31st January 2011 :

In this week’s Report:



• Pound vs. Euro summary

• UK economy contracts, weakening the Pound

• Sterling vs. US Dollar

• The week’s data that may affect exchange rates



(For currencies other then EUR and USD, contact us for a consultation)



Sterling vs. Euro falls on shock GDP contraction



Sterling plunged on Tuesday last week after a shock contraction in Q4 UK GDP. Britain's economy shrank 0.5% in the last three months of 2010, confounding forecasts for a 0.5% expansion, with December's heavy snow accounting for only part of the first contraction in five quarters. Sterling fell approx. 1.75% from 1.1720 to 1.1536:



The figures will be bad news for the government, which is due to start cutting public spending in early in 2011. They will also cast doubt over previous market expectations that the Bank of England will raise interest rates in the first half of the year.



While last week’s GDP figures are backward-looking, they are nevertheless crucial to understanding the resilience of the economy to shocks. It seems that the economy is incredibly vulnerable and with the fiscal tightening yet to fully bite, we will have to brace ourselves for a bumpy ride.



Other economic figures last week showed that Britain's public sector net borrowing rose from a year ago to its highest December reading on record and UK consumer confidence suffered an 'astonishing collapse' as Britons' confidence in the economy and their finances witnessed its biggest drop in close to 20 years, raising fears that the Government's austerity onslaught will set off a self-feeding downward spiral.



Despite all the doom and gloom Sterling did receive a brief lift after minutes from the Bank of England's policy meeting showed policymakers considered an interest rate hike with (MPC) member Martin Weale unexpectedly joining Andrew Sentance in voting for a quarter-point rate rise.



It’s important to note however that this meeting occurred a week before the Q4 GDP data the MPC members would have based their decisions on existing forecasts. Sterling reacted positively to this news albeit a little muted and recovered 0.75% of its losses to rise to 1.1637.



Sterling vs. US Dollar;



A turbulent week for Sterling/Dollar came to a head last Friday with the release of the eagerly anticipated fourth quarter US GDP figures. As with the UK GDP figure reported earlier in the week, US GDP came in below expectation, just not to the same degree. The headline reading came out at 3.2% growth down form expectation of 3.5% Quarter on Quarter; still a solid level of growth.



The reaction to this news was surprisingly muted as the figure was so close to expectations. There was however further reaction in the markets to yet more poor UK data, as Friday saw a very weak UK consumer confidence survey. This report helped to fuel currently rife speculation in the financial media that the British Government’s austerity measures could serve to further damage the plight of the economy.



This said the GBP/USD remained mainly range bound in the high 1.50’s on Friday afternoon as people are still speculating when or if the UK will raise interest rates. One side of the argument clearly sees interest rate rises needed to combat high forecast inflation, yet the other sees no room to raise lending rates in a slowing economy with low business and consumer confidence.



One thing that is always sure, the currency markets are never one directional. We will all have to wait and see how the BoE and the Government goes forward in attempting to rebuild the economy, and there will always be a time when your particular currency need is in a better or worse place. The trick is to know what you can and can’t do and to act quickly if a good exchange rate becomes available.



A trading facility at Foremost Currency Group allows you access to over 20 of the world most heavily traded currencies, with up-to-date expert knowledge at hand to help guide you through the markets. Indeed utilising your facility to take out a Forward Contract will allow you to book an exchange rate for up to two years into the future, so if that good rate appears and you don’t need the currency yet you can fix in with the peace of mind that the rate and your money are safe.



Weekly Economic Data that may affect exchange rates



Below we list the main data released for the week ahead. The implication of these economic releases will differ depending on the currency you need to buy or sell. For a free consultation on how this could affect the cost of your currency requirement, open an account with us today. This is free to do, doesn’t obligate you in any way, and simply gives you access to our market knowledge and commercial exchange rates.



Monday

There is no data of note from the UK or EU today. The main economic information comes from the Canada in the form of GDP and Inflation data. There are also some inflation measures from the US. Data from the states has been weak lately, helping push GBP/USD higher. Further weak data could push rates higher still.



Tuesday

Today we see Inflation data and Mortgage approvals for the UK. Further poor data following a raft of disappointing economic figures could push the Pound lower against other currencies. Against the Euro, Unemployment figures for Germany & Europe today could cause volatility if the figure is different from the forecasted 10%. The US releases manufacturing and construction figures today also.



Wednesday

An unusually quiet day for data, with the only release being inflation data from the EU. We expect the Producer Price Index to show a monthly gain of 0.3% and an annual gain of 4.5%. If it’s higher then it supports the case for an EU interest rate hike, and this may push GBP/EUR exchange rates lower.



Thursday

Retail Sales are released for Germany and Europe today. It’s a good barometer of consumer confidence, and so we may see volatility in GBP/EUR rates today. The US has some jobless figures at lunchtime, which may weaken the US further if more than 4m people are claiming.



Friday

We end the week with further earnings and jobs data from the USA. Non Farm Payrolls are releases at 13:30 showing how many more people are employed excluding the agricultural sector (As it’s seasonal). The estimates are often way off the actual figures, and so it usually creates volatility for GBP/EUR rates. The current expectation is +103,000. Any difference and expect GBP/USD to be choppy.

Pounds gains limited against stronger Euro

28th January 2011
Good morning. Sterling gained a little against the US Dollar and Euro yesterday on expectations the Bank of England could raise interest rates by mid-year. Poor US data weakened the dollar also. A stronger Euro however meant that gains were limited. Today at 08:30am rates are as follows:

• GBP/EUR 1.1595
• GBP/USD 1.5868
• GBP/AUD 1.6022
• GBP/NZD 2.0544
• GBP/CAD 1.5815
• GBP/CHF 1.5003
• GBP/NOK 9.2054
• GBP/ZAR 11.243
• GBP/JPY 131.09
• EUR/USD 1.3684

Pound steady on BoE minutes

Sterling has found support after minutes of the Bank of England's (BOE) January meeting on Wednesday showed BoE policymaker Martin Weale joined Andrew Sentance in voting for a 25 basis point rate rise from a record low 0.5 percent.

Analysts said the additional vote to raise rates prompted investors to price in the rising likelihood of an increase in coming months. However, some said weakness in the UK economy, highlighted by news this week of a shock contraction in gross domestic product late last year, would cap the Pound's gains. However some analysts argue stubbornly high price pressures at a time when the economy struggles to recover raises the possibility of stagflation, which would drag the pound lower.

So there is still conflicting opinion on Sterling and this will keep rates very volatile

Sarkozy gives support to Euro

French President Nicolas Sarkozy insists Europe will never give up on the euro, despite widespread fears for the currency's future. Economists have voiced concerns that ongoing debt crises in Greece, Ireland, Spain and Portugal could spell the end of the single European currency.

"We will never abandon the Euro. Never! "Euro spells Europe, the euro is Europe. Europe has meant 60 years of peace on our continent. We will never abandon that." Sarkozy said the euro was central to European unity.

And he had a warning for currency speculators and those apparently keen to see the Euro's troubles continue. "For those who wish to wager against the euro: Be careful how you invest because we are determined."

The comments gave some strength to the Euro and stopped the pound gaining much against the single currency.

Pound vs Euro summary

Those that need to buy Euros and are hoping for an increase in rates should be concerned that with negative UK growth, analysts think Sterling could get weaker in the short to medium term. it has mainly been Euro weakness that pushed rates to €1.20 in recent weeks.

Now the Euro has more support, it's unlikely to weaken significantly further. Given the poor UK data there isn't much that could make Sterling gain.

We therefore think that there could be more falls in the GBP/EUR rate. If you are worried about falling rates, contact us today to find out about our exchange rates and contract types that can protect against adverse rate movements.

If you are looking for the best exchange rates, click the link below to send us an enquiry, and see how good our rates are.

Sterling gains on BoE MPC Minutes

27th January 2011
Good morning. After big falls on Tuesday due to lower GDP, Sterling gained slightly yesterday as the BoE minutes showed 2 MPC members voted for an interest rate hike. However, grim UK growth prospects stopped the pound gaining much. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1642
• GBP/USD 1.5912
• GBP/AUD 1.6053
• GBP/NZD 2.0669
• GBP/CAD 1.5848
• GBP/CHF 1.5037
• GBP/ZAR 11.251
• GBP/JPY 131.84
• GBP/HUF 318.36
• EUR/USD 1.3662

Sterling gains on Interest Rate expectations

The pound rose yesterday after minutes from the Bank of England's policy meeting this month showed two policymakers voted for an interest rate hike. Minutes of the Monetary Policy Committee's most recent meeting show members explicitly discussed the case for raising rates in January. The fact rates may go up means the pound gained against the Euro and other major currencies.

For most members the risks to inflation "in the medium term had probably shifted upwards," the minutes said. The fact that more members think higher rates are necessary strengthened Sterling and pushed exchange rates higher. Remember though, these minutes were released 2 weeks after the actual decision, and crucially this was before Tuesday's shock news that GDP growth has contracted and a warning that inflation could hit 5%.

Some MPC members were concerned a rate increase could be "misinterpreted as a signal that the committee would attempt the bring inflation back to the target excessively rapidly". A "relatively sharp tightening" could hurt activity and confidence, the minutes say.

Analysts said that there was evidently now much more concern about inflation on the MPC. "I don't think the BoE minutes will change the outlook," said Paul Robson, currency strategist at RBS Global Banking.

"The market may be pricing in chances of a rate hike but the UK faces the possibility of no growth and high inflation. There are concerns about stagflation and sterling will find it difficult to rise much." So, while the pound has gained slightly, the concerns over growth stopped Sterling gaining much against the Euro.

The poor GDP data will raise concerns about whether the UK economy is robust enough to withstand the government's harsh austerity measures aimed at tackling the fiscal deficit. Sticky inflation meanwhile will heighten the BoE's dilemma on whether to raise interest rates or not. While this uncertainty remains, Sterling exchange rates will remain volatile.

Today's Data

Today we see a raft of data from the EU so expect some movement in GBP/EUR rates. Consumer confidence, Economic Confidence and Industrial confidence are all released at 10am. From the USA we have various measures of unemployment. Jobless figures are very hard to predict and so expect some movement in GBP/USD rates today

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Sterling falls due to shrinking economy

26th January 2011
Good morning. Yesterday UK growth was expected at +0.5%. The actual figure was a DECLINE of 0.5%, raising the risk of a double dip recession in the UK. Sterling was hammered as a result, falling in a big way against all currencies. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1536
• GBP/USD 1.5792
• GBP/AUD 1.5816
• GBP/NZD 2.0545
• GBP/CAD 1.5731
• GBP/CHF 1.4911
• GBP/ZAR 11.163
• GBP/JPY 129.57
• GBP/NOK 9.0872
• EUR/USD 1.3686

Sterling drops as economy shrinks

So what was the effect of GDP falling on Sterling exchange rates? The UK's economy suffered a shock contraction of 0.5% in the last three months of 2010, figures have shown. The figures are set to raise concerns over prospects for the economy, with large public spending cuts expected to come in this year. The contraction follows four straight quarters of growth.

The release is a first estimate for the quarter from the ONS and is subject to revision, but even so the figures were awful. The contraction took economists by surprise, as forecasts had been for growth of between 0.2% and 0.6%.

"This is a horrendous figure. An absolute disaster for the economy. We knew that retail sales were heavily affected and that services output would be weak, but the collapse in construction was a major contributor to the downside surprise," said Hetal Mehta from Daiwa Capital.

We have had a few GDP shocks with the economic turbulence of recent years. This one is high on the list. Even factoring in the snow effect, the gloomiest analyst predicted zero growth in the final quarter. The reality was a sharp fall in output. Not good news for those needing to buy currency with Sterling.

The effect on Sterling exchange rates

Sometimes figures are different than forecast, but not usually by such a huge amount. The result was the pound fell against all currencies, and against the Euro we are now in the €1.15's, and it was only a week ago rates were above €1.20.

The weak figures also highlight the dilemma facing the Bank of England, which needs to tackle above-target inflation but is reluctant to raise interest rates when the UK's economic recovery is still uncertain.

"The MPC [Monetary Policy Committee] must abandon any early interest rate rise until the recovery is more secure," said David Kern, chief economist at the British Chambers of Commerce.

Now there is much less chance of a rate hike in the UK, with Europe likely to raise their rates before us, there is not much to suggest we will see gains against the Euro in the coming weeks.


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Pound falls vs Euro, GDP figures today

25th January 2011
Good morning. Sterling fell against the US Dollar and Euro yesterday due to doubts over when the Bank of England will raise interest rates. Falls against the Euro were bigger as the single currency drew some support from easing debt worries and tough talk about keeping inflation in check from European Central Bank chief Jean-Claude Trichet.

Today we have GDP figures for the UK which will cause volatility. More on this after the usual snapshot of rates as at 08:30am:

• GBP/EUR 1.1666
• GBP/USD 1.5922
• GBP/AUD 1.5991
• GBP/NZD 2.0811
• GBP/CAD 1.5810
• GBP/CHF 1.5123
• GBP/ZAR 11.169
• GBP/JPY 131.24
• GBP/HUF 319.34
• EUR/USD 1.3646

Sterling falls on Interest Rate expectations

Yesterday a Daily Telegraph article said the UK could be headed for stagflation and even small interest rate hikes could hurt. Implied rates based on overnight indexed swaps have pared chances of a 25 basis point rate hike in May to 65 percent, from 70 percent late last week.

Sterling has been well supported since higher-than-forecast UK inflation data this month caused investors to bring forward expectations for when the BoE will raise rates. However now that it looks like there is less chance of a hike any time soon, the Pound fell and exchange rates dropped.

As I mentioned in the intro, there was also tough talk from the ECB president about keeping inflation in check. This may mean an interest rate hike in the EU before the UK and so the Euro gained strength, compounding the fall in GBP/EUR rates.

UK GDP Growth figures today

The first estimate of 4th Quarter GDP will be released today and analysts expect growth to have slowed as a harsh winter is likely to have hurt construction activity and the service sector.

"With public finance data also due out the same day, traders will have a lot to digest in relation to the pound and its recent gains," said Michael Hewson, analyst at CMC Markets. "It could well be an interesting week for sterling."

The GDP figures, due to be released at 09:30am, are expected to show growth of between 0.2% and 0.6% in the three months up to December.

Howard Archer, chief UK and European economist at IHS Global Insight, said there was considerable uncertainty over how much December's severe weather hit overall activity.

As a result, the range of forecasts is wide, from 0.2% to 0.6%. The "consensus figure", drawn from a range of forecasters, is that the Office for National Statistics (ONS) will announce a 0.4% increase in growth in the fourth quarter.

If the figure is less than this then we expect Sterling to fall sharply. Of course any surprise increase in the figure and this may support the pound, but in our view there is more chance of worse than expected figures, and so the recent upwards trend in Sterling exchange rates could be reversed and the recent highs we hit vs the Euro and US Dollar may not be seen again for some time.

Today's Data in full

The most important UK figure today is the Gross Domestic Product. This is a broad measure of economic activity and shows if the UK economy is growing in line with forecasts. It often creates some volatility for Sterling. Later in the day we have some Consumer Confidence figures from the USA.

If you are looking for the best exchange rates, click the link below to send us an enquiry.

Pound vs Euro for the week ahead

In this week’s Report:

• Sterling vs. Euro; why rates have fallen
• The dilemma facing the BoE regarding Interest Rates
• The week’s data that may affect exchange rates

(For currencies other then EUR and USD, contact us for a consultation)

Sterling vs. Euro; rates fall as UK figures disappoint

Last week started off looking like it should be another good one for the Pound, with a slight rise in UK house prices on Monday morning, and then a higher than expected jump in inflation to 3.7% (nearly twice the Bank of England’s target) early on Tuesday, which helped fuel a rise in the GBP/EUR rate to nearly €1.20 again as speculation grew that the MPC would be forced raise UK interest rates.

However any initial optimism for Euro buyers was short lived. Even the better than expected jobs figures couldn’t help the slide in the exchange rate as we moved towards the end of the week. With investors refocusing on perceived weaknesses in the UK economy they started buying back into the Euro as expectations grew that Eurozone policy makers would arrive at a more durable solution to the current debt crisis.

This was topped off on Friday morning as UK retail sales figures were released for December 2010; showing a drop of 0.8% from the expected -0.2% reading. We knew the blanketing of snow the British Isles received in December would have hurt UK retailers, but we also hoped that the VAT increase in the New Year could have perhaps encouraged people to buy before the hike and offset any drop in sales due to the weather; unfortunately, this was not the case and Sterling exchange rates fell as a result.

We have various EU data releases next week (see “This Week’s Data” section below for more info) but we should all be more interested in what’s going on in UK where midweek news could set the scene for GBP-EUR movements for weeks to come. Tuesday brings the first reading of 2010 quarter 4th GDP (economic growth) figures which are expected to show that growth slowed again. The drop is expected to come down from 0.7% to 0.5% and while it doesn’t mean we are back in recession, it could be a sign that the government cuts are starting to take effect on the economy.

This kind of slowdown in growth could lead to potential stagflation (stagnating growth and rising inflation) and would put the Bank of England in a very difficult position whereby a hike in interest rates would help to cool inflation, but could seriously hurt growth and with more austerity measures to come the economy needs all the help it can get.

The BoE minutes from this month’s meeting released Wednesday morning could give us more of an insight into their thoughts so we’ll have to wait and see, but on the flipside, better than expected UK growth figures and more bad news about debt problems in Spain and Portugal could easily help force the rate back up towards 1.20 again.

All-in-all it looks like the recent volatility is here to stay so whether you are buying or selling Euros, make sure you keep abreast of market movements by making an enquiry today.

Heed the inimitable words of Martin Luther King Jnr “Faith is taking the first step, even when you don't see the whole staircase.”

Weekly Economic Data that may affect exchange rates

Below we list the main data released for the week ahead. The implication of these will differ depending on the currency you need to buy or sell. For a free consultation on how the below released could affect your currency requirement, open an account with us today. This is free to do, doesn’t obligate you in any way, and simply means you can have a free consultation from a currency expert.

Monday
Today’s Data is mainly EU based. We have the Purchasing managers Index, which is a measure of inflation. If inflation is higher than expected, then it supports an EU interest rate hike that could push GBP/EUR rates lower. We also have Industrial Orders which measures the health of the EU manufacturing sector.

Tuesday
The most important UK figure today is the Gross Domestic Product. This is a broad measure of economic activity and shows if the UK economy is growing in line with forecasts. It often creates some volatility for Sterling. Later in the day we have some Consumer Confidence figures from the USA.

Wednesday
Today we have the BoE minutes from the Bank of England. This will show how the members voted in their recent interest rate decision. We expect volatility for Sterling. We also have a US interest rate decision from the FED. It’s likely rates will be left on hold at their record low of 0.25%. However any comments from the FED about the US economy will be closely watched by the markets and may affect GBP/USD rates.

Thursday
Today we see a raft of data from the EU so expect some movement in GBP/EUR rates. Consumer confidence, Economic Confidence and Industrial confidence are all released at 10am. From the USA we have various measures of unemployment. Jobless figures are very hard to predict and so expect some movement in GBP/USD rates today.

Friday
To end the week we have Money Supply data from the Eurozone and Gross Domestic Product figures from the USA.

If you are looking for the best exchange rates, click the link below to send us an enquiry, and have a free consultation on what's happening in the currency markets.

Pound falls further vs stronger Euro

21st January 2011
Good morning. Sterling is down further this morning against the Euro and US Dollar. It's a combination of weakness in the Pound, coupled with renewed confidence in the EU and US markets. We'll look at this in a moment after the usual snapshot of rates as at 08:30am:

• GBP/EUR 1.1750
• GBP/USD 1.5921
• GBP/AUD 1.6115
• GBP/NZD 2.1049
• GBP/CAD 1.5880
• GBP/CHF 1.5302
• GBP/ZAR 11.236
• GBP/JPY 131.70
• GBP/HUF 323.30
• GBP/NOK 9.307
• EUR/USD 1.3547

Sterling down vs Euro

UK Factory orders fell according to figures released yesterday. This was worse than expected and so Sterling fell as a result.

Also pushing GBP/EUR rates lower was a much stronger Euro. The euro has risen sharply, despite signs that governments are in no rush to increase the eurozone rescue fund.

Traders cited decent buying in the euro/sterling pair by an UK clearer on behalf of a real money account. "It was partly a dollar move, but there was a sell-off in sterling also which drove it lower," said Michael Hewson, markets analyst at CMC said. "We had seen nine successive days of gains in cable and positions were looking overstretched. It is a healthy correction but I don't think it can fall past $1.58 in the short term,"

The pound has been well supported since High inflation data on Tuesday caused investors to bring forward expectations for when the BoE will hike rates. However, they say that a weak economy and harsh austerity measures to come mean a rate hike is not a done deal. This uncertainty on interest rates is pushing Sterling lower as it's likely a rate rise will not happen for many months.

Stronger Euro pushing GBP/EUR rates down

The Euro has regained strength against the Pound and the US Dollar, and exchange rates to buy Euros have fallen as a result. Traders cited an improvement in risk appetite, growing expectations that euro zone policymakers will arrive at a more durable solution to the debt crisis and a hawkish central bank as reasons behind the latest surge in the euro.

The euro rose to a two-month high against the U.S. dollar this morning, and rates to buy Euros with Sterling are now in the €1.17's.

Today's Data

This morning we have UK Retail Sales, which may have taken a hit due to the weather conditions last month. There is also a measure of Public Sector borrowing from the UK today. Generally speaking, if net bowing is negative then this will be positive for Sterling.

Have a great weekend.

If you are looking for the best exchange rates, click the link below to send us an enquiry, and have a free consultation on what's happening in the currency markets.

Pound falls vs Euro on Unemployment Data

20th January 2011
Good morning. Sterling slipped against the Euro yesterday as the single currency was buoyed by growing hopes that euro zone policymakers will be able to navigate their way through the sovereign debt crisis. Against the USD the pound also fell as investors took profit on long positions. At 08:30am rates are as follows:

• GBP/EUR 1.1872
• GBP/USD 1.5971
• GBP/AUD 1.6048
• GBP/NZD 2.0903
• GBP/CAD 1.5927
• GBP/CHF 1.5237
• GBP/ZAR 11.179
• GBP/JPY 131.13
• GBP/HUF 323.62
• EUR/USD 1.3446

Sterling falls due to high unemployment

UK unemployment rose by 49,000 to almost 2.5 million in the three months to the end of November, the Office for National Statistics (ONS) has said. Prime Minister David Cameron said any rise in unemployment was a "huge concern".

Most analysts, as well as the government, expect the unemployment total to continue rising, in large part due to the spending cuts designed to cut the budget deficit. The British Chamber of Commerce was downbeat:

"These figures are disappointing and once again slightly worse than expected," said the group's chief economist David Kern. "For the second month in a row, unemployment is up, employment is down and the level of inactivity has seen a marked increase."

The pound fell as a result of the poor figures against most currencies including the Euro and US Dollar.

Today's Data

Today is quite quiet on the UK side, with the only data of note an Industrial trends survey. Elsewhere we have Consumer Confidence measures from the Eurozone and a monthly report from the European Central Bank.

Watch for any further comments on higher interest rates that could push GBP/EUR down. From the US there are further home sales data released in the afternoon.

If you are looking for the best exchange rates, click the link below to send us an enquiry, and have a free consultation on what's happening in the currency markets.

High inflation boosts the Pound vs Euro

19th January 2011
Good morning. As we predicted in yesterdays post, inflation figures for the UK were higher than expected yesterday, and as a result Sterling rose against most other currencies. Rates at 08:30am this morning are as follows:

• GBP/EUR 1.1900
• GBP/USD 1.6014
• GBP/AUD 1.5920
• GBP/NZD 2.0634
• GBP/CAD 1.5836
• GBP/CHF 1.5340
• GBP/ZAR 11.002
• GBP/JPY 131.47
• GBP/NOK 9.3393
• GBP/HUF 323.72
• EUR/USD 1.3454

UK Inflation higher than expected

UK inflation jumped in December with the Consumer Prices Index (CPI) rising to 3.7%, up from 3.3% in November. The rise will put further pressure on the Bank of England to lift interest rates to curb rising inflation.

Sterling was 0.77% higher against the dollar, pushing above $1.60 for the first time in months. Against the Euro Sterling rose around half a cent as traders factored in the chances of an earlier-than-expected rise in interest rates.

However here are few indications that a majority of the Monetary Policy Committee are ready to respond with an early rise in the base rate. Most analysts expect a rise around August time, however it could be as soon as May. See yesterdays report for an in depth look at the effect of interest rates on Sterling exchange rates.

As discussed yesterday, there is conflicting opinions on when rates will rise. Howard Archer, economist at Global Insight, said an increase could be on the cards.

"Despite the undeniably significant risk to growth coming from the fiscal tightening that is now increasingly kicking in, there is mounting pressure on the Bank of England to enact at least a token near-term interest rate hike to send out the message that it has not taken its eye off the inflation ball," he said.

But the British Chambers of Commerce (BCC), echoing calls made at the weekend by the Ernst & Young Item club, said the Bank must "hold its nerve" in the face of calls for an early increase in interest rates.

"Raising rates at a time when fiscal policy is being tightened, while businesses and individuals are facing greater pressures, would be a mistake and should be avoided," said David Kern, chief economist at the BCC.

So, lack of consensus means lack of direction for Sterling, and already this morning we've fallen around half a point vs the Euro.

Today's Data

UK Unemployment measures are released today, and we expect a total of 7.9%. More than this and Sterling may fall.

From the EU there are measures of construction output, showing how this sector is performing.

From the USA we see various measures of housing including Building Permits, Mortgage Applications and Housing Starts. There are some inflationary measures today from New Zealand & Australia also.

If you are looking for the best exchange rates, click the link below to send us an enquiry, and have a free consultation on what's happening in the currency markets.

Sterling gains vs Euro and US Dollar

18th January 2011
Good morning. The pound recovered against the Euro yesterday, and hit a 2 month high vs the US Dollar. Sterling was boosted by data showing improving UK consumer confidence. Rates as at 08:30am are as follows:

• GBP/EUR 1.1925
• GBP/USD 1.5968
• GBP/AUD 1.5985
• GBP/NZD 2.0663
• GBP/CAD 1.5719
• GBP/CHF 1.5298
• GBP/ZAR 10.921
• GBP/JPY 131.69
• GBP/HUF 325.08
• EUR/USD 1.3383

Why has Sterling gained?

The pound gained against other currencies due to speculation that rising inflation could prompt the Bank of England to raise interest rates, possibly as soon as May. The pound also benefited against a broadly faltering euro, which suffered as last week's rally lost steam and investors sought clearer signs that progress was being made to improve the euro zone's sovereign safety net.

Today we have more inflation data for the UK today. If the consumer price index is higher than expected, it will give more reason for the Bank of England to raise interest rates to combat rising prices.

Higher interest rates mean a higher return for investors. This spurs investment into the UK creating demand for Sterling. It's this demand that could strengthen the pound further.

So is it a given the BoE will raise rates?

The Bank of England should "hold its nerve" and avoid pressure to raise interest rates, an influential economics forecaster has said. The Ernst & Young Item Club says any increase in the bank base rate from the current historic low of 0.5% could endanger the economic recovery.

The Bank should stand firm against temporary pressures such as the VAT rise, it says. Meanwhile, Deloitte is warning of a "bumpy road to recovery". In its 2011 UK economic review, it says it expects GDP growth this year and next of just 1.5%.

Peter Spencer, chief economic adviser to the Item Club, said any rate rise now by the Bank of England would be a mistake. "If the Bank has been pushed into a rate rise this year it will find itself with a depressed economy, a low rate of inflation below target, and of course having to cut interest rates,"

Summary

So some think there will be higher rates, others think that the BoE should hold off for any rate rises until much later this year. While this uncertainty continues it's likely the volatility in Sterling exchange rates will also continue.

If you need to buy or sell foreign currency, get in touch today to discuss the options we offer to help you achieve the best possible commercial rate within your time frame.

Sterling vs. Euro & US Dollar Forecast 2011

In this week’s Report:



• Sterling vs. Euro Forecast

• Analysis of EU Bond Auction and effect on Euro

• Sterling vs. US Dollar Forecast

• Round-up of weekly economic data releases



(For currencies other then EUR and USD, contact us for a consultation)



Sterling vs. Euro falls from 4 month high



This time last week, Sterling Euro rates were approaching a 4 month high, hitting €1.2060 at the peak. However towards the end of last week this upward trend in rates was over, and we saw a big decline in rates. In this week’s report we look at why exchange rates moved up so far, and what caused it to fall back away so quickly.



Eurozone Debt & Bond Auctions



The main reason for the recent upward trend in currency rates was due to a very weak Euro. Following the bailout of Ireland and Greece, many people thought that Portugal and Spain would also need assistance. It was this fear that had been weakening the Euro during the start of 2011, helping push rates to their best in over 4 months.



However, last week Portugal and Spain held a bond auction where they successfully managed to raise significant amounts of finance, allaying fears that another bailout would be necessary. The two bond sales suggest that investors are somewhat more confident about the countries' ability to pay their debts, and as a result the Euro has regained significant strength pushing GBP/EUR rates down.



After markets realised there was no problem raising capital through Bond auctions, investors were quick to re-invest in the single currency and it was this demand that caused a fall in GBP/EUR rates of more than 2%.



Also helping to strengthen the Euro were comments by European Central Bank (ECB) president Jean Claude Trichet saying that they would have no problem raising interest rates to combat price inflation. Higher rates represent a higher return for investors, and so this also spurred investment to the Euro creating demand that strengthened the single currency. So the double whammy of possible higher interest rates in the EU combined with more confidence in EU countries being able to raise finance has pushed rates lower.



Going forwards, where rates may move in the coming months is hard to predict. Of course rates could head lower if UK data is poor and markets remain confident in the Euro. However doubts remain over the long-term structural problems in the Eurozone and so we could see further Euro weakness.



In volatile times like this when markets could move either way, it’s important to know the options available to you to ensure you don’t end up paying more for your currency than necessary. Foremost offers various market orders such as Forward contracts that allow you to fix rates even if all your funds aren’t available. We also offer Stop Loss orders which protect you against a downturn in rates while allowing you to still take advantage of any gains.



Contact us today for a free consultation to discuss the options we offer. The alternative is leaving things to chance and simply hoping rates will move your way; hope is not a reliable economic tool and so take advantage of Foremost’s market knowledge to help you budget effectively and take control of the cost of your currency purchase.



Pound vs. US Dollar hits 1 month high



Despite the fall last week vs. the Euro, against the US Dollar Sterling actually went up hitting a 1 month high at the end of last week. This is because both the EU and UK may now have much higher interest rates than the US, and both currencies have gained against the US Dollar. It’s simply the case the Euro outperformed Sterling so that’s why GBP/EUR rates fell but GBP/USD rates rose.



The dollar also came under pressure after a jump in weekly U.S. jobless claims pointed to a lacklustre economic recovery. Also having an impact were investors selling US Dollars for Euros, helping to weaken the Dollar further creating the best buying opportunities so far this year.



So it’s the chance of interest rates going up in the UK that is the reason for rate against the US Dollar rising. As interest rates are so low in the US, the better return for investors elsewhere has caused investors to move funds creating demand in the market.



A BoE rate rise would give the pound a clearer yield advantage over the dollar, while higher rates in the euro zone would increase the advantage of euro rates against many major currencies.



As we go through 2011, analysts will be closely watching economic figures for the EU, UK and US to try and gain an understanding how the economies are performing relative to each other. Stronger economies that are recovering faster will benefit from a stronger currency. As there is so much turmoil in the financial markets at the moment, it’s impossible to predict if rates will continue to go higher.



What we can say for sure is that at the moment rates to buy US Dollars are the highest for over a month. If you need to purchase US Dollars you may wish to consider locking in rates with a Forward contract to protect you against a potential downturn in rates. Contact us today to discuss the contract types we offer.



Weekly Economic Data that may affect exchange rates



Below we list the main data released for the week ahead. The implication of these will differ depending on the currency you need to buy or sell. For a free consultation on how the below released could affect your currency requirement, open an account with us today. This is free to do, doesn’t obligate you in any way, and simply means you can have a free consultation from a currency expert.



Monday

Today is a little quiet data wise due to a US market Holiday. We do have some house price data for the UK from Rightmove, showing how this sector is performing. House prices are a good barometer of how the economy is faring, and so can have an impact on the value of the pound.



Tuesday

Further UK house price data today, this time from the Institute of Chartered Surveyors (RICS) and a separate measure from the government. We also have a measure of UK consumer confidence from Nationwide. Staying with UK data, we also have various inflationary measures in the shape of the Consumer Price index. There is also a measure of UK Retail Sales today, also a reflection of consumer confidence.

We also have an interest rate decision from Canada, and some confidence measures from Germany and the United States.



Wednesday

UK Unemployment measures are released today, and we expect a total of 7.9%. More than this and Sterling may fall. From the EU there are measures of construction output, showing how this sector is performing. From the USA we see various measures of housing including Building Permits, Mortgage Applications and Housing Starts. There are some inflationary measures today from New Zealand & Australia also.



Thursday

Today is quite quiet on the UK side, with the only data of note an Industrial trends survey. Elsewhere we have Consumer Confidence measures from the Eurozone and a monthly report from the European Central Bank. Watch for any further comments on higher interest rates that could push GBP/EUR down. From the US there are further home sales data released in the afternoon.



Friday

To end the weak we have UK Retail Sales, which may have taken a hit due to the weather conditions last month. There is also a measure of Public Sector borrowing from the UK today. Generally speaking, if net bowing is negative then this will be positive for Sterling.



If you are looking for the best exchange rates, click the link below to send us an enquiry, and have a free consultation on what's happening in the currency markets.

Big decline for Pound vs Euro exchange rates 2011

14th January 2011
Good morning. Nothing lasts forever, and the rise of Sterling vs the Euro is no exception. After hitting 4 month highs at the start of the week, as we correctly predicted rates have now fallen sharply away due to a stronger Euro, despite hitting a 1 month high vs the US Dollar.

Today we'll look at why the pound has fallen against the Euro. First, rates at 08:30am this morning are as follows:

• GBP/EUR 1.1782
• GBP/USD 1.5840
• GBP/AUD 1.5884
• GBP/NZD 2.0584
• GBP/CAD 1.5737
• GBP/ZAR 10.805
• GBP/JPY 130.52
• GBP/DKK 8.7744
• GBP/SEK 10.5649

Pound falls vs Euro

Yesterday there were further bond auctions in the Eurozone following Portugal's successful raising of finance earlier in the week. The fact that they were easily able to raise finance on the bond markets signals renewed confidence in the Euro, and it became stronger throughout the day.

Also strengthening the Euro was the comments by European Central Bank (ECB) president Jean Claude Trichet saying that they would have no problem raising interest rates to combat price inflation. Higher rates represent a higher return for investors, and so this also spurred investment to the Euro creating demand that strengthened the single currency.

Rates have now fallen from a 4 month high of €1.2060 to the €1.17's today. As markets are low less wary of the Euro, the recent decline in it's value is being reversed. Those that took heed of our warnings of a possible fall and placed Stop Loss orders have protected themselves against this decline in rates.

Will the pound go back up against the Euro?

Moving forwards, many analysts do expect the Pound to get stronger, and this is resulted in the gains against the US Dollar. Some think though that the Euro is undervalued, and so there could be further declines in GBP/EUR rates, especially if we get negative UK data.

Pound up against US Dollar

Sterling rose to a 1 month high against the USD yesterday, helped by speculation UK interest rates may rise sooner than expected and on weaker U.S. data.

The Bank of England kept rates at a record low of 0.5 % as expected yesterday, but many expect that consistently high inflation may pressure the central bank into raising rates.

"Sterling is being dragged up against the dollar on the back of a stronger euro after hawkish comments from Trichet and a positive auction result," said Neil Mellor, currency strategist at Bank of New York Mellon. "There are quite a few opinions in the market on the BoE and the focus has definitely shifted to inflation and away from deflation risks," he added.

UK Interest Rates

While some in the market are speculating about an earlier-than-expected rate rise, others warn such a move would be damaging to the UK's fragile recovery, coming just as the harsh effects of the government's austerity measures are felt.

"Higher inflation is effectively a tax if it's not reflected in higher wages. We don't believe a rate rise is going to happen soon," said Adrian Schmidt, currency analyst at Lloyds Banking Group, who said rising UK yields had boosted sterling over recent weeks.

So clearly there are differing views and no consensus on interest rate movements. This will be reflected in Sterling's performance, as if it's unclear which way rates will go, it's therefore unclear which direction Sterling will take in the coming months.

If you need to buy or sell foreign currency, open an account with us today. It's free to do, doesn't obligate you at all, and simply gives you access to our market knowledge and commercial exchange rates.

Today's Data

To end the week we some UK & German inflation figures which could impact future interest rate movements. However as analysts are unclear which way rates will move, this could cause further volatility with GBP/EUR rates.

We do expect further fall out also from the EU bond auctions which has strengthened the Euro.

Have a great weekend.

Euro gathers strength following bond auction

13th January 2011
Good morning. Yesterday was a mixed day. Sterling fared quite well initially against most currencies, but the Trace deficit was wider than expected, pushing the pound back down. Against the Euro the Portuguese bond auction went better than expected, and so the Euro is now getting stronger. We'll look at this after the usual snapshot of rates as at 08:30am:

• GBP/EUR 1.1985
• GBP/USD 1.5740
• GBP/AUD 1.5821
• GBP/NZD 2.0584
• GBP/CAD 1.5531
• GBP/JPY 130.72
• GBP/DKK 8.9276
• GBP/NOK 9.2919
• GBP/ZAR 10.762
• EUR/USD 1.3126

Pound falls vs US Dollar & Euro

Sterling slipped back from a 1 month high against the US dollar yesterday after data showed the UK trade deficit widening more than expected in November. This weakened the pound and pushed rates down.

Against the Euro, Sterling also fell slightly. This was in part due to the Trade Balance figures, but mostly due to a stronger Euro.

Bond Auctions

Yesterday Portugal held it's bond auction, and analysts thought they would find difficulty in raising the capital required. The euro zone's financing troubles have generally dragged on investors' appetite for risk taking, though signs that highly indebted European countries are able to tap capital markets albeit at high borrowing costs, may put risk seeking back in play.

The auction was successful and Portugal had no problem raising the finance necessary. This put a spring back in the step of the Euro, and as a result rates have started to fall after rising all week.

So, the strong bond auction in Portugal has calmed the markets and with no major negative factors in sight, this could mean rates may now trend downwards. Today Spain will hold it's auction, followed by Italy; the 2 countries analysts think may also be in difficulty.

If today's auction also goes well, expect GBP/EUR rates to fall further as the Euro strengthens.

However, some analysts have said that the bounce in sentiment towards the Euro will prove temporary and whilst it may continue over the short-term with attendant upside risks for the euro, it is unlikely to last for long unless concrete measures are unveiled by the authorities in Europe.

For now, Portugal's successful fund raising in the bond market along with encouraging euro zone industrial production data, helped put a spring in the step of the common currency.

Today's Data

We have interest rate decisions for the UK and EU. We expect both zones to leave rates on hold at record lows, however any comments made after the decision could affect market sentiment and cause GBP/EUR volatility. We also have Industrial and manufacturing production figures for the UK along with a GDP estimate. US Jobless Claims rounds off the day.

If you are looking for the best exchange rates, click the link below to send us an enquiry, and have a free consultation on what's happening in the currency markets.

Pound Euro rates to rise due to Portugese debt?

12th January 2011
Good morning. The pound stayed close to a 4 month high against a struggling euro yesterday as sovereign debt worries plagued the Euro and the increasing prospect of higher interest rates in the UK supported the pound. Rates at 08:30am this morning are as follows:

• GBP/EUR 1.2023
• GBP/USD 1.5651
• GBP/AUD 1.5786
• GBP/NZD 2.0539
• GBP/CAD 1.5445
• GBP/CHF 1.5241
• GBP/ZAR 10.673
• GBP/JPY 129.90
• GBP/HUF 332.72
• EUR/USD 1.3014

Pound vs Euro; Portugal bailout to cause more weakness?

The euro remained on the back foot with the focus on whether Portugal will be able to raise funds in the debt market today, or be forced to turn to the European Union and IMF for financial aid. Bond auctions in Spain and Italy will also be closely scrutinised this week.

The bond auction will try to raise the funds necessary, as currently they pay 7% interest on their debts. It was just after Greece and Ireland reached this figures that they had to be bailed out.

Most analysts now think it's a question of when, rather than if, they will have to be supported by the richer nations such as Germany. Other EU countries facing problems will face bond auctions this week, and the market will be watching with keen interest.

If they are indeed bailed out, then it may well weaken the Euro further pushing GBP/EUR rates higher. However, because markets are already expecting Portugal to need support, this may have already been priced into the market.

So will GBP/EUR rates rise?

We think there could be further Euro weakness and this could cause rates to rise. This depends of course on UK figures. If there are better UK economic figures then this could also help push rates up in addition to the Euro weakness expected.

If however we get poor or worse than expected figures, the pound could weaken cancelling out any gain due to EU debt.

If you need to buy Euros, then a Stop Loss order is useful in this situation.

Stop Loss Orders

A Stop Loss order allows you to place a lower limit with your broker, and your currency will be automatically secured should rates fall below this level. Example: You place a Stop Loss order to buy €120k should rates fall below €1.18. This order stays in place until it is filled, or until you cancel it.

If the market continues to rise, then you can increase your Stop Level in line with any increase. In this way you can continue to take advantage of any gains, without the risk of losing out significantly should rates decline.

This also gives you a ‘worst case scenario’ allowing you to budget effectively, knowing the maximum cost of your property in Sterling. This strategy gives you much more control and can alleviate the stress fluctuating exchange rates can sometimes cause.

The alternative is leaving things to chance and simply hoping rates will move your way; hope is not a reliable economic tool and so Stop Loss orders allow you to budget effectively and take control of the cost of your home overseas.

If you have to buy currency and want to achieve the best exchange rates, then click the link below to register an account with us. It's free to do, doesn't obligate you, and simply gives you access to our commercial rates that are up to 5% better than you can achieve at the bank.

Today's Data

Bond Auctions for Portugal is the main thing to watch today. We also have UK Trade Balance Figures, and EU Industrial Production. Expect some volatility for Sterling to Euro exchange rates.

Pound remains above €1.20 but gains limited

11th January 2011
Good morning. The pound rose to a 4 month high against the Euro yesterday, due to the ongoing concerns regards some EU countries. Gains were short lived though as housing data weakened Sterling. Rates at 08:30am this morning are as follows:

• GBP/EUR 1.2024
• GBP/USD 1.5552
• GBP/AUD 1.5795
• GBP/NZD 2.0470
• GBP/NOK 9.2849
• GBP/CAD 1.5434
• GBP/DKK 8.9559
• GBP/JPY 129.16
• GBP/ZAR 10.626

Pound vs Euro

The single currency was stung by increasing concerns about sovereign debt problems in the euro zone. The euro was on the back foot after a senior euro zone source said at the weekend that euro zone countries are cranking up pressure on Portugal to seek financial help from the European Union and the International Monetary Fund.

They are pushing for this to stem contagion risks from its debt problems already faced by Greece and Ireland. Analysts said the euro would remain under selling pressure on concerns that debt problems will extend beyond Portugal and Spain (another country that investors believe may have to seek aid) while their borrowing costs escalate.

So it's this Euro weakness causing the jump in rates this year.

What about Sterling?

There is nothing particular strong regarding the pound at the moment.. So far this year we have seen a run of uninspiring UK economic data including weak services sector data, poor retail sales and worse than expected housing data.

Given the uncertainty surrounding the UK economic recovery and the effect the austerity measures will have on growth, the market is focusing on the EU debt problems and it is this that is driving rates up at the moment.

If problems persist in the Eurozone then the Euro will remain weak. Mixed economic data from the UK however shows that the recovery is far from certain, and so it’s not a given that rates will continue to rise. Indeed many analysts think that Sterling will not recover until interest rates start to go up, something that’s not likely to happen until much later this year.

So will Sterling go higher against the Euro? In the longer term this is likely, but things may get worse before they get better.

Today's Data

Today we have the British Retail Consortium (BRC) Shop Price Index. This measures price changes in Retail Outlets and is a good barometer of overall consumer confidence. Retail has suffered recently due to the snow, with only John Lewis bucking the trend. It’s also an indicator of inflationary pressures and so can affect Sterling. We also have House Prices today for the UK.

If you are looking for the best exchange rates, click the link below to send us an enquiry, and have a free consultation on what's happening in the currency markets.

Pound vs Euro breaks through €1.20

Sterling vs. Euro; Pound Strengthens over Euro debt fear

The pound reached the strongest in 3 months against the euro breaching the 1.20 mark as speculation that the British economy will be more resilient than the euro region in the next coming months.

The BOE have predicted the economy will grow by 2% this year which is 0.5% higher than the predicted 1.5% growth expected in the Euro zone.

However the need for additional Stimulus measures may still result in the Pound losing ground against the Euro in the near future. “We’ve got this massive, very open type debate about U.K. interest rates which I think will create volatility for the pound, and we’ve already begun to see that this year,” said Jane Foley, a senior foreign-exchange strategist at Rabobank International in London.

European Central Bank President Jean- Claude Trichet warned governments not to rely on the ECB to get Europe out of its debt crisis and urged them to step up efforts to tighten fiscal rules. Sources have also revealed that the ECB have bought Portuguese government debt today which could be a leading factor in the rise against the Euro last Friday with the low of the day at 1.1869 and a high of 1.2021.

With the pound steadily increasing over the last 2 weeks it is imperative you keep in touch with your account manager here at FCG. We can keep you updated with news and data releases which may affect your purchase so you can buy or sell at the correct time.

Pound vs. US Dollar

Last weeks economic data from the US had been a mixed bag with signs of a relatively robust recovery. The US dollar rose to highs not seen since August 2010 against a basket of currencies as reports showed services industries expanding in December at the fastest pace in four years and employers adding jobs for a consecutive third month. At its lowest point Sterling fell 1.5% and the euro fell 3.6%, in its biggest weekly drop since August.

Typically we have seen dollar strength when the global economic outlook has been deteriorating (so called “safe haven” buying), and dollar weakness when the global economic recovery appears to be accelerating. Over the last few weeks data has been inconclusive but it looks like investors appear to be giving the dollar the benefit of the doubt as speculation over the UK and Europe’s recovery come into doubt.

Richard Franulovich, a strategist at Westpac Banking Corp. New York said “The U.S. economy is on much sounder footing going forward, which means the dollar is a more attractive currency, especially versus European currencies, for a lot of people, you’ve reached an important milestone where finally the dollar can benefit from good data.”

Weekly Economic Data that may affect exchange rates

This week is incredibly quiet for data releases, but what is there is very important, and of course ongoing problems with Eurozone debt will likely continue to drive GBP/EUR rates.

To find out the forecasted figures and the effect the below releases may have on the currency you need to buy or sell, open an account with us today. It’s free to register, doesn’t obligate you and simply provides access to our market knowledge and commercial exchange rates.

Monday
Building Permits from Canada is the only data of note. It’s very minor data but could affect GBP/CAD rates.

Tuesday
Today we have the British Retail Consortium (BRC) Shop Price Index. This measures price changes in Retail Outlets and is a good barometer of overall consumer confidence. Retail has suffered recently due to the snow, with only John Lewis bucking the trend. It’s also an indicator of inflationary pressures and so can affect Sterling. We also have House Prices today for the UK.

Wednesday
Today we have UK Trade Balance Figures, and EU Industrial Production. Expect some volatility for Sterling to Euro exchange rates.

Thursday
By far the most important day for data. We have interest rate decisions for the UK and EU. We expect both zones to leave rates on hold at record lows, however any comments made after the decision could affect market sentiment and cause GBP/EUR volatility. We also have Industrial and manufacturing production figures for the UK along with a GDP estimate. US Jobless Claims rounds off the day.

Friday
To end the week we some UK & German inflation figures which could impact future interest rate movements.


If you are looking for the best exchange rates, click the link below to send us an enquiry, and have a free consultation on what's happening in the currency markets.

Pound to Euro forecast; 3 month high

7th January 2011
Good morning. Growing worries about sovereign debt problems spreading to the wider euro zone yesterday significantly weakened the single currency. This pushed Sterling Euro rates to nearly €1.19. Rates at 08:30am this morning are as follows:

• GBP/EUR 1.1897
• GBP/USD 1.5440
• GBP/AUD 1.5570
• GBP/NZD 2.0396
• GBP/CAD 1.5432
• GBP/CHF 1.4882
• GBP/ZAR 10.502
• GBP/JPY 128.98
• GBP/NOK 9.2105
• GBP/HKD 11.998
• EUR/USD 1.2960

Pound rises against Euro

The service sector in the UK suffered poor results yesterday, but the figures didn't actually weaken Sterling that much. Due to the snow causing problems for Retail Sales.

"There was an initial sell-off in the pound but overall the market has taken the data with a pinch of salt," said Jane Foley, senior currency strategist at Rabobank.

"Weather-related components make it difficult to read much into the data and the market will be waiting to see if there's a bounce in the next month's reading," she said.

The reason for the increase in rates is a weaker Euro. Renewed concerns over the euro zone periphery weighed on the single currency, with the market seeing Spanish debt issuance next week as a key risk after Portugal was forced to pay higher yields in a Treasury bill auction on Wednesday.

It's important to remember that the pound isn't particularly strong, and without the Euro debt problems GBP/EUR rates would be much lower. Sterling won't recover well until interest rates start to go up.

The Bank of England has probably put its asset purchase to bed for good thanks to high inflation, but it is likely to wait until at least October before raising interest rates from record lows.

Sterling/Euro forecast Summary

For those that need to buy Euros, as the chart above illustrates that rates are now almost the best for over 3 months. You can see the big upswing in recent days as focus returns to Eurozone debt.

At some point there will be a consensus on how to tackle these problems, and then focus may shift back to the tentative UK recovery. There is every chance that rates could plummet back to the €1.12 levels we saw a few months ago. Buying €150,000 at the current rate compared to in October saves you a staggering £8000.

Even if you don't need your Euros for some time, by paying a 10% deposit we can lock in today's rates for up to 2 years into the future, protecting you from a decline.

To take advantage of our commercial exchange rates, open an account with us today.

Sterling gains vs Euro but falls vs US Dollar

6th January 2011
Good morning. Sterling fell vs the US Dollar yesterday after better than expected construction data in the US. Against the Euro, Sterling rose through the €1.18 barrier. Rates at 08:30am this morning are as follows:

• GBP/EUR 1.1831
• GBP/USD 1.5542
• GBP/AUD 1.5546
• GBP/NZD 2.0458
• GBP/CAD 1.5428
• GBP/CHF 1.5013
• GBP/ZAR 10.437
• GBP/JPY 129.01
• GBP/HUF 325.78
• EUR/USD 1.3132

Pound falls vs US Dollar

Yesterday data showed that companies in the USA were hiring at a much faster pace than expected. Also pushing Sterling lower were figures showing activity in the UK construction sector contracted last month.

The jobs report brightened the outlook for the U.S. economy, while a monthly construction index suggested Britain's economy was on shaky ground and backed expectations that domestic interest rates are likely to remain on hold despite sticky inflation. This caused GBP/USD to fall.

Sterling rises against Euro

Traders noted steady buying of the pound earlier by Middle Eastern and Asian central banks as the reason for the pounds gain. This demand for Sterling helped it gain against the Euro, and rates have risen through the €1.18 barrier, presenting much better rates for those that need to buy Euros.

The euro was also weighed down by reports that the Swiss National Bank has stopped accepting Irish government bonds as collateral in its money market operations. This reinforced a view that the EU's struggle with rising debt and borrowing costs will continue in 2011. This could keep the Euro weak and help push GBP/EUR rates up.

While euro zone policymakers were struggling to balance budgets and convince markets that they are serious about tackling the debt crisis, Britain has already kicked off fiscal austerity measures which are aimed to keep debt under control.

"With the UK economy continuing to show resilience and inflation pressures lingering, sterling should continue to benefit from more evidence that its rate advantage over dollar and euro is growing," Valentin Marinov, currency strategist at Citi wrote in a note.

Today's Economic Data

Today we have Purchasing Managers Index from the UK. Usually a high figure would cause the pound to gain, but given the BoE have said interest rates will stay low for some time, this may not be the case.

From the EU we see Retail Sales, Consumer confidence and Industrial Confidence, all of which will give the markets an idea how the Eurozone economy is faring as we enter the New Year. Jobless data from the USA rounds off the day.

If you are looking for the best exchange rates, click the link below to send us an enquiry, and have a free consultation on what's happening in the currency markets.

Pound vs Euro & Pound vs US Dollar forecast 2011

Sterling vs Euro; Pound steadies against after 7 week low



At the end of the final week of the year a beleaguered Sterling limped towards 2011 and managed to steady against the Euro though it remained weak and near seven-week low . After a flat start to the week sterling suffered steep losses on Thursday dropping nearly 2 cents against the single currency throughout the course of the day - traders attributed the losses to little more than year-end related euro/sterling buying. The drop highlights the effects of thin trading which can happen during the festive period.



Sterling steadied against the Euro on Friday, helped by a survey showing an unexpected rise in UK house prices and on the back of euro/dollar buying.



Lender Nationwide said UK house prices rose 0.4 percent in December, the first rise since May. This confounded forecasts for a 0.3 percent fall and suggested the property market was not in steep decline as it was in 2008.



Analysts said that despite the data investors remain wary about the fragility of the UK economy and the potential negative impact of the government's planned austerity measures, which will begin in earnest in 2011.



With trade very thin, however, sterling was driven mainly by movements elsewhere, prodded higher as the dollar came under selling pressure due to reported sovereign buying of the euro against the U.S. currency.



During Prime Minister David Cameron’s New Year’s speech he spelt out that Next year will be “difficult” as the impact of public spending cuts will be felt. But he concluded: “If 2010 was the year we stopped the rot, we can make 2011 the year that Britain gets back on her feet.” Only time will tell for the UK to see whether this is over-optimistic political rhetoric or whether there is some substance to premiership outlook.



Pound vs US Dollar



The USD had a very positive end to 2010 benefiting against a basket of major currencies as a result of continued economic uncertainty around the globe and in particular in Europe.



While the UK itself is perhaps outperforming the majority of European States it cannot avoid being associated with European Economic Union and with large holdings of European debt, in particular in Ireland, global investors remain weary of the Pound. Market uncertainty has caused cable exchange rates to fall to its lowest levels in some months.



Looking ahead 2011 promises to be another volatile year, with the global recovery expected to gain strength. This could have a number of effects, most notably if the recovery gains pace we would most likely see a resurgence of risk appetite which would probably damage the demand for the USD with its safe haven status. The counter argument hinges on the recovery becoming a protracted and drawn-out affair which may add further demand for the worlds most used currency.



Either way it seems likely that the direction of cable will remain heavily reactive to the constantly developing global economy. For more information on how exchange rate movements will affect your currency purchase speak to your dedicated account manager or open an account online today.



Weekly Economic Data that may affect exchange rates



Below the main data releases that we think will have an impact on exchange rates are listed for the coming week. As we enter the New Year, markets will be looking for direction for the major currencies, and the releases detailed below will be watched closely by investors and will likely have an impact on exchange rates for the Euro and US Dollar.



To find out the forecasted figures and the effect the below releases may have on the currency you need to buy or sell, open an account with us today. It’s free to register, doesn’t obligate you and simply provides access to our market knowledge and commercial exchange rates.



Tuesday

We start the year with UK data in the form of Mortgage Approvals and Money Supply. The housing market has been faltering of late and we expect 47,000 new approvals. If the figure is lower that this then expect the pound to fall. We have inflation data from Europe and the Federal Open Market Committee (FOMC) minutes.



Wednesday

There is no UK data of note today. The main data from the Eurozone. We have Industrial Orders for the EU, and inflation data for both Germany and the EU as a whole. Despite the debt crisis in Europe the Euro seems to have settled, and good figures today could strengthen the Euro further making it more expensive to purchase.



Thursday

Today we have Purchasing Managers Index from the UK. Usually a high figure would cause the pound to gain, but given the BoE have said interest rates will stay low for some time, this may not be the case. From the EU we see Retail Sales, Consumer confidence and Industrial Confidence, all of which will give the markets an idea how the Eurozone economy is faring as we enter the New Year. Jobless data from the USA rounds off the day.



Friday

Halifax House prices are released for the UK today which will focus attention on the UK housing market. It’s a good barometer of the economy as a whole and so can affect Sterling. We also have GDP figures from the EU along with unemployment data. From the USA we have unemployment data along with Non Farm Payrolls which often causes big swings in GBP/USD rates.



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