Monday 17th October 2011
Good morning. As regular readers will know, on a Monday I take stock of movements in GBP/EUR & GBP/USD over the last week, with forecasts on what may happen in the coming week. I will also list the most important economic data to watch for that may affect rates.
In this week’s Report:
• Poor economic figures hurt Sterling
• G20 discuss EU debt crisis
• Downgrading of Banks continues
• 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;
Sterling lost over 2% against the Euro last week as it fell from above 1.16 on Monday, to end the week struggling to remain above 1.14. The main data releases couldn’t have been more confusing when trying to gauge the current state of the UK economy with jobs figures on Wednesday showing that the UK unemployment rate is at its highest since 1994, rising above 8%, followed by data on Thursday that showed the trade deficit figures for August were narrower than expected.
The improvement in trade figures was a result of £0.2billion increase in exports, reaching their highest levels since records began in 1998, and a £0.2billion fall in imports, and is something the Bank of England have been hoping for since the credit crunch took hold in 2008 as increased exports should stimulate growth in the economy (and potentially create more jobs...)
Unfortunately news from the Eurozone was pretty downbeat. At the beginning of the week there were concerns that Slovakia would be the only 1 of the 17 member nations not to ratify the increased European Financial Stability Facility which is where every Eurozone member (including the smallest nations like Slovakia) are putting together a bailout fund of €440billion. It was thrown out in the first vote but went through in the second round on Wednesday and the Euros performance was visibly better afterwards, gaining another cent against the Pound, and moving nearly 2% against the US Dollar to reach a 1 month high of 1.3890.
Even the downgrading of Spain’s sovereign debt rating by ratings agency Standard & Poors, just a week after another of the big agencies Fitch had done the same couldn’t stop the Euros rally.
Looking ahead the Pound will most likely be driven by goings on within the UK as opposed to further afield. We know now that the bailout fund for the Eurozone has been approved it doesn’t look like the EU or IMF are willing to let the Euro fail, especially after there were more rumours today that Greece would be receiving another bailout before the end of October.
It therefore looks like the Bank of England could be solely responsible for which way the Pound moves as we get closer to Christmas since they announced a further £75 billion quantitative easing on 6th October. If this turns out to be the only time then the Pound may start to find its feet as we move through the 4th quarter. However, MPC member Charles Beans said in a national newspaper last week that the Bank of England would expand its asset purchase programme if necessary meaning any further concerns about the UK economy could swiftly be followed by more QE, and potential further falls in the value of Sterling.
With this in mind make sure you are in touch with the Foremost Currency Group about your Sterling/Euro currency requirements to help you avoid any adverse market movements.
Are you looking for the Best Exchange Rates for Euros? Contact us now.
Sterling vs. US Dollar;
Last week saw the markets start to settle following the frivolities of the previous week. After cable reached a 10 month low of 1.527 (Interbank) the previous week’s trading after the Bank of England initiated a £75 Billion program of quantitative easing (QE) the Pound seemed relatively buoyant at the start of last week finishing the day almost 3% higher against the Dollar.
Under normal circumstances the market would normally expect the currency of an economy that enter a QE program to remain consistently weak for some time after the event happens. However because most of the other major banks are themselves considering QE it has not weighed as heavily on the Pound this time around.
After Sterling's impressive rebound on Monday the currency was again stopped in its tracks following poor growth data with traders stating that Sterling was still vulnerable to further selling off. Fundamentally Sterling is still a weak currency and a weak cable cross is beneficial to the UK export market which is often commented on by the BoE governor ‘Mervin King’. Sterling’s recovery against the Dollar was always going to be limited as the US Dollar remains a safe haven currency for investors whilst there is uncertainty within the world markets.
The Dollar slipped on Wednesday against all the major currencies including the Pound after investors scaled back on long term positions in the Dollar as it was broadly seem that the exposure to the market was too great and the risk was too high. This knocked the Dollars performance and Sterling gained over 1 % against the greenback despite damning UK employment figures being released the same day. The figures showed that unemployment claimants are on the rise and worryingly almost a quarter of 16-24 year olds are now out of work.
The end of the week saw the Pound continue to gain against the Dollar after a sharp rise in the performance of the Euro which saw the Dollar slip. Traders encouraged caution over cable as there are still risks to the downside, not least that there is still the threat of further QE. However for now sterling seems to be content with riding on the back of other currencies performances, albeit good or bad and until Sterling’s fundamental show consistent signs of improvement the status quo is unlikely to change.
Unfortunately for currency purchasers this uncertainly makes life a bit trickier. Whether you are buying or selling it is important to keep up to date with market movements to ensure you maximise your position in this difficult market.
Are you looking for the Best Exchange Rates for US Dollars? Contact us now.
Weekly Economic Data that may affect exchange rates
Monday – We have a fairly quiet start to the week, with no data of note from the UK or EU. Any further developments regarding the EU debt crisis however could still affect rates. From the USA we have some industrial production figures.
Tuesday – Now we get going with UK fundamentals: Retail Price Index, Consumer Price Index, and CBI trend survey are all released today. All of this can impact future interest rate movements and so can affect GBP. In the EU we see Economic sentiment figures. US data comprises inflation data.
Wednesday – Today is quite important for Sterling, as we see the BoE minutes to their recent decision to pump £75bn into the economy. We will see what was discussed and how the vote went, and may well impact on the value of the Pound. There are further inflation numbers from the USA today, but no data of note from the Eurozone.
Thursday – UK Retail Sales figures are released today in addition to Nationwide Consumer Confidence, showing how confident consumers are about the economy. There are also inflation figures from Europe. Stateside we have various measures of unemployment.
Friday – On to Friday, and Australia releases import and export data. Germany has various confidence measures, and as the largest economy in the EU this could impact EUR prices.
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Labels: Weekly GBP/EUR, Weekly GBP/USD, Weeks Economic Data