14th May 2012
Good morning. Well, last week was one of the busiest I have seen on the trading floor for some time. With Euro weakness pushing rates to €1.25, many of my clients were keen to fix rates for both buying and selling Euros with a forward contract, due to the uncertainty over the future movements of the GBP/EUR rate.
In today's report as always for a Monday morning, I'll review last weeks movements, and take a look at what might happen to the rate this week. If you are looking for the best exchange rates for a transfer of £5k+, get in touch today to find out more about our service.
In this week’s Report:
Sterling vs. Euro;
- Pound/Euro rates hit 3.5 year high
- EU political uncertainty still driving exchange rates
- Round up of the week’s other data that may affect rates
Last week again saw the Euro weakening significantly after further uncertainty within the Euro zone, along with some positive data being released from the UK surrounding decisions made by the Bank of England, which combined have led to the mid-market levels for GBP/EUR reaching a high of €1.2501 before dropping slightly on Friday. This is the highest we have seen over the last three and a half years! With some more important data coming out of the euro zone this week it will be hard to predict which way the market will shift.
Euro weakness causes GBP/EUR rate to rise
The main reason for such uncertainty within the Eurozone has come as of a result of the recent elections in France and Greece. Greece are yet to form a coalition government and there is a lot of uncertainty as the leader of Greece's left-wing Syriza bloc has stated to the two major parties that if they want to form a coalition they have to end their support for the austerity terms. This has increased speculation that Greece may leave the Eurozone which is a big worry for Germany as Spain, Portugal and Ireland may look to follow suit.
Indeed there was an interesting article on the BBC website outlining how Greece may leave the Euro.
Francois Hollande (the new socialist French leader) is also looking to reduce austerity and to focus on increasing growth which has led to a lot of uncertainty regarding the economic recovery within France and the Eurozone.
EU economy forecast to return to recession
The eurozone economy is forecast to shrink this year as its debt crisis continues to bite. The European Commission's spring forecast confirmed its prediction of a 0.3% contraction in 2012 in the economies of the 17 countries that use the euro. Growth figures for the first quarter of 2012 will be released by the European statistics agency Eurostat tomorrow, Tuesday 15 May.
"Economic activity in the EU contracted in the last quarter of 2011 and is estimated to have also done so in the first quarter of 2012," the Commission said in its statement.
This is probably priced into exchange rates already for the most part, but could of course cause some further weakness in the Euro.
Pound supported by Bank of England decisions
Back in the UK, the Bank of England released data for interest rates and quantitative easing (QE). The decision was made to hold interest rates at 0.5% which has now been kept at this level for over four years. There was also the decision for there to be no further QE this month.
This has come as a surprise to many experts as the UK recently dropped into a double-dip recession and it was expected that there may be a further injection of QE into the economy. As a result of these announcements the pound strengthened slightly pushing the GBP/EUR rate into the high 1.24’s.
What data this week may affect exchange rates?
This week we have some important data that may affect the GBP/EUR rate quite significantly. On Tuesday Germany will release their GDP figures followed then by GDP figures released from the European Monetary Union (EMU) which may have a big effect on the exchange rate.
Then on Wednesday we have data from the UK in regards to average earnings and unemployment figures followed up by core consumer price index data released by the EMU which may lead to some large fluctuation in the exchange rate.
We round off the week with German producer price index release which again could lead to a large swing in the GBP/EUR rate. Full details of the week’s data releases can be seen in the Market Data section below.
Do you need to buy or sell Euros?
Taking into account the volatility of the Eurozone at the moment and the data that will be released over the next week, it is important that if you are looking to sell Euros this week and you are wary about the data releases, you make an enquiry to discuss your options.
Even if you don’t need to convert your funds for some time, you can hold the current rate through a forward contract for as much as up to two years, thus protecting against further adverse exchange rate movements.
Likewise if you are looking to purchase euros you should get in contact to discuss the current market movements. Of course many will hope rates will continue to rise, but of course this is not a given. The currency markets can move very quickly indeed, and having a well thought through strategy to help time your purchase can save you thousands of pounds.
As I have often said on this blog, the other options is simply hoping the market will move in your direction, and hope is not a reliable economic tool.
Weekly Economic Data that may affect exchange rates
Monday – It’s a quiet start to the week in terms of fundamental data, with the only release of note Industrial Production data from the EU.
Tuesday – In contrast to Monday, today sees lots of important data. Potentially affecting GBP/EUR rates is the Germany GDP release, Europe’s largest economy. This is followed by EU GDP figures later in the morning, and economic sentiment surveys for the EU. In the UK we have Trade Balance figures which may also have an impact on exchange rates. Stateside we see Inflation data, Retail Sale & Housing Index data.
Wednesday – We’ll start in the UK today with a host of unemployment data including the Claimant count, average earnings and the ILO unemployment rate. We will also see an inflation report from the BoE, so lots that could affect the Pounds value. In the EU we have inflation data and trade balance figures. Across the pond we have Housing data, industrial production, the FOMC minutes and a FED speech.
Thursday – The Ascension Day bank holiday sees many EU markets closed today, so data today is weighted towards the states, with Jobless Claims, the Philly Fed survey and a FED speech the main data to watch for as it may affect Sterling/Dollar rates.
Friday – The G8 Meeting starts today which could throw up some economic surprises. Scheduled data releases include German and Canadian Inflation data. There are no UK releases today.
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Labels: Best Exchange Rates, Forward Contracts, Pound/Euro 3.5 year high, Weekly GBP/EUR, Weekly Market Data