Monday 8th October 2012
Good morning everybody. As
always for a Monday, today I will take a detailed look at the currency
markets, have a look at why the Pound/Euro rate fell so much last week,
and where rates may head in the coming weeks and months.
In this week’s Report:
- Pound/Euro
rates in decline due to poor UK data
- Sterling
dollar rates also plateau around $1.62
- Global
Trade Balance figures main data of the week
- Round up
of the week’s other data that may affect rate
Sterling vs. Euro;
There was nothing but bad news for
Sterling at the start of the week as PMI data, houses prices and mortgage
approvals were all worse than expected, with the drop house prices especially
disappointing after a strong reading in September.
The key release however was
on Wednesday when UK services PMI (the UK’s most important sector) was weaker
than forecast and help force the GBP/EUR rate, which had already dropped a cent
since Monday, to break below the 1.25 barrier. Eurozone data over the first few
days of the week was slightly better than expected but even with the results of
the Spanish banks stress test there seemed to be nothing that could support the
Pound.
Thursday was the key day of the
week with early afternoon monetary policy announcements from both the Bank of
England & European Central Bank. There were no rate cuts or forms of
monetary easing from either which was widely expected but market analysts are
still expecting the Bank of England to further loosen policy at the November
meeting with another round of Quantitative Easing (QE), and some even suggest
that we could see the UK interest rate cut a quarter point from its current
all-time low of 0.5%. ECB President Mario Draghi’s statement helped the Euro as
he reassured the markets that the ECB’s policy stance was appropriate, while
insisting that there would be no further rate cut this year.
Friday had nothing of importance
from the UK or Eurozone yet the rate fell nearly a cent over the course of the
afternoon. This was all down to slightly better than expected Non-Farm Payrolls
figures from the US which is a leading indicator of the state of the World’s
largest economy and can have a huge bearing on the attitude of the financial
markets.
With only one of the last six readings showing better than expected
this positive announcement caused a
swing in risk appetite as investors start putting faith in perceived riskier
currencies. Understandably, the Euro falls under this heading, and the rate
slipped from 1.2465 to 1.2390.
All UK data releases this month
will be heavily scrutinised as on Friday 26th October we will see
the initial reading of UK 3rd quarter GDP. If this is negative then
we will have been in recession for an entire year and the knock on effect could
be that we see a move from the Bank of England a fortnight later as mentioned
above.
Any more QE or a further rate cut
could mean a huge drop in the value of the Pound as we move towards Christmas,
whereas if the GDP is 0 or positive, or Spain seek a financial bailout in the
meantime we could see the Euro weakening back towards the highs seen over the
Summer.
As always the GBP/EUR rate could
move quickly and will also be influenced by outside factors so get in touch with us today by clicking here, and discuss your requirements at your earliest opportunity
as there are many options at your disposal whether buying or selling currency.
Weekly Economic Data that may affect
exchange rates
Monday – US Markets are closed today for Columbus
Day. We have a raft of data from Germany, Europe’s largest economy: Imports and
Exports, Trade Balance, Industrial Production and Investor Confidence data. In
the UK the only data of note is the latest House Price info from the Royal
Institute of Chartered Surveyors (RICS), and the British Retail Consortium
(BRC) Sales monitor.
Tuesday – An important day for GBP/EUR rates. Starting
in the UK we see Trade Balance figures in addition to the latest Industrial and
Manufacturing Production numbers. In the EU we have the French Budget in
addition to their Trade Balance numbers. In Greece there are inflation numbers.
US markets reopen however the only data of note is an economic optimism survey.
Wednesday – There is no data of note from the UK today.
The only EU data is French and Greek industrial production numbers. Most data
today is from the United States: Mortgage Applications, monthly budget
statement, wholesale inventories and the Fed’s beige book which gives an
overall picture of economic optimism.
Thursday – There are no UK releases today, but we do
have a busy day in Europe. To start with we have the G7 finance ministers
meeting. We then have Inflation numbers from Spain, Germany and France,
following by unemployment figures from Greece. The ECB also gives its monthly
report today, and is then followed by Industrial production numbers. Over in
the United States we have Import and Export numbers, Jobless Claims, Trade
Balance figures and a bond auction.
Friday – The
only UK release today is the CB Leading Economic Index. This looks at future trends of the
overall economic activity including employment, average manufacturing workweek,
initial claims, permits for new housing construction etc., and therefore it’s a
good measure for overall economic stability. The only other significant data
releases are from the US: Inflation data and a consumer sentiment survey.
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Labels: Weekly Economic Data, Weekly GBP/EUR