Currency Market Report
News Article Date: Tuesday 10th of November 2009
Following a hugely important week for the Pound last week, much focus will now be placed on determining what will happen next for the GBP/EUR cross.
Surprisingly, following the Bank of England’s decision to increase its Asset Purchase Scheme by £25 Billion, Sterling has held relatively strong, actually gaining strength against the Euro by Monday morning. This has been attributed to the wide spread anticipation within the market that this £25 Billion will bring to an end the UK’s Quantitative Easing cycle. Confirmation of this could come later this month when the minutes of the Bank of England’s most recent meeting are published, this will be vital for anyone with an upcoming requirement to buy or sell Euros. While for now an end to QE is being viewed as Pound positive news, the long-term effect of £200 Billion of additional government debt remains to be seen.
Looking forward, this week is a relatively busy week in terms of data from both the UK and our European trading partners. From the UK we have Retail Sales data, Unemployment figures and on Thursday a speech by Mervyn King (Governor of the Bank of England) which will give indications as to the bank’s future economic stimulus plans.
From the Euro-Zone key data includes the ZEW economic sentiment on Tuesday but most importantly the week climaxes with EU GDP figures for Quarter 3. Last quarter The Europeans narrowly remained in recession with a quarterly decline of just 0.2% and all eyes will be firmly focused on this release. A positive figure would bode badly for Sterling which presumably is still fundamentally fragile given the poor GDP figures for the UK at the tail end of last month and additional QE last week. Early forecasts suggest that the EU will officially exit recession and therefore it would probably be sensible to consider booking an exchange rate in advance of the release for anyone looking to buy Euros in foreseeable future. Speak to your account manager about the benefits of Forward contracts to protect against any pitfalls in the market.
For those bringing Euros back to the UK it would also be extremely wise to pay close attention the this release as it could well create some fantastic opportunities to fix a price at unnaturally good levels. Your account manager will be able to explain how Limit and Stop-loss orders will help you to achieve this.
Overall, despite some substantial data releases recently the direction of the cross appears unclear. This week could well help to determine the short-medium term future of GBP/EUR. As always in the currency markets expect the unexpected and be aware that the recent flat trading on the Euro could be replaced by a volatile market creating ideal buying and selling opportunities. Contact your FCG account manager to discuss how all this effects your individual currency requirement.
Last weeks data releases saw the US Federal Reserve maintain interest rates at 0-0.25%, and indicating that it is likely to leave interest rates low for an extended period. As a result the US Dollar was the weakest of all the major currencies last week causing GBP/USD to close 1.02% up at 1.6612, from 1.6445 a week earlier, benefiting those converting Sterling into US Dollars. This continued in early trading on Monday morning, reaching a 3-month high of 1.6850.
This was in whole due to improving investor’s risk appetite and stronger global stock markets. The US Federal Reserve expressed greater confidence about the US economic recovery, which was generally supported by the economic data last week. This was also coupled with monthly increases in construction spending, pending home sales, manufacturing activity, service sector activity and factory orders which all rose throughout last month. The only negative data this week came from the US Non-farm payrolls report which revealed a slightly larger than expected number of job losses for October, coming just after revised data for the previous two months had shown that 91,000 fewer jobs were cut than had been initially reported.
Counter to the dollar, Sterling benefited this week from positive economic releases. This included Thursday’s Bank of England’s decision to only add a further £25 Billion in to the economy through the Governments Quantitative Easing scheme, instead of the £50 Billion expected by some analysts. With the possibility of early signs of a Sterling recovery, the market is perhaps set to continue to become more hostile for those selling Dollars and perhaps suggests an earlier sale may be more favorable.
After a large number of data releases last week, this coming week is particularly quiet for the US, with only a consumer confidence survey from The University of Michigan on Friday. In light of its safe haven status, this could leave trends in investors' risk appetite levels to play a major role in determining the US Dollar's performance.
In conclusion with such an unstable and volatile market it may be beneficial to discuss the possibility of locking into a forward contract with you Account Manager to enable you to take a greater control of finances and protect yourself from any loss.
This Week’s Data
We have lots of data from the UK, EU and US this week that will no doubt cause volatility in exchange rates. Let's take a look at each zone, and the key pieces of data to watch out for.
We have various house price measures on Tuesday. Recently prices have been rising helping to strengthen the pound, but many analysts are saying this will not last. Any decline in the recent rise could cause the pound to weaken and exchange rates to fall.
There is some unemployment data on Wednesday, along with a speech from Bank of England Governor Mervyn King, where a press conference will show how the BoE observes the current UK economy and the value of the GBP. His comments may determine a short-term positive or negative trend.
We have inflationary measures, and also the Gross Domestic Product data on Friday. The GDP is considered as a broad measure of the Eurozone economic activity and health. A rising trend has a positive effect on the Euro, while a falling trend is seen as negative.
Thursday sees Jobless Claims, and Friday we have Import Prices, Trade Balance, and consumer sentiment which is a survey of personal consumer confidence in economic activity. It shows a picture of whether or not consumers are willing to spend money.
Aus - Investment Lending
Ger - Trade Balance
Ger - Industrial Production
Can - Housing Starts
UK - BRC Retail Sales
UK - RICS House Prices
Ger - Consumer Price Index
UK - DCLG House Prices
Ger - Economic Sentiment
US - Consumer Confidence
UK - Average Earnings
UK - Jobless Claims
UK - Unemployment
UK - BoE Speech
NZ - Retail Sales
Aus - Unemployment
EU - ECB Monthly Report
EU - Industrial Production
US - Jobless Claims
Ger - Gross Domestic Product
Swi - Producer Prices
EU - Consumer Price Index
EU - Gross Domestic Product
US - Import Prices
US - Trade Balance
US - Consumer Sentiment
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