Wednesday, 24 October 2012

Pound/Euro at 1 week high, GDP figures tomorrow

Wednesday 24th October 2012
Good afternoon. In this afternoon's post I'm going to take a look at the EU numbers that have pushed GBP/EUR rates up, and also have a look at what effect tomorrow's UK GDP figures could have on exchange rates. Don't forget, if you're looking for the best exchange rates you can send me a free enquiry, and have a no obligation consultation on your requirements, find out more about our service and the options available to you.

Pound hits 1 week high against Euro, GDP figures tomorrow

After weeks of decline, there was some good news for GBP/EUR buyers this morning, as negative data from Europe weakened the single currency and pushed rates up by a point. The disappointing economic data from the euro zone included poor inflation numbers from Germany and the EU, along with a consumer confidence survey that was much worse than expected.

These numbers weakened the Euro, and helped push GBP/EUR rates up by over 1 cent. We now have the best buying levels we’ve seen in over a week; however it could be the case rates come back down again, depending on tomorrows UK GDP numbers.

What’s happening with the Pound? 

The poor numbers from Europe overshadowed some negative UK data this morning which the markets didn’t react to. There was a surprise fall in British factory orders, with the CBI industrial trend's survey showing that demand had fallen unexpectedly. The number was -23 against a forecast for -6, but the poor figures didn’t really weaken the Pound. This was because Sterling has been given a little boost by the speech yesterday evening from Bank of England Governor Mervyn King.

He said that policymakers would have to think long and hard about conducting further Quantitative Easing measures. This now casts doubt on whether or not they will decide to opt for more QE in November. Much will depend on tomorrows UK GDP figures. UK GDP data for the third is released tomorrow, and is expected to show the economy pulling back out of recession, according to forecasts.

If true, it will probably only show small growth anyway. The Quarterly forecast is for a 0.6% growth, and if the number is this or higher, we could see gains for Sterling. In my opinion there’s more chance of a fall in rates, as a poor GDP number report will put pressure on the BoE to conduct more QE. However as stated above, his comments yesterday cast doubt on when this will happen. He also said that QE was reaching its limits of effectiveness.

Summary 

So for the coming weeks, it’s the shadow of QE that will likely continue to drive exchange rates. As always things can go either way, but I think there’s more chance of the Pound weakening than it is to suddenly gain in value.

Any growth figures will only really show that we’re barely out of recession, hardly the huge upswing in productivity that the economy needs to return to sustainable growth.

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