Monday 16th July 2012
Good morning. The volatility continues in the Eurozone, and markets have reacted by dumping the single currency. This pushed GBP/EUR rates to new highs last week above the €1.27 level. As always for a Monday morning, today I will take a detailed look at what happened last week, what data may affect rates this week, and the different ways you can protect yourself against adverse exchange rate movements, and achieve the best exchange rates.
In this week’s report:
Pound/Euro breaks through €1.27
- Pound/Euro hit’s new highs of €1.27
- Sterling/Dollar tumbles to $1.54
- UK Could cut interest rates, weakening Pound
- Weekly market data that could affect rates
Sterling/Euro rates fared very well last week, pushing through the €1.27 several times, only to drop back away. Most recently on Friday, Moody's cut Italy's credit rating, sending the country's borrowing costs higher and putting further pressure on its struggling economy. The effect was further weakening of the single currency, creating great buying levels.
Analysts said trade in sterling would continue to be guided by sentiment towards the euro, which remained vulnerable to further declines against a range of currencies. Moody's unexpectedly cut Italy's sovereign rating by two notches to Baa2, just two notches above junk status, warning further cuts could be on the cards if Italy's access to debt markets dried up. This came after Spain announced a further round of austerity measures following their €30bn bailout.
It’s important to remember the Pound is not very strong; it is the Euro that is weak. Any bad news from the UK could pull rates back down. There is nobody that can predict which way rates will go, but we do have tools to help you take control of your currency requirement such as Forward Contracts, Stop Loss & Limit Orders.
Some clients I speak to are holding out hoping rates will continue to climb, and of course they may well do that. Do beware however than in holding out for an inch, you may well lose a yard. The Bank of England have openly said they want a weak Pound to help exports; don't be surprised to see them talk Sterling down and these highs become a distant memory.
Of course you can hold out for more, but don't leave yourself exposed. Place a 'Stop Loss' to cover you should things not go your way. Those that always hold out for 'just another cent' usually end up with their hand caught in the cookie jar, and end up with a much worse rate than was necessary.
If you need to buy or sell Euros, and are worried about the exchange rate, then send me an enquiry. I can discuss your options and help you make an informed decision on what to do.
Pound/Dollar drops to new lows
In contrast to the Euro rate, the GBP/USD rate has been falling. This again is due to the EU debt crisis. The Dollar is a safe haven currency, and as global sentiment is very poor at the moment, the US Dollar is benefiting. This I’m afraid makes it more expensive to buy, and is the reason rates have fallen down to the $1.55 level.
Analysts also expected worries about a weak UK economy to keep sterling under pressure against the dollar, even as it continues to benefit from investors seeking alternatives to the euro. Those looking to convert Dollars to Euros however should note that the rate is close to the best it has been in years.
UK Could cut interest rates; will the Pound fall?
We recently saw another round of Quantitative Easing, however it didn’t weaken the Pound too much due to the fact is was widely predicted and priced in already. However the BoE can’t do QE forever, and should the economy not return to growth quickly, their only remaining option will be cutting the already low interest rate further.
There are reports this may happen soon, and if so could really take the steam out of Sterling’s rally against the Euro. The United Kingdom is still in recession, growth is slow and sooner or later focus will shift from the beleaguered Eurozone to the state of the UK economy.
When it does the Pound could well fall and I expect lower rates against most currencies. Whether we will see if fall against the Euro depends on developments within the Eurozone.
If you need the best exchange rates, click here to send me a free enquiry.
Weekly Economic Data that may affect exchange rates
Monday – The main data today is from the EU, where we see the latest Trade Balance figures and Inflation data. We also have some trade numbers from Italy. In the USA we see Retail Sales, inflation data and a speech from the FED. There are no UK releases of note.
Tuesday – UK Inflation numbers are released this morning, in addition to Retail Sales. In the EU we have some economic sentiment figures at 10am. Later in the day we have some US Inflation data. Moving on to interest rates, we have a decision from Canada today, in addition to the minutes from the recent Australian decision.
Wednesday – Today is important as we have the BoE minutes, so we’ll see what was discussed during the decision to conduct more QE. There are also a host of UK unemployment numbers today, so could be a choppy day for the Pound. Elsewhere we will see US Housing data, EU construction output, and a monetary policy report from Canada.
Thursday – UK Retail Sales numbers are seen at 09:30am this morning, following by some Jobless Claims and Homes Sales data from the states. We also have US manufacturing numbers. There are no scheduled releases from the EU; however the ECB is conducting its mid-month meeting.
Friday – We end the week with Import/Export prices from Europe, followed by inflation data from Germany. The only UK data of note is Public Sector borrowing. Other than that data is from Canada; consumer price index which could affect Canadian interest rates.
Getting the best exchange rates
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Labels: Weekly GBP/EUR, Weekly GBP/USD, Weeks Economic Data