Monday 12th September 2011
Good morning. As always on a Monday morning, today we'll take stock of last weeks movements in Sterling vs Euro, Sterling vs US Dollar, and the weeks data that may affect exchange rates this week.
In this week’s Report:
• Pound hits near 6 month high vs Euro
• Sterling down at 2 month low vs US Dollar
• Swiss National Bank peg CHF against Euro
• Most volatile week in currency markets for some time
• 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 a relatively slow start to the week, ECB comments on Thursday saw the Pound gain heavily against the Euro, ending the week very near a 6 month high. The Pound made a small advance against the Euro at the start of the week despite PMI services index for August falling from 51.1 to 50.4; the sharpest slowdown since 2001.
Sterling saw a day of disappointing trading against the Euro on Tuesday. The GBP/EUR exchange rate fell sharply in early-morning trading, ending the day lower at 1.1393. Wednesday saw GBP continue with more losses against the Euro. The Pound not helped by overall disappointing economic figures, showing that industrial production and manufacturing in the UK continued to fall annually; at an advanced pace. There was a small glimmer of positive news with July’s figures for manufacturing production showing an increase in the monthly level, from -0.4% to +0.1%, but the annual level slid once again from 2.1% to 1.9%, enhancing the dire state of the UK’s industrial sector.
The Pound made a sharp reversal in the foreign exchange market on Thursday, despite the Bank of England keeping the interest rate at its record low. Sterling made impressive gains against the Euro, rocketing up from the morning’s open at 1.1322 to end the day at 1.1487. The Pound’s gains against the Euro came after less than impressive German trade balance figures were released. The Euro was further weakened after the president of the European Central Bank highlighted the downside risks to economic growth, with the market now expecting the central bank to make rate-cuts by the end of the year.
The GBP/EUR rate spiralled on Friday after Thursday saw the ECB cut eurozone growth forecasts and hinting at loosening monetary policy. The pound ended the day nigh on a 6 month high, breaking through the €1.16 level. Over the weekend we broke €1.17, however we have already seen rates start to decline by around 1 point so far today.
This week we saw the GBP/USD trade around the $1.59 level, it’s weakest since July 12th.This comes on the back of a rise against the Euro. Traders said losses accelerated after stop loss orders were triggered due to the sudden fall. There were reports the rate may reduce even further, bringing Julys low of $1.5781 into view.
The USD Dollar and Gold are still seen as safe havens; even more so now the Swiss National Bank (SNB) has set a minimum exchange rate of 1.20 francs against the Euro, saying the current value of the franc is a threat to the economy. The move had an immediate effect and triggered the GBP/USD rate to fall below $1.60.
It is the latest attempt by the central bank to weaken its currency, which has been at export-damaging record highs. The SNB has previously said that it would increase available deposits to commercial banks, as well as cut interest rates.
Another factor which saw the Dollar gain ground against the pound was US President Barack Obamas’ $450bn (£282bn) package of tax cuts and spending plans aimed at creating jobs and bolstering the economy. He wants to fund huge construction projects, schools and services, while giving tax cuts to workers and small businesses to boost recruitment.
This news also bolstered the US Dollar, compounding its strength as a safe haven currency. This went further to pushing GBP/USD rates lower, hitting a 2 month low on Friday, despite rates to buy Euros nudging the best they have been in nearly 6 months.
To put last week’s market movements into perspective, a typical transfer of £200K would have seen you receive $4800 less than at the end of the previous week.
Weekly Economic Data that may affect exchange rates
– There is no data of note today, other than Trade Balance figures from Australia. Of course with such volatility in the markets, general demand or lack thereof will likely drive exchange rates today.
– UK data today comprises Retail Price Index, Trade Balance figures, and the Consumer Price Index. All of these are significant releases, and any negative numbers could easily reverse the significant GBP/EUR gains we saw last week.
– Unemployment figures are released from the UK today. There has been a run of poor UK data of late and this could compound Sterling weakness. From the Eurozone, we have industrial production figures. Stateside we will see Retail Sales, and various inflationary measures.
– From the US today we have further inflationary numbers, and Industrial Production figures. Other than that all data today is from Switzerland; an interest rate decision, Industrial Production figures, and inflation data. Given the effect the Swiss had on the markets last week, we will be keeping a close eye on these numbers.
– A quiet end to the week. Some Net flow data from the US and consumer sentiment survey also from the US are the only releases of note.
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Labels: Weekly GBP/EUR, Weekly GBP/USD, Weeks Economic Data