Monday 1st October 2012
Good morning everybody. It's the start of a new week and a new month. Today I'm going to have a look back over what has been happening with Pound/Euro rates in the last week. In short, we've seen a slight recovery in Pound/Euro rates, however during the next month there are some key decisions in both the UK and EU that could pull the rate in either direction. I will also touch on tools and strategies you can use to protect against the rate moving the wrong way.
In this week’s Report:
- Sterling/Euro remains choppy due to debt crisis
- EU problems now spreading to Spain
- What will October hold for GBP/EUR rates
- Round up of the week’s other data that may affect rates
Sterling vs. Euro;
After losing ground against the euro in recent weeks, the pound started last week strongly as worries over Spain once again took centre-stage. The pound subsequently rose to its highest level in two weeks against the euro over fears that Spain would become the latest member of the Eurozone to request a bailout. Renewed concerns over Greece and a weaker-than-expected German sentiment survey also weighed on the single currency.
The pound was also lifted by talk of a €3 billion injection of farm subsidy payments, which the Eurozone pays the UK once a year. All of the above resulted in Sterling/Euro rates making a slight recovery.
"The thing that is dominating market sentiment is when Spain will apply for a bailout. And, until that happens, it is weighing on both the euro and sterling, but especially the euro," said currency strategist Adam Myers of Credit Agricole.
The euro weakened further mid-week with Spanish ten year bond yields rising to 6 % on Wednesday. There was no let-up on the Euro either, with the Bank of Spain warning that gross domestic product for the Eurozone’s fourth largest economy would keep falling at a "significant rate" in the third quarter of 2012.
The rise in GBP/EUR rates continued, with the pound hitting a three week high against the euro on Thursday, helped by news Britain's economy contracted less than expected in the second quarter and as worries grew about Spain's debt and economic problems.
However, the trend was reversed on Friday as the euro gained around 0.5% against the pound over the course of the day after investors gave a cautious welcome to Spain's 2013 draft budget. This demonstrates how quickly trends can change.
Also last week, the troubled southern European nation of Spain unveiled a 2013 budget based on spending cuts that many saw as an effort to pre-empt the likely conditions of a bailout – which could be seen as a positive for the euro and other riskier currencies, as it would allow the European Central Bank to start buying the country's bonds to try and lower yields, effectively lowering borrowing costs.
So, what does all of this mean if you need to buy or sell euros in the near future?
Is the rate likely to go up or down? With so much uncertainty in both the Eurozone and the UK, it is almost impossible to predict which way the markets will move. On the one hand, the talk of Quantitative Easing in the UK could potentially weigh heavily on the pound. QE effectively floods the market with Sterling, weakening the pound in the process and bringing exchange rates down.
On the other hand, with problems in Greece starting to resurface, and the fear Spain will soon be forced to seek a bailout, GBP/EUR rates could easily move in the opposite direction. When we had some negative news out of Greece back in October 2011, the euro lost 3 cents against the pound over the course of 10 days.
Regardless which way the markets will move in the coming weeks, there are tools at your disposal to help protect yourself from adverse movements and wild swings in rates of exchange.
Forward Contracts, Limit and Stop Loss orders are all handy tools to help make the most of your currency. Using these to take control of your currency requirement is a wise strategy to consider, as simply hoping the market will move in your direction can often prove very costly indeed.
To find out more about how you can limit your exposure to fluctuating exchange rates, send me a free no obligation enquiry today.
Weekly Economic Data that may affect exchange rates
Monday – Starting in the UK, today we will see the latest House Prices from the Halifax, following by mortgage approval numbers and measures of manufacturing and consumer Credit. Over in the Eurozone there are Spanish inflation numbers, and manufacturing data for Italy and France. We also see Italian unemployment numbers. Across the pond we have US Manufacturing and Construction figures, in addition to a Speech by one of the FED’s FOMC members.
Tuesday – Further UK House prices are released today, this time from the Nationwide. We also have construction data and the shop price index from the British Retail Consortium. In the Eurozone we have some inflation numbers. Further afield there is an interest rate decision in Australia, and Vehicle sales numbers from the United States.
Wednesday – Fairly quiet in the UK today with only PMI data being released. In Europe we also have PMI in addition to the latest Retail Sales which is a good barometer of overall economic health. In the USA there are mortgage approval numbers and the latest unemployment measures.
Thursday – As always for the first Thursday in the month we have the latest interest rate decisions for the UK and EU, in addition to possible change in the UK’s Quantitative Easing plan. It’s likely to be quite important as any changes could make a big difference to the GBP/EUR rate. In the USA we will see the latest FOMC minutes, in addition to the most recent Jobless Claims numbers.
Friday – We end the week on a quiet note, with no releases for the UK. We will see some Factory order numbers from the Eurozone but they don’t usually have much of an impact on rates. In the USA we have various measures of unemployment, and as we touched on in the USD report, the all-important Non-Farm Payrolls.
Getting the best exchange rates
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Labels: currency forecast, EU Debt Crisis, Pound/Euro, Quantitiatve Easing, Weekly Economic Data
