Saturday 2nd June 2012
Good morning. For a change today's post comes to you on a Saturday morning - I thought given the long 4 day break in the UK, I would post the latest currency news for the next 4 days. UK markets will re-open on Wednesday morning, and blog posts will resume then. Today I will do my usual analysis of where rates have moved in the last week, and the forecast for future exchange rate movements.
In today's Report:
(For currencies other than GBP, EUR and USD, contact us for a consultation)
- Pound/Euro falls back on poor UK data
- Pound/Dollar tumbles 10 points in a month
- EU debt crisis continues to spook markets
- Round up of the week’s other data that may affect rates
Sterling vs. Euro;
Last week we have again seen a similar fluctuation in the GBP/EUR cross to previous weeks, with the rates moving close to the recent 3 and a half year high near the mid 1.25’s, before dropping down to the high 1.23’s later on in the week. This has been as a result of some important activity within the Eurozone which includes increasing troubles within Spain and poor manufacturing data within the UK which will be explained in more detail below the graph.
Eurozone Problems Continue to weaken the Euro
Over recent weeks the main problems within the Eurozone were from within Greece due to the political unrest that we have seen recently. However this week we have seen fresh concerns from Spain surrounding their banking sector. The Spanish bank ‘Bankia’ on Friday revised their 2011 figures from a €300m profit to a €2.98bn loss, followed then by a request to the state for a €19bn bail-out. Shortly after this announcement, the rating agency Standard and Poor's (S&P) downgraded Bankia and four other lenders within Spain to ‘junk’ status.
Another big problem in Spain at the moment is the status of their bond yield. They are currently trading at a level of 6.5%. In the long term yields higher than 7% are deemed to be unsustainable. Greece, Portugal and the Rep. of Ireland were all at this level when they received international bail-outs, which is beginning to look like a very big possibility for Spain.
There is also still a massive amount of uncertainty surrounding Greece’s future within the Eurozone. Recent opinion polls within Greece have been contradictory of each other with varying results on whether the left wing Syriza party, or the right wing New Democracy party are leading the election, which is to be held on the 17th of June. With these problems in the Eurozone we saw the pound rise to mid €1.25’s throughout the week against the Euro, and we saw these levels stay quite flat until the end of the week.
UK Data disappoints, pulling Sterling lower
Pulling rates back down was the UK Purchasing Managers’ Index (PMI), which came in very low on Friday against what was expected. We currently have a level of 45.9 compared to the predicted 49.8. Companies cut back on production and employment as inflows of new business declined amid rising uncertainty among domestic and overseas clients. The headline index fell by 4.3 points over the month, the second-steepest fall in its 20 year history. At 45.9 we currently have the lowest PMI figures for over 3 years which has significantly weakened Stirling against a basket of currencies and pushing the GBP/EUR rate towards the high 1.23’s.
The only other key data releases of note within the Eurozone came from Germany. Unemployment change data was released with an unchanged figure following a predicted 5k decline. Consumer Price index data was also released at 1.9%, coming in 0.1% lower than predicted.
We have a very important week coming up with regards to data releases. There is lots of data being released by The European Monetary Union (EMU) including Producer Price Index, Retail Sales, GDP figures and interest rate decisions from the European Central Bank. Spain also have the release of their PMI data.
Back in the UK we have the very important releases of interest rate decisions and Quantitative easing, of which an increase of monetary stimulus has been predicted by many experts over the last month.
With some very important data being released it is shaping up to be a very volatile week for the GBP/EUR cross with the potential for the rates to fluctuate massively. It will definitely be worth your while if you are looking to exchange your currency over the next few weeks, to get in touch with us to discuss your options:
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Sterling vs. US Dollar;
Last week was a dramatic one in the markets with the GBP/USD rate shedding around six cents in a week. Throughout last week the dollar strengthened against the pound ending the session around a four and a half month low. More talk of a Greek exit from the Euro-zone and a lacklustre response to the fiscal crisis in Europe is weighing on the pound, which had a miserable May, losing ground against the surging US dollar.
In the US, consumer confidence fell to its lowest levels in eight months as fears over the global economy caused unrest. The Consumer Confidence Index fell from 68.7 in April to 64.9 its lowest levels since October 2011. Consumer spending currently makes up around 70% of the U.S economy activity so the figures are watched closely, but even with the announcement the dollar continued to gain strength over the course of the day.
A run of positive UK data midweek could not save sterling from falling to its lowest levels for a long time. Worries over Spain’s rising borrowing costs and banking sector once again caused the value of the greenback to increase as investors headed back to the safe haven dollar.
Last Friday data showed that British manufacturing activity shrank at its fastest pace in three years in May as a broad-based global economic slowdown hit demand for British goods. This weakened the pound heavily and saw fresh lows for the currency pairing.
Also on Friday the hotly awaited non-farm payroll figures were released, American employers in May added the fewest workers in a year and the unemployment rate unexpectedly increased as job-seekers re-entered the workforce, further evidence that the labour-market recovery is stalling. There was not much of a reaction to the figures but as soon as the US markets opened, Greenback weakened against Sterling and rates pushed up higher.
It is a brave person who simply waits for the rates to move in their favour. With so much uncertainty in the markets it is important to know your options to help you make an informed decision as to when you make your move.
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Weekly Market data that might affect exchange rates
Monday – UK Markets are closed for Spring Bank Holiday, however we will see some Halifax House Price data. There will also be various EU releases however including inflation data and Investor Confidence measures.
Tuesday – UK markets remain closed for the Jubilee. There are some EU retail Sales, Inflation data and German factory orders. There is also an interest rate decision for Australia and Canada.
Wednesday – UK Markets reopen today and there’s a lot to digest. EU GDP figures are released at 10am, and later in the morning we have an interest rate decision for the EU, followed by a press conference. There could be GBP/EUR volatility on the back of what happens today. Over in the states there are some productivity measures and the Fed’s Beige Book (this reports on the current economic situation in the USA).
Thursday – Today we see the latest decision on UK interest rates and Quantitative Easing. It’s this that will likely drive Sterling’s value in the coming weeks, so keep a close eye on what happens today. Over in the USA we see Jobless Claims and measures of consumer credit.
Friday – We end the week with a raft of data from Germany, Europe’s biggest economy: Wholesale Prices, Imports and Exports & Trade Balance figures. These releases are followed by inflation measures for the UK. Later in the afternoon we see US Trade Balance figures and Unemployment data from Canada.
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Labels: Weekly GBP/EUR, Weekly GBP/USD, Weekly Market Report