Monday 9th July 2012
Good morning everybody. Well, what a difference a week makes - I've been on holiday in Greece for a week, and much has happened in my absence. The Bank of England announced more Quantitative Easing as expected, but surprisingly it had no effect on the market. The interest rate cut in the EU however was a surprise, and has pushed GBP/EUR rates to new 3.5 year highs of €1.26+. I have much to catch up on, so in today's post I'll give a quick overview of what has happened while I've been away.
Sterling vs. Euro;
- UK announce an additional £50bn of Quantitative Easing
- Euro suffers its worst week in a year
- Dollar gains against the pound in light of jobless claims figures
- Round up of the week’s other data that may affect rates
Last week saw a very flat start to week for the GBP/EUR cross with no significant movement in the rates. The market awaited the Bank of England’s decision on whether more Quantitative Easing (QE) will be required and the European Central Banks interest rate decision on Thursday lunchtime.
The Bank of England made the expected decision to print more money and to add another £50bn to the £325bn already agreed previously. The last time Quantitative Easing was announced we saw a large drop in the value of the Pound; this was not the case with Thursday’s announcement.
The pound inched higher as the market awaited the Euro zone rate decision from European Central Bank President Mario Draghi. The policy move by the BoE and the interest rate cut from 1.0% to 0.75% had mostly been priced into the markets. The cut in the Banks deposit rate to 0.0% was unexpected and by the end of the London session the Euro had lost 1 cent against the Pound with the market closing at 1.2530 (mid-market). Decreasing the commercial bank deposit rate to zero is an attempt to try and boost growth within the Euro zone and get bank’s lending to customers or at least one another to bump start struggling economies.
UK manufacturing data surprised investors when it recovered by nearly three points to 48.6, beating even Switzerland's 48.1. Anything under 50 is seen as contraction although it is more the case off being the better of a bad bunch.
Friday saw the release of German Industrial Production figures which were much higher than expected at 1.6%; although the Euro did continue to weaken even further with the high of the day reaching 1.2606 (mid-market) as the deposit rate change seemed to over shadow all other news for the UK and Euro zone.
With the continuing problems across the Euro zone now is the time to get in contact with me to discuss your options and the types on contract you can use to your advantage when the markets are this volatile. The rate move on Thursday alone would have meant a difference of €2000 in a typical trade of £200,000.
The only other news from last week is that I have a nice suntan - 35c every day and not a cloud in the sky. I can highly recommend the Greek Islands for anybody who is not enjoying the British Summer, and the rates are very favourable too due to the issues in the country.
Weekly Economic Data that may affect exchange rates
Monday – A relatively quiet day for data releases but two important speeches, the first from ECB President Mario Draghi, and then MPC committee member Tucker discusses the resent decision to inject more stimulus into the UK economy.
Tuesday – German, French and UK industrial production figures released followed by trade balance figures and manufacturing data in the UK.
Wednesday – A quiet day for the Euro zone but important trade balance data from the US and Canada, followed by minutes from the FED.
Thursday – The monthly ECB bulletin and industrial production data make up the most important releases in the Euro zone, we see unemployment claims in the US which are a good indicator of where the market stands.
Friday – Friday 13th sees no releases from the Euro Zone but some important releases from the US in the form of PPI data, consumer sentiment, and also a speech by Federal Open Market Committee (FOMC) member Lockhart.
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Labels: EU Interest Rates, Pound/Euro forecast, Quantitative Easing, Weekly Market Data