on their Greek debt exposure.
Greek Finance Minister Evangelos Venizelos was quoted by two newspapers as saying “an orderly default with a 50 percent haircut for bondholders was one of three scenarios for resolving the country's fiscal woes”. In layman's terms, the prospect of Greece defaulting on further payments is still a very real possibility.
With this in mind, you would think the Euro would start to slacken off against the pound in the same way it is slowly being grappled into submission by the revitalised and strengthening Greenback… many in the know claim that the Euro is still overvalued by 15% and be that as it may, the single currency is showing to be 6% stronger against the pound than it was this time last year…
Talking up of the Euro by the ECB and an unfounded in-house optimism seems to keep the Euro fighting against the pound for the time being. Forecasts are changing from week to week as to where we will be heading in terms of sterling strength over the next few months as the market shows signs of potentially making a break one way or the other .
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Sterling vs. US Dollar;
The start of the week saw the GBP/USD trading around the 1.57 level (interbank). With the continued uncertainty in the Euro Zone and increased demand for the USD, GBP/USD rates kept on falling as the dollar strengthened against the pound. The end of the week saw the GBP/USD fall to a 12 month low of 1.5326 (interbank) not seen since September 2010.
One of the contributing factors to the USD’s recent surge was gold shedding 8% over the past two weeks, with about a quarter of that decline coming on Monday. Investors poured into the dollar even though the Federal Reserve has all but promised to keep short-term interest rates near zero until at least mid-2013. This further shows how investors are moving towards the safe haven of the USD.
In order for the USA to increase borrowing and accelerate spending to boost the economy, ‘Operation Twist’ was implemented and involved the Federal Reserve purchasing $400 billion worth of long-term bonds whilst selling an equal amount of shorter-dated securities. Through this decision it seems as if the world’s most powerful central bank will not be restarting Quantitative Easing (QE) whilst the Bank of England is currently mulling over whether to fire up the printing presses.
With the Bank of England (BoE) expected to move towards QE, and with the Federal Reserve not bothering to step into the markets, this pair fell hard as the USD gained value. A fresh round of asset purchasing by the BoE would be negative for the pound as such a programme requires authorities to boost supply by flooding the market with the currency.
Some in the market believe the need for the BoE to restart its asset-purchasing programme has increased given growing signs that the economic recovery is lagging, as highlighted by data on Thursday showing a sharp fall in UK factory orders and a rise in public borrowing.
Sterling rose against the dollar on Friday as investors booked profits on the U.S. currency's rally the previous day, but gains were capped by concerns the global economic outlook is worsening, which kept the pound near a one-year low.
"We've ended up with a flight to safety, which hasn't been favourable to sterling, along with an increasing possibility of QE coming possibly earlier rather than later, and the economic data has been pretty grim too," said Jeremy Stretch, currency analyst at CIBC.
The continued volatility in the foreign exchange markets provides a greater case for keeping in close contact with your FCG account manager to put last week’s market movements into perspective, a typical transfer of £200K would have seen you receive $8000 less than at the end of the previous week.
Do you need to buy or sell US Dollars? Send us an enquiry now.
Weekly Economic Data that may affect exchange rates
Monday – Business Climate Assessment and Economic Sentiment figures are released from Germany today, the EU’s largest economy. From the USA there are new home figures, which are seen as a barometer of the economy as a whole.
Tuesday – EU lending figures are released today, which investors watch as a sign of confidence in the economy. From the US we have Consumer Confidence figures which could affect GBP/USD rates.
Wednesday – The GFK survey from Germany is released today. This measures confidence in the EU’s largest economy, but is likely to be overshadowed by the continued EU debt crisis. We also have French GDP figures, showing any growth or lack of growth in the economy.
Thursday – From the UK today we have Money Supply data. From the EU there are business climate and consumer sentiment surveys. In the US there are various releases including Jobless Claims, Home Sales and GDP figures.
Friday – Today the UK sees the GFK survey which measures economic confidence. We also have GDP figures for the UK which is the most notable UK release of the week. EU unemployment figures are also released. Stateside we see Inflation Data and income figures.
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Labels: Weekly GBP/EUR, Weekly GBP/USD, Weeks Economic Data