Monday 21st November 2011
Good morning, and welcome to a new week in the currency markets. As customary for Monday mornings, today I will give a detailed assessment of GBP/EUR, GBP/USD, and a full breakdown of economic data releases that may affect exchange rates.
In this week’s Report:
• UK GDP and BoE minutes this week could weaken GBP
• Italy’s bond yields keep Euro weak and GBP/EUR high
• US Dollar strengthens, pushing GBP/USD down
• 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 struggled last week with weak sentiment, and expectations of a slow and protracted economic recovery with GBP/EUR rates hovering a little below an 8 month high, as the chart below clearly illustrates:
A jittery European market rolled over from the week before, with France and Germany clashing again on differing opinions on how best to handle the current economic crisis. One wanting the ECB to do more while the other feeling the ECB lacks the authority to do more. Bond yields crept up towards the 7% mark in Greece, Italy and Spain as analysts discussed the effects of “contagion” spreading.
Rising yields are bad for a currency and the levels of 7% are seen by analysts as unsustainable. As a result the Euro weakened, becoming cheaper to buy and presenting an excellent opportunity for those looking to buy the single currency. Many investors sold the euro in favour of the pound this month on the view that UK assets are safer than some in the euro zone in light of the deepening debt crisis in the region, compounding the supported GBP/EUR levels.
Better news followed for the German and French economies as their 3rd quarter GDP figures recorded growth, 0.5% and 0.4% respectively. The latter half of the week saw mixed economic data from the UK; unemployment rose significantly to near record levels, while UK retail sales returned better than expected despite many analysts predicting a fall. Sterling was also hit by the BoE downgrading the UK economic outlook citing the Eurozone debt issues as the major contributor and growth hurdle.
Sterling remained relatively unscathed, but the week’s economic developments could be a precursor of more volatility in the weeks to come. With poor UK data signalling a possible return of Quantitative Easing by the Bank of England, most analysts are predicting weak performance from the Pound in the coming weeks, so we could see exchange rates fall further depending of course on further developments from the Eurozone.
So just how does this affect you? Buying €200,000 at the current levels compared to just several weeks ago is significantly cheaper by around £6500, clearly demonstrating how volatile the markets can be, and the effect this can have on the cost of a property purchase in just a couple of weeks.
Due to the current rates of exchange, Forward contracts are very popular at the moment, as they enable you to lock into today’s rates for up to two years in advance, and only lodge a 10% deposit of the total you need to convert, thus giving peace of mind and allowing you to budget effectively.
Considering the volatility in the market at the moment, it’s worthwhile having a free consultation with an expert trader to discuss the different strategies and options you can employ to ensure you make the most of your currency.
If you need to buy or sell Euros, click here to send me a free enquiry.
Sterling vs. US Dollar;
It has been an interesting week for the U.S economy with rates dropping away steadily from what was around a three week high as demonstrated in the graph below:
The dollar has been gaining strength off the back of the issues in the Eurozone and much of the focus is away from the U.S. It is still viewed as a safe haven currency because of the fragility of the Euro and investors have been looking towards the greenback as an alternative to the single currency. Another reason for the Dollar‘s gain in momentum is due to the strengthening of the economy after some promising data came out last week. Gains in consumer spending, manufacturing and homebuilding, combined with fewer job losses, point to an economy that is weathering the turbulence in financial markets caused by the debt crisis in Europe.
The general feeling is positive and analysts believe that the U.S can get back to a position of strength, all be it gradually. “The economy looks to be getting better despite the continued drumbeat of negativity in financial markets,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. The gloomy outlook in Europe has benefited the dollar but there are still fears as to the extent the crisis will affect the U.S. A 9% jobless rate and political gridlock over deficit-cutting have hurt confidence, which may be a hurdle to a further pickup in the pace of growth.
The GBP/USD rates look like they are also being kept in check by the performance of the pound. As discussed in the report above there is discussion of more Quantitative Easing (QE) early next year, and the unemployment figures released recently in the UK look like they will quash any extensive gains.
Next week there is important retail sales and manufacturing data released in the U.S. This could be a good indicator of the prospects on the economy and where things are heading in the coming months. As we have seen recently it is a tough time to predict where the rates are going with the pound/dollar pairing. With the on-going European issues, and the continuing stalling growth in the US and UK economies it is vital to keep in touch with an expert trader, to take you through the various options that you have available to you to protect you in these trying times, and make sure that you make the most of your currency.
If you need to buy or sell US Dollars, click here to send me a free enquiry.
Weekly Economic Data that may affect exchange rates
Monday – UK data today comprises of House Price Data. There is no significant data from the Eurozone. The US also releases home sales data today, so the health of the UK and US housing markets will be in focus.
Tuesday – Public Sector borrowing figures are released for the UK today. In the Eurozone there are measures of Consumer confidence. The main data today comes from across the pond, with US Gross Domestic Product and Canadian Retail Sales. We also see the FOMC (US) minutes which can indicate future interest rate movements.
Wednesday – Today there is lots of data from the UK and EU. Starting with UK, we have PMI inflation data and mortgage approvals. We also have the minutes from the latest BoE decision to hold interest rates and QE – the minutes will show how the 9 member committee voted and what was discussed. In the EU, we have inflation data from Germany and the EU. In the USA jobs data is the order of the day, with Unemployment, Jobless Claims, and personal income data. We round the day off with New Zealand Retail Sales.
Thursday – US Markets are closed for Thanksgiving. In Germany we have various GDP measures, in addition to confidence measures. The UK also releases GDP data today, so with so much coming from the EU and UK we expect a choppy days trade for Sterling/Euro.
Friday – There is no data of note released today.
If you need to buy or sell foreign currency, click below now to send us an enquiry for free. Our exhange rates are up to 5% better than offered by banks. Take the first step to making the most of your currency now.
If you need to buy or sell foreign currency, click below now to send us an enquiry for free. Our exhange rates are up to 5% better than offered by banks. Take the first step to making the most of your currency now.
Labels: Weekly GBP/EUR, Weekly GBP/USD, Weeks Economic Data
