Thursday 11th April 2013
Good afternoon everybody. Things have remained relatively calm in the currency markets so far this week, and we have not seen the sharp volatility experienced in recent weeks. The latest UK GDP estimate suggests we may avoid recession which is keeping the Pound supported against other currencies. The Euro remains weak on concerns over countries other than Cyprus facing problems, and the US Dollar has also weakened following their recent budget statement.
In today’s report I’ll take a look at the above, and also run over what other data is out in the coming days that may affect rates. And don’t forget, I can source exchange rates significantly better than the banks can offer, so if you need to buy or sell currency at the best exchange rates, send me an enquiry now to find out how I can help.
UK may avoid recession
This week numbers showed that Britain's economy may have grown by 0.1% in the first quarter of 2013 compared with the previous quarter. The numbers were released by the National Institute of Economic and Social Research
said on Tuesday. Why is this important? It makes the chance of the UK entering a triple-dip recession unlikely for now. The news has kept the Pound from falling.
The economy shrank late last year, and another contraction in the January-March period would result in a third recession in less than five years. The first official estimate of whether that was the case will be released on April 25, and then we’ll know for sure!
According to NIESR's monthly estimate, Britain's gross domestic product grew at the same rate in the first quarter as in the three months ending in February. The estimate follows official data showing a surprisingly strong rebound in British industrial production in February, led by a rise in manufacturing output, as well as by higher demand for energy during the unusually cold month.
But we’re not out of the woods yet. Many analysts think that the result is very finely balanced, as the cold weather will also have affected retail sales. So for now things look ok, but when the official numbers are released in a few weeks, exchange rates will correct accordingly. IF the estimate is wrong and we are in recession, expect a drop in the value of the Pound.
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Possible further EU problems
Across the channel in the EU, debt problems persist in Cyprus and elsewhere, and this is keeping the Euro weak exchange rates supported. The European Commission has warned that Spain and Slovenia must quickly tackle the imbalances in their economies. Spain has already had its banking system bailed out and Slovenia is widely expected to become the next to ask for a debt rescue.
Brussels highlighted the plight of banks in Slovenia by saying that "urgent policy action is needed". The Commission said that the other European Union countries experiencing "macroeconomic imbalances" to a lesser degree than Spain or Slovenia were Belgium, Bulgaria, Denmark, France, Italy, Hungary, Malta, the Netherlands, Finland and Sweden.
If these countries do indeed need further assistance, then it could possibly weaken the Euro further. There are some however that are saying that the European Central Banks policy of doing ‘whatever it takes’ to combat debt issues means that the Euro could remain supported, which would limit any gains for the GBP/EUR rate.
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US Budget weakens US Dollar
Also this week, US President Barack Obama has unveiled a $3.77tn (£2.4tn) budget that proposes fresh taxes on the wealthy along with cuts to benefit programmes. However, the Obama plan is viewed as having no chance of being fully enacted by the deadlocked Congress. The US economy is far from robust. Although last month economic data showed that the economy grew at a faster-than-expected annualised pace of 0.4% in the fourth quarter of 2012, which was still a marked slowdown from the previous quarter.
The Fed has previously said it will keep its policy of spending $85bn a month on Treasury bonds and mortgage-backed securities in order to lower borrowing costs for households and businesses. It has said it wants to see signs of a long-term trend of falling unemployment before it changes policy.
Due to this the US Dollar has weakened, pushing GBP/USD rates higher, and at the time of writing rates sit at 1.5384.
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Exchange Rates are relatively good at the moment for anyone looking to convert Sterling to another currency. After the Pound fell by nearly 10% in the first few months of the year, better economic data of late has pushed rates back up again, giving good buying opportunities. Things seem to have stabilised however, and I don’t expect many further gains until the GDP figures are released at the end of the month, and that may happen should the number show growth. Any decline however would push rates down.
As I mentioned above though, it really is on a knife edge. Any economic releases in the coming weeks that show weakness in the economy could pull rates down.
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How to get the best exchange rates
Regardless whether you need to buy or sell currency, the rates and service I can source are much better than available at banks and other financial institutions. We have various contract types that mean even if you don’t need currency for some time, you can fix rates now to protect against rates moving against you, and allowing you to budget effectively.
I can also take instructions to fix a rate should exchange rates hit a particular target level you may be aiming for.
If you need the best exchange rates, send me a free enquiry today to find out how the service works, and the rates that I can provide. I look forward to hearing from you.
Labels: Best Exchange Rates, EU debt problems, GDP Estimate, UK recession, US Budget