Monday, 29 October 2012

Pound/Euro rates climb after good GDP data

Monday 29th October 2012
Good morning. The Pound/Euro rates climbed nicely last week when UK GDP figures confirmed we are out of recession. Today I'll have a look back at the events of last week, look at what might happen with exchange rates going forwards, and as usual round up the weekly economic data that could affect exchange rates in the short term.

In this week’s Report: 
  •  Pound/Euro rates hit 3-week high 
  • UK finally out of recession – GDP grows 1% 
  • A volatile week for the Pound/Dollar cross 
  • Round up of the week’s other data that may affect rates 

Sterling vs. Euro; 

The pound surged last week on the back of a hugely better than expected GDP swing of 1.6% quarter on quarter, showing an initial estimate of a full 1% growth in the UK for Q3 2012. Though this figure is sure to change as the final figures are more accurately calculated, the realisation that the UK had exited recession was more than enough to send its currency on a rally.


This caused Pound/Euro rates to surge nicely at the end of last week. Forecasters still expect a Euro rally in the wake of any request by the Spanish Government for financial assistance from the EU, but as yet this still hasn’t happened. In the absence of serious support for the Euro as the Spanish continue to tap-dance around the bailout, the pound was free to strengthen nearly 2.5 cents unabated in a day and a half after the GDP report.

This quick movement shows how easily gains can be made and lost on the currency market; those who were holding off selling their Euros whilst waiting for the Spanish Bailout lost nearly £3000 on an average second home sale price of €180,000. Of course one man’s loss is another’s gain with those looking to buy in the Euro zone have benefited from this sharp spike. Experience teaches us that spikes are often just that, with correcting movements seeing rates move the opposite way very quickly.

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Weekly Economic Data that may affect exchange rates 

Monday A relatively quiet day for data releases to start the week. We have Net Lending figures from the UK along with inflation figures from both Germany and the US. 

Tuesday A quiet day for data releases in the UK today. In Europe, the president of the ECB Mario Draghi gives a speech. We also have a ten-year Italian bond auction. It may be an interesting day for the GBP/EUR cross. From the States we have consumer confidence measures. 

Wednesday We have consumer confidence figures from the UK today and a raft of inconsequential data from the Eurozone, including the general unemployment rate and inflation measures, both of which should have little impact on exchange rates. 

Thursday As was the case last week, Thursday will be an interesting day for data releases. We have manufacturing PMI from China, the States and the UK along with unemployment figures from the US and house price data from the UK. 

Friday We end the week with Canadian and American unemployment figures along with Spanish and Italian PMI data.  

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