Wednesday 21st August 2013
Good afternoon everybody. Pound/Euro rates have steadied since my last post, and remain a little above the €1.17 level. Against the Dollar, Sterling sits just under $1.57. This is around 2 month highs in both cases. In today’s post I will look at how recent economic releases have affected exchange rates, and whether Pound/Euro rates are likely to go up or down in the coming weeks. In today’s report:
- UK Public Sector borrowing worse than expected, but Pound remains strong
- Greece may need another bailout, how would this affect GBP/EUR?
- Growth forecasts are increased for the UK, supporting Sterling
- US Fed minutes this evening may affect exchange rates
- Getting the best exchange rates
UK borrowing disappoints, but Pound remains strong
I’m going to start in the UK today. This morning we saw the latest Public Sector borrowing figures, and they were actually quite a bit worse than expected. Despite the numbers disappointing, Sterling has not weakened, and in fact has risen slightly against the Euro.
This is partly due to the fact the data remains subject to revision. For example, the £823m surplus recorded in July last year was originally reported as a deficit, so the markets haven’t taken much notice of the numbers.
Indeed financial analysts played down the importance of the figure, with many saying they still expected to see steady improvement in the government's finances over the rest of the year, as the economy continued to recover. So due to this, the data did little to take the steam out of rally that has seen sterling rise 3% against the dollar and 2.3% against the euro this month, driven by improving UK economic data that has suggested interest rates may rise sooner than the Bank of England has indicated.
Britain is doing quite well. The economy grew 0.6% in the second quarter of this year, up from a 0.3% rate during the previous three months, with the faster pace expected by economists to continue into the autumn. Also helping the Pound is he CBI business lobby group, which has increased its forecast for UK economic growth for 2013 from 1% to 1.2%.
It also increased its forecast growth for 2014, from 2% to 2.3%, saying that the forward guidance on interest rates recently given by new Bank of England governor Mark Carney should add to positive sentiment.
"The economy has started to gain momentum and confidence is picking up, but it's still early days," said CBI director-general John Cridland.
Recent figures and surveys have shown activity in manufacturing, services, construction and the housing sectors all gathering pace. The most recent official figures for the UK economy from the Office for National Statistics showed it grew by 0.6% in the three months to June. The figure means that the economy has now recouped more than half the 7.2% of output lost in the 2008-09 recession.
So all in all, things are looking much better for Sterling than they have of late. If you look at the chart showing GBP/EUR rates over the last 3 months, you can see the decline has been reversed, and exchange rates are looking much better for those that need to buy Euros.
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Another Greek Bailout on the cards?
Over in the Eurozone, debate about whether Greece will need another bailout has intensified, after the EU's economic and monetary commissioner declined to rule it out. Greece has received two bailouts totalling about 240bn euros (£205bn). A condition of the current bailout deal is that Greece makes cutbacks and restructures its economy.
Yesterday Germany's Finance Minister, Wolfgang Schaeuble, said: "There will have to be another programme in Greece." The Euro weakened a little, but not too much because the news is not a surprise. Economists have long predicted a third rescue package for Greece, which is struggling to control its mounting debt burden as the economy shrinks under tough austerity measures.
US FOMC minutes this evening
The next main data release that will affect exchange rates is the latest FOMC minutes which are released this evening. Investors braced for a U.S. Federal Reserve report which may shed light on when it will trim its QE stimulus policy.
Confirmation that the Federal Open Market Committee is veering towards slowing its bond buying programme in September could see strengthen the Dollar, which would probably cause GBP/USD rates to drop, however if we see a more cautious approach by the Fed, I would expect to see the US Dollar weaken, pushing GBP/USD rates higher.
It will likely affect other currencies such as GBP/EUR, as sentiment towards the US Dollar often drives other currency pairs due to its safe haven status.
Do you want to get the best exchange rates?
Hopefully my blog is a useful resource for those that are keen to know what moves exchange rates, in order to help decide when to fix an exchange rate. I have been a commercial foreign exchange broker for 8 years, and have a very detailed knowledge of the currency markets.
I currently work for one of the UK’s leading foreign exchange brokerages, and the rates I can source are up to 5% better than banks of other brokers can offer.
- So, are you looking for the best exchange rates?
- Keen to know when to buy your currency?
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- Unsure how data releases may affect your exchange rate?
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Labels: Best Euro rates, Best Exchange Rates, FOMC minutes, Greek bailout, How to get the best currency rates, Pound/Dollar, Pound/Euro, UK public sector borrowing
