Following the ECB (European Central Bank) decision to reduce interest rates by 0.25% last week and the worse than expected unemployment data from the Euro Zone the Euro was unable to regain lost ground against Sterling. The Euro/Sterling interbank rate has remained close to the 1.10 area during trading today – a relatively high value for those buying euros.
Further data showed the UK deficit figure being higher than expected according to the IFS (Institute for Fiscal Studies) and Sterling is holding position against the Euro. The reason the data has not have impacted the Pound, may be due to the fact that the IFS figures include large allowance for losses attributed to the recent bailing out of the Banking sector, whereas the Governments figures do not and therefore the data is closer to expectations.
Alistair Darling will have his work cut out to manage pre-budget expectation in the build up to April 22nd. The figure of £1250 in additional taxation per family has already been muted. Clearly the market’s perception of the sustainability of Mr Darlings plan for economic recovery will impact on Sterling strength.
Today’s Euro Zone PPI (Producer Price Index) down 1.8% year on year, worse than the predicted figure of 1.5%. With the retail sales figures 4.0% down year on year, worse that the expected drop of 2.5%
Watch out for this weeks European CPI figures and ECB report due on Thursday morning. Any positive data may see the Euro strengthen against Sterling, combined with the BoE rate announcement (Thursday midday) will set the tone for the respective strength of the Euro and the Pound, in trading during the run up to Easter.
The chart above shoes the Sterling/Euro cross over the last month. Contact your Foremost Currency Group Account Manager to get the best rates of exchange from your currency transaction, whatever market conditions.
USD
A rally of global stocks last week led to an increase in investor risk appetite and therefore reduced demand for safe haven currencies such as the Greenback, and when coupled with some worse than expected data releases, we saw the Dollar weaken from lows of 1.42 last Tuesday against the Pound, to a high yesterday of over 1.49.
We also saw weaker than expected house price figures in the US, but the main release of the week was Friday’s non-farm payrolls report, which confirmed market expectations of another 663,000 job losses in March, and the downward revision of January’s figure to 741,000 made this the biggest fall since 1949.
Anyone buying US Dollars should be watching for clues as to US policymaker’s future intentions when we have the release of the minutes from the FOMC’s latest meeting, where the fed funds target range was left at 0.0 - 0.25% and they officially announced quantitative easing measures. We should also get a good idea of the FOMC’s longer term economic projections for inflation, unemployment and growth, and strangely, if they are worse than previously thought, we could actually see the USD strengthen off the back of it as it could increase risk aversion and investors would most likely start piling funds back into the Greenback.
We will also see the Dollar move somewhat if trade balance figures on Thursday continue to show weak domestic demand. On this side of the pond last week we had better than expected UK manufacturing PMI and a release from Nationwide showing a slight rise in house prices in March (which has already been contradicted by the Halifax this morning with a 1.9% drop in figures). This does however suggest that the slump could be starting to bottom out in some areas.
Thursday will be the main focus of this 4 day week in the UK when the BoE release their interest rate decision at midday. It is widely expected that they will be kept on hold at 0.5% as there is not a great deal more room to cut further and also underlying fears of how inflation could rise uncontrollably in the future. It will be interesting to see though if there is any further indication of how much more quantitative easing from the Bank of England we may see over the coming months, and also any further predictions for the UK economy, especially after Alistair Darling’s comments over the weekend that he and the UK Treasury had “underestimated” the severity of the recession in Great Britain.
All in all it will be a volatile week with both central banks being closely watched, and with any change in risk appetite/aversion, we could see some big one day moves in Cable. It is therefore very important that you understand the tools at your disposal (such as STOPS & LIMITS) to secure the best currency exchange rate so contact your FCG account manager for more information.
Key Data Releases This Week
Below we have a list of key data releases we which are likely to influence the currency markets over the week ahead.
There are two Interest Rate decisions this week. The first is in Australia on Tuesday where rates are currently held at 3.25% and are expected to be held again. The second is the Bank of England interest rate decision here in the UK on Thursday. Rates are currently held at 0.5% and are also expected to be kept on hold this month.
Other information of note is Eurozone Gross Domestic Product figures for Q4 released on Tuesday. GDP measures the total amount of goods and services produced by the Eurozone. Although due to the time delay before the figures are released the results are often well anticipated, But given its overall significance GDP has the tendency to move the market upon release, especially if it upsets expectations.
Mon: EU – Producer Price Index
EU – Retail Sales
Tue: AUD – RBA Interest Rate Decision
UK – Industrial Production
UK – Manufacturing Production
EU – Gross Domestic Product (Q4)
UK – Nationwide Consumer Confidence
Wed: EU – German trade balance
EU – German Current Account
CAD – Housing Starts
US – Minutes of FOMC Interest Rate Meeting (March)
Thu: AUD – Employment Data
NZ – Business Performance of Manufacturing Index
UK – Producer Price Index
UK – Trade Balance
EU – German Industrial Production
UK – Bank of England Interest Rate Decision
US Trade Balance
Fri: MARKET HOLIDAY
For a detailed explanation of how these economic data releases can affect your currency requirement, contact one of our expert currency brokers today on 01442 892060.
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