Tuesday 29th July 2014
Good morning. It’s been a very quiet start to the week for the currency markets, with no data of note being released yesterday. Today is also quiet, so in today’s post I will give a quick round up of where exchange rates stand, and list the rest of the week’s economic data releases that I think could affect exchange rates.
Pound/Euro
The GBP/EUR rate cannot seem to sustain its highs. We have seen the rate climb into the €1.26’s before dropping back off. That’s exactly what we’ve seen happen again this morning. So why is the rate to buy Euros peaking and failing to climb higher?
It’s because all the recent good news regarding the UK economy is no longer surprising the markets, and is now largely priced into the value of the Pound. I think in the short to medium term it’s unlikely we’ll see any more significant gains. In the medium to longer term however, if the EU needs to try and pump money into the economy then the Euro could weaken further and push rates higher. Also the closer we get to interest rates going up then the Pound could start climbing, but that’s probably some way off.
Those looking to buy Euros should consider fixing the rate while it’s at a 2 year high, given that the rate seems to have peaked. Those that need to convert Euros to Pounds over the next year should consider fixing the rate on a Forward contract. While I don’t expect the rate to go higher in the short term, I do expect it up around €1.30 into next year.
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Pound/Dollar
With this exchange rate, we keep seeing it break above $1.70 before dropping back off again. This morning rates have dipped back into the $1.70’s.The reasons for this are the same as outlined in the Euro section above – the impressive UK economic figures are now largely priced into the Pound.
Unlike Pound/Euro however, I expect Pound/Dollar rates to drop back away. There are 2 reasons I think this. Firstly, the US economy is starting to recover, and as this continues the Dollar will gain strength and become more expensive to buy. Secondly, as the Euro gets weaker, generally the Dollar gets stronger, so I expect this currency cross to drop off in the coming months.
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This week’s economic data that could affect exchange rates
Tuesday 29th July 2014 - The only data of note today was released earlier this morning, with UK mortgage approvals coming in slightly better than expected but lending figures slightly below the forecast. They effectively cancelled each other out so no change for the Pound. Later this afternoon we have US Consumer confidence numbers, which could affect Pound/Dollar rates.
Wednesday 30th July 2014 - There is nothing of note from the UK today other than consumer confidence figures at midnight. We do however have lots from the EU and US so it could be a volatile day on the currency markets.
Starting in Europe, we have Industrial Confidence, Economic Sentiment measures, in addition to inflation numbers from Germany. So lots here that could give an indication how the EU economy is faring, and this could affect Pound/Euro rates.
It’s a very busy day in the states. We have Gross Domestic Product (GDP) figures which often affect exchange rates. There is also an interest rate decision, and although I expect rates to stay on hold, any comments or hints at future policy could affect GBP/USD.
Thursday 31st July 2014 - Pound/Euro could be affected today by German Retail Sales and Unemployment numbers, and EU wide inflation figures. Canada releases its latest GDP figures, and over in the USA we have measures of unemployment.
Friday 1st August 2014 - Inflation figures from Europe and the UK will be watched closely today by Sterling/Euro buyers. Other than that all data is from the states: Earnings, Unemployment, Inflation, Sentiment, and the all-important Non-Farm Payrolls that often causes large swings in the GBP/USD rate.
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