Weekly GBP/EUR & GBP/USD Forecast Outlook

In this week’s Report:

• EU debt worries weaken the Euro significantly
• Concerns remain over UK growth and economic recovery
• Interest Rate speculation still the main driver for exchange rates
• Round up of the week’s data that may affect rates

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

Sterling vs. Euro;

Sterling made strong gains throughout the week against the Euro broadly off the back of continued market commentary regarding the problem of the debt crisis in Greece. At its best the Pound gained almost 2 Cents against the Euro from where it started at the beginning of the week:

The pound's rise came in spite of data confirming Britain's economy made a sluggish start to the year as household spending saw its sharpest quarterly fall in almost two years reinforced the view that UK interest rates were unlikely to rise soon.

Problems continued for Greece and the Eurozone following comments made by Eurogroup President Jean-Claude Juncker who said that should the International Monetary Fund not pay its next tranche of aid to Greece, there would be pressure on reluctant European Countries to do so.

Commenting on the GBP/EUR cross, Ankita Dudani, currency strategist at RBS said "It's a combination of news on the euro zone, including Juncker's negative comments on Greece. There's a lot of uncertainty about what a debt profile would contain and how far it may go -Sterling, on the other hand, doesn't have the same baggage."

She added that compared with the euro, the UK was in a better economic position given that it had a single monetary and fiscal policy unlike the euro zone, which is suffering from increasing political tension among its 16 member nations.

Whilst Sterling has indeed been benefiting from problems within the Eurozone, Euro purchasers should remain somewhat cautious about the medium to long term outlook for the pairing as Sterling still faces many downwards risks including PMI inflation data as well as the fact that Eurozone rates are still expected to raise again this year whilst UK rates are not expected to move until at least February next year.

This recent movement that Sterling has benefited from has far more to do with concerns within the Eurozone rather than fundamental Sterling strength. The UK economy is still a long way from being described as ‘powerhouse’ as it continues to battle rising inflation and slow growth – both of which will leave Sterling vulnerable once the furore with Greece no longer dominates the financial headlines.

Sterling vs. US Dollar;

Last week Cable hit a low of 1.6059 on Tuesday but just when it looked like we could see sub 1.60 rates for the first time since January, the US released a wave of worse than expected data forcing the rate back up to a high on Friday of 1.6463:

Firstly there was a dip in US corporate profits, caused by falling consumer spending as energy prices are still rising, which has just stood to increase unease about the outlook for the US economy. This was backed up by Thursday s releases where we saw jobless claims increasing to 424,000 after it was below 400k as recently as March, and most importantly the initial US GDP reading showed 1.8%.

While this was no different to the previous reading, the markets had been expecting a growth to 2.2%, which was quite disappointing and weakened the Dollar further as it looks like it could deter the FED from raising interest rates until next year.

Closer to home, UK releases were surprisingly upbeat with a rise in consumer confidence and house prices while economic growth remained steady at 0.5%. Similar readings are expected next week so even if the current trend in GBP/USD doesn’t continue, we should at least see some stability in the market for the time being.

The key driver for Sterling is the interest rate expectation; currently most analysts don’t expect to see a rise in the base rate until at least the 4th quarter this year and this should be backed up by the fact that Andrew Sentance has now stepped down from the Monetary Policy Committee. He was the first of the 9 member rate setting team to call for an increase in the lending rate as early as June 2010 so his resignation would mean that there are currently only 2 members calling for a hike.

However, Paul Tucker, who has been voting to hold rates recently, said in a speech on Thursday that he was concerned over inflation. These comments suggest that he could be ready to switch to favour an interest rate increase as early as next month and if any other members are in the same boat then the outcome on 9th June could be finely balanced. On the flipside, a 7-2 split at the meeting could force the Sterling-Dollar cross back down towards the lows seen last week.

Weekly Economic Data that may affect exchange rates

Below we list the main data released for the week ahead. For a free consultation on how they 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
It’s was a Bank Holiday in the UK and US yesterday, however there were some Canadian GDP figures released.

Tuesday
There is no UK data today. The main releases are from the Eurozone; Unemployment, Inflation data and German Retail Sales. From the USA we have Consumer Confidence and inflation numbers. For Canada we have an interest rate decision, currently the rate stands at 1%.

Wednesday
It’s Australia’s turn for GDP figures today. For the UK we will see PMI manufacturing and Mortgage Approvals, that often causes volatility for Sterling. From the EU we have some inflation figures, which will give indications of interest rate movements. From the USA we have unemployment data and mortgage approvals.

Thursday
Further jobless figures from the states today could cause GBP/USD volatility. The only UK release of note is PMI construction. Given the construction sector is dragging down the economic recovery in the UK, the numbers could well have an impact on the value of the Pound.

Friday
UK data today is Purchasing manager Index, and the EU also has the same release. It’s an overall indicator of economic health for both zones. The US has a raft of employment figures, including Non Farm Payrolls that often causes big volatility in GBP/USD, as it’s notoriously difficult to forecast.

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Pound vs Euro hits 10 week high on EU debt worries

27th May 2011
Good morning. Sterling rose to a 10 week high against the Euro yesterday, with the single currency being weakened on further speculation Greece will need further bailouts. Against the US Dollar we are at a 2 week high. At 08:30am this morning rates stand as follows:

• GBP/EUR 1.1536


• GBP/USD 1.6448


• GBP/AUD 1.5392


• GBP/NZD 2.0134


• GBP/CAD 1.6047


• GBP/CHF 1.4110


• GBP/ZAR 11.353


• GBP/JPY 133.18


• GBP/NOK 8.9736


• GBP/DKK 8.6012


• EUR/USD 1.4254

Weak Euro pushes GBP/EUR to 10 week high

Greece's problems in terms of needing further debt assistance from the EU has weakened the single currency, pushing investors to dump the Euro and buy other currencies such as Sterling.

Despite the fact EU rates are higher and the UK economic recovery is fragile, analysts say that because we have a single monetary and fiscal policy unlike the Eurozone, this has given some strength to the Pound.

However, it's also the fact that due to expectations the UK economy will struggle to recover and that interest rates are unlikely to move this year, a snap back in Sterling could happen at any time, back to the 1 year lows we saw several weeks ago.

Most market watchers are saying that the risks to Sterling remain, and once the debt problems are sorted in the EU and the markets are calmer, the general trend of the Euro outperforming Sterling will continue soon.

For this reason if you need to buy Euros you may wish to consider fixing a rate soon to take advantage of the best rates for 10 weeks.

Enjoy your weekend.

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Sterling surges up against Euro May 2011

26th May 2011
Good morning. The pound surged against the Euro yesterday, after reports Greece may have to face fresh austerity measures weakened the single currency. At one point levels hit €1.1573 which is best exchange rates to buy Euros for 2 months. However, as usual the gains were short lived. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1486


• GBP/USD 1.6296


• GBP/AUD 1.5368


• GBP/NZD 2.0147


• GBP/CAD 1.5906


• GBP/CHF 1.4189


• GBP/ZAR 11.330


• GBP/JPY 133.49


• GBP/NOK 8.963


• GBP/DKK 8.5619


• EUR/USD 1.4186

Pound hits €1.1575 against Euro, then falls

So why did the Pound gain so much against the Euro? It was due to reports that the Greek government is organising a referendum on more austerity measures, and this cast doubt on Greece's ability to tackle it's debt crisis.

So, this weakened the Euro significantly and as an alternative to the Euro investors flocked to the Pound, giving it some strength.

These gains were despite data showing household spending had fallen, and growth was at the 0.5% that analysts had expected. Most analysts now expect the Bank of England to raise rates in 2012, and it's not expected there will now be any hikes in the rate this year.

Will Sterling continue to go up against the Euro?

Unlikely. It's already fallen a point back into the €1.14's this morning. It's snapped back as it was simply investors taking advantage of the spike in the rate, and with the EU likely to raise interest rates several times this year while the UK doesn't, it's probably the case that the Euro will regain strength once debt issues in EU countries are out of the headlines.

Today's Data

Nothing of note for the UK, so don't expect any surprise gains as we saw yesterday. In the USA we have GDP figures and jobless claims, so we could see some movement for GBP/USD today.

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Pound up against Euro ahead of GDP figures

25th May 2011
Good morning. Sterling is back up above €1.15 against the Euro this morning, recovering losses yesterday after Moodys threatened to cut the credit rating of some UK banks. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1513


• GBP/USD 1.6147


• GBP/AUD 1.5410


• GBP/NZD 2.0355


• GBP/CAD 1.5834


• GBP/CHF 1.4201


• GBP/ZAR 11.350


• GBP/JPY 132.21


• GBP/NOK 9.039


• GBP/DKK 8.5842


• EUR/USD 1.4023

Pound up against Euro but analysts expect Sterling weakness

The credit agency Moodys recently said it may downgrade the rating of some UK banks and this weakened Sterling yesterday against most currencies. Small Euro gains against the Dollar also helped prop up Sterling.

Analysts say that the general weakness of Sterling vs the Euro mean that the Pound will probably remain vulnerable due to concerns about the banking sector and the fragile UK economic recovery.

Rates to buy Euros are now back to a 2 month high, so those that missed the chance on Monday to buy at these levels has another opportunity today. With weakness in the economy rates could fall back away, and it was only several weeks ago rates were at their worst for over a year.

Today's Data

At 09:30am this morning we see UK GDP figures. This is a measure of economic activity and will show by how much the economy is growing. It's the most important release of the week for Sterling and could well alter rate significantly.

We expect quarterly growth of 0.5%. If it's more than this then Sterling will gain against other currencies. If it's less, then this will show that the recovery is stalling and expect big falls for the Pound.

You can keep up to date throughout the day on our Twitter page. This will have regular rate updates and information on the GDP data in addition to other releases.

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Pound hits 2 month high vs weaker Euro

24th May 2011
Good morning. In a day of contrast, GBP/EUR rates hit a 2 month high yesterday, but GBP/USD rates hit a 7 week low. The gains against the Euro were short lived though, and have already dropped back away. We'll look at the reasons for this after the usual snapshot of rates as at 08:30am:

• GBP/EUR 1.1462
• GBP/USD 1.6118
• GBP/AUD 1.5279
• GBP/NZD 2.0245
• GBP/CAD 1.5744
• GBP/CHF 1.4222
• GBP/JPY 131.72
• GBP/ZAR 11.256
• GBP/NOK 8.9922
• EUR/USD 1.4062

Pound gains against weaker Euro

The Euro weakened significantly yesterday, on concerns about possible debt restructuring in Greece, a ratings outlook downgrade for Italy and after heavy defeats in regional elections for the ruling parties in Spain and Germany. This made the Euro cheaper to purchase, and pushed GBP/EUR rates up to a 2 month high of just above €1.15.

Also the BoE's chief economist Spencer Dale said in a weekend interview with the Financial Times that the central bank must start to raise interest rates to tackle inflation or risk hurting the economy. This went some way to strengthen the Pound slightly, however when markets opened the gains were wiped out and Sterling fell throughout trading yesterday.

What do the analysts say?

"Sterling's moves have been driven by euro/dollar, but it is getting closer to technical levels that may be difficult to break and we might see some upside for cable," said Jane Foley, currency strategist at Rabobank.

She said the pound may outperform riskier currencies like the Australian dollar as well as the euro, but its scope for more gains was limited due to expectations that a fragile UK economy will keep interest rates on hold in the coming months.

By contrast the European Central Bank is expected to raise rates again after a hike in April, particularly given solid growth in Germany, and analysts said this could help the euro hold above near-term technical support.

Summary

With rates close to the best they have been in 2 months, and the fact that another interest rate hike in the EU could strengthen the Euro, the levels currently on offer may not be around for long. As markets are so volatile, holding out for an inch could mean losing a mile. If you need to buy Euros then contact us today to discuss our commercial exchange rates.

If you need to buy or sell foreign currency, click below now to send us an enquiry for free. Our exhange rates are up to 5% better than offered by banks. Take the first step to making the most of your currency now.

GBP/EUR & GBP/USD Forecast, (Weekly outlook)

In this week’s Report:

• Better UK data overshadowed by growth worries
• Inflation up, but GBP gains limited
• Interest rates continue to drive exchange rates
• Round up of the week’s data that may affect rates

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

Sterling vs. Euro;

Despite an interesting week for data in the UK, Sterling’s upside pressure against the Euro remains stunted over concerns for the long term growth of the economy. The pound started the week down against the Euro after the previous week’s growth figures had indicated that the UK interest rates would lag behind the Eurozone despite continued problems with the debt crisis in Greece and the bailout:










Tuesday saw the release of the UK Consumer Price Inflation figures for April where the year on year reading was up at 4.5% for 4% previously and significantly higher than the 4.2% that was expected. The movement was largely due to the rise in food prices and alcohol and tobacco duties, however, despite the figures the GBP/EUR cross only moved 30 pips which were quickly lost.

Furthermore, Mervin King’s letter to the treasury stated that an attempt to bring inflation back to target of 2% too quickly would harm the economy and would in fact risk undershooting the target. His comments highlight the Bank of England’s difficulties of having to balance rising price pressures with an economy recovering at a terribly slow pace.

Midweek Sterling slipped 0.6% against the single currency following an unexpected rise in the number of people claiming unemployment benefit and the minutes of the previous Bank of England meeting. The BoE showed a 6 -3 split to keep rates on hold with two of the ‘hawks’ , Martin Weale and Spencer Dale commenting their decision was ‘finely balanced’. The third ‘hawk’ Andrew Sentance cast his final vote before his departure from the committee and will be replaced by Ben Broadbent in June. Broadbent has already commented that he does not share Sentance’s hawkish outlook and this is likely to be reflected by a more dovish committee and a series of 7 – 2 splits in the coming months.

Sterling’s performance continued to be somewhat subdued on Thursday after positive results from UK retail sales for the month of April. Sales rose by 1.1% up from expected 0.8% with the reasons being cited as extra holidays with the Royal wedding as well as record high temperatures. Sterling gains made immediately after the results were soon lost again after it was broadly interpreted that these retail figures would be unsustainable month on month and compounded by the fact that they have no impact on the outlook for UK interest rates.

Sterling ended the week largely unchanged and with its performance capped somewhat because of the outlook for UK interest rate changes. Despite the continuing pressure on the Eurozone’s stance toward the Greek bailout, it is widely expected that the ECB will raise rate twice before the BoE does, which continues to be an underlying reason for Sterling’s weak performance and why exchange rate changes between the GBP/EUR cross are largely driven by Euro data rather than Sterling data.

Sterling vs. US Dollar;
Last week was a quieter week than many of the recent weeks for cable, with neither currency able to continue gains it had made over the other in the last 2 months, for example when the cross approached the 1.70’s in the first week of May and yet had been in the 1.50’s as recently as March.










On the whole, since that spike in early May, Sterling has come under fairly consistent pressure in this cross, as a general consensus remains that the Bank of England will maintain interest rates at record lows in the short and medium terms, to maintain an environment that in the very least is not inhibitive of economic growth. This consensus exists in spite of an increased inflationary pressure in the UK; Tuesday’s figures showed that annual core inflation (CPI) figure had spike to 4.5%, up from 4% last month and now at the highest point since October 2008. Indeed you can see below the current and historic CPI and RPI levels in this handy chart:
















There was some volatility mid week as the Bank of England minutes on Wednesday drove the cross to 6 week low as the minute’s supported the consensus mentioned above. It was a small shock therefore when Thursdays retail sales figure release was better than expected as you heard about in today’s Euro report, bringing cable back into the $1.62’s where the Interbank buffeted for a high proportion of last week.

The future of the cross is still very uncertain, with the short term difficult to foresee. Many banks and brokers still feel the long term future will see higher exchange rates, mainly based on the belief that as the tentative global recovery gathers pace, the exit from risk aversion will see the Dollar retract as investors flee the global safe haven in the search for higher yield.

Indeed although the B of E is dovish at present and unlikely to raise rates in the coming months, most believe they will raise rates before the Fed. So long term it seems fair to say that UK buyers of the dollar have better times ahead, but that when these times appear is hard to call. Indeed it would be remiss to say things are rosy as any scares in the world economy can as we have seen very recently push global investments into the Dollar and retest the lows on cable.

Weekly Economic Data that may affect exchange rates

Below we list the main data released for the week ahead. For a free consultation on how they 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
Today we have much data from the EU that could affect GBP/EUR rates. Firstly from Germany we have inflation data which could give indications of interest rate movements in the EU. Secondly we have Industrial orders and EU wide inflation figures also; expect EUR volatility today.

Tuesday
Staying in the EU, today we have German Business Climate and confidence measures. From the UK we see a release regarding Public Sector borrowing. This measures the financial deficit in UK national accounts. It negative, this should be positive for Sterling and vice versa. There are Home Sales data figures from the USA today.

Wednesday
Today the UK releases GDP data. This is considered a broad measure of UK economic activity and often has a big impact on Sterling exchange rates. It shows it the economy is growing and is a significant release. Also today we see German consumer confidence.

Thursday
A quiet day for EU and UK data. Main releases are from the USA – Gross Domestic Product & Jobless Claims. The USD has been quite weak of late, with some analysts expecting better data. If so, expect GBP/USD rates to drop away.
Friday
We end the week with further inflation data from Germany, which will give indications of possible interest rate movements within the EU. From the USA we have Consumer Sentiment, Personal Income & Expenditure, in addition to some Home Sales data.

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Sterling remains weak despite good Retail Sales

20th May 2011
Good morning. Better than expected Retail Sales yesterday boosted Sterling, and it rose against the Euro and US Dollar. Gains were short lived however, as it did not change things fundamentally and UK growth prospects still looked patchy and consumer confidence fragile. Rates at 08:30am this morning are as follows:

• GBP/EUR 1.1328
• GBP/USD 1.6214
• GBP/AUD 1.5191
• GBP/NZD 2.0447
• GBP/CAD 1.5670
• GBP/CHF 1.4281
• GBP/JPY 132.44
• GBP/ZAR 11.124
• GBP/DKK 8.4449
• GBP/NOK 8.9024
• EUR/USD 1.4308

Retail Sales better than expected

UK retail sales rose by more than expected in April, boosted by the extra public holiday for the royal wedding, and the warm weather. Sales last month were 1.1% higher than March, said the Office for National Statistics.

Demand rose most for clothing, footwear and food products. However, economists warn the big rise in sales is likely to be a one-off, and that consumer spending remains muted. A separate report by the CBI business organisation said that growth in British factory orders had accelerated more than expected in May.

What do the analysts say?

Analysts don't expect this to give the Pound any significant boost however. Howard Archer, chief UK and European economist at IHS Global Insight, also said the April figures should be treated with caution.

"While welcome, we strongly doubt that the 1.1% jump in retail sales volumes in April is a sign that the consumer is roaring back to life," he said.

Interest Rate hike still some way off

The data also did little to change expectations of interest rate hike. Financial markets only fully price in a quarter percentage point interest rate rise in the UK by January next year, having cut back expectations for at least three 25 basis points rate hikes in 2011 that had been factored in earlier this year.

In contrast, investors are pricing in at least two further quarter percentage point rate increases by the European Central Bank. Despite Greece's debt problems, investors are of the view the ECB will keep raising rates as it seeks to fight off inflationary pressures.

Summary

It's the same story of interest rates driving exchange rates. As the UK is unlikely to raise rates this year, while the EU are likely to push their rate up at least twice more, it's likely the Euro may well remain stronger than Sterling, stifling any gains caused by good economic data.

Today's Data

We end the week with Inflation data from Germany, the largest economy from within the EU. Other than that the only other data of note is from Canada: Retail Sales and inflation data

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Sterling falls after BoE minutes and Employment data

19th May 2011
Good morning. Sterling fell to a 6 week low against the US Dollar and slipped against the Euro yesterday, as a mixed UK employment report and a slightly dovish tone to Bank of England policy minutes painted a cloudy picture. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1330
• GBP/USD 1.6140
• GBP/AUD 1.5145
• GBP/NZD 2.0362
• GBP/CAD 1.5630
• GBP/CHF 1.4214
• GBP/DKK 8.4472
• GBP/NOK 8.938
• GBP/ZAR 11.133
• GBP/JPY 131.93
• EUR/USD 1.4242

Bank of England minutes and Employment data

The minutes of the BoE's May meeting showed an unchanged 6-3 majority seeing no need for an increase in UK interest rates, but two of the hawks, Spencer Dale and Martin Weale, said their decisions were finely balanced.

Also yesterday figures showed the number claiming unemployment benefit unexpectedly rose in April, posting its biggest rise in more than a year.

The news caused Sterling to fall against the Euro, and also to a 6 week low vs the US Dollar. Sentiment remains weak for the Pound, with most analysts expecting further losses should we have any more negative economic data.

Today's Data

Retail Sales is the main UK release today. The ECB president Jean Claude Trichet will give a speech; last time he spoke he caused the Euro to fall by over 1 % so keep a close eye on his comments. The US has some Jobless figures and Home Sales data.

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Sterling weak despite high inflation/BoE Minutes today

18th May 2011
Good morning. High inflation figures yesterday gave Sterling a boost, however the gains were short lived. Rates this morning have already started to fall, as investors acknowledged that higher inflation for now was unlikely to lead to an interest rate rise before year-end. Today we have the BoE minutes, which we'll look at in more detail after the usual rate snapshot as at 08:30am this morning:

• GBP/EUR 1.1379
• GBP/USD 1.6249
• GBP/AUD 1.5273
• GBP/NZD 2.0599
• GBP/CAD 1.5771
• GBP/CHF 1.4293
• GBP/ZAR 11.222
• GBP/JPY 131.80
• GBP/HUF 304.06
• GBP/DKK 8.4853
• EUR/USD 1.4275

High inflation for the UK, but Sterling remains weak

The UK Consumer Prices Index (CPI) annual rate of inflation rose to 4.5% in April, up from 4% in March.The rise in CPI was bigger than analysts had forecast and follows a surprise fall in the index last month.

CPI is now at its highest level since October 2008. The increasing pressure to raise rates following the jump in inflation was reflected in the currency markets, where the pound rose by more than half a cent against the dollar to $1.6285, and by almost 0.4 cents against the euro, to 1.1460 euros. This chart from the BBC illustrates inflation:
















However, gains were short lived as analysts said the data did little to change expectations that UK rates will rise from 0.5 percent in November at the earliest which is much slower than other regions including the euro zone. This has caused the Pound to fall back nearly 1 cent already from yesterdays high of €1.1460.

Today's Data - Bank of England Minutes and Employment

Weak readings for UK jobs figures this morning could add to the view that rates will stay low, even as retail sales due on Thursday are expected to rise due to extended holidays in April.

At the same time, the release of BoE meeting minutes on Wednesday will be watched closely for any shift in tone from policymakers, particularly Martin Weale, who has been voting for a rate rise but last month said he had been surprised by the economy's weak recovery.

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Weak data this week could hurt Sterling

17th May 2011
Good morning. Sterling fell against the euro yesterday and was seen vulnerable before UK data this week, including inflation and jobs numbers, which could add to the view that interest rates will stay on hold in the coming months. EU debt worries however are pulling rates back the other way this morning, and at 08:30am rates are as follows:

• GBP/EUR 1.1462
• GBP/USD 1.6241
• GBP/AUD 1.5321
• GBP/NZD 2.0780
• GBP/CAD 1.5831
• GBP/CHF 1.4377
• GBP/ZAR 11.333
• GBP/JPY 132.18
• GBP/HUF 306.54
• GBP/NOK 9.0622
• EUR/USD 1.4164

Data this week that could push Sterling down

Economic data today is expected to show inflation up in April vs March, but most in the market believe recent signs of a shaky UK economy will prevent the Bank of England from raising rates from historic lows soon.

Jobs data on Wednesday and retail sales numbers on Thursday could add to this view, while the release of BoE meeting minutes on Wednesday will be watched closely for any shift in tone from policymakers.

EU debt worries could push the Euro lower

Despite fears over Sterling weakness threatening to push GBP/EUR rates lower, the Euro could also fall back towards recent 7 week lows against sterling, as concerns over Europe's debt crisis are expected to hurt the shared currency.

Euro zone finance ministers are likely to back a bailout for Portugal and are also expected to pressurise Greece to deliver on agreed fiscal and privatisation targets if it wants new emergency financial aid next year.

What do the analysts say?

"We expect sterling to do better against the euro as a number of hedge funds are still long on the euro and we could see some of those positions being unwound," said Michael Derks, chief strategist at FXPro.

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Pound vs Euro / Pound vs USD forecast predictions 2011

In this week’s Report:

• Interest Rates still driving GBP/EUR
• Mixed UK economic figures create uncertainty
• Pound vs. US Dollar retreats from 18 month high
• Round up of the week’s data that may affect rates

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

Sterling vs. Euro;

Last week saw a number of volatile swings on the Sterling Euro cross with both currencies attempting to establish a trend over the other on the back of bullish data releases and official statements. Early in the week Sterling made gains over the single currency with decent retails sales figures overshadowing the expected slight fall in house prices. Indeed the fact that the B of E’s inflation report and Mervyn Kings’ following speech were viewed by many analysts as more hawkish than other recent B of E statements pushed the Pound up further against the Euro on Wednesday.












Investors are mainly occupied with thoughts of interest rates at present, attempting to predict who will be the next to push their base rates up. Obviously the economic woes of several of the peripheral EU economies such as Greece and Portugal along with the moderately hawkish B of E rhetoric gave the cross a mid week swing in the Pound’s favour. It was somewhat of a shock therefore when Fridays Euro zone GDP figures came out strong, and pushed the cross back down towards the lows seen the week before.

Of particular Surprise was the Greek economy’s growth of .07%, a figure that few would have foreseen and that certainly will have left a few analysts scratching their heads. Further bolstering this figure were solid figures above expectations from Germany, France and Spain; the combination of which meant that the Euro zone as a whole grew 0.8% by GDP quarter on quarter (in spite of the fact that Portugal slipped into double dip recession with a second quarter of negative growth). All this has left the recovery in the UK looking patchy at best, and well behind some of the European power houses.

Speculation will be rife over the next few weeks and months that it will in fact be the ECB who will act next to raise rates again, though a hawkish sentiment form the UK could bolster the pound. Undoubtedly this cross will be one of the hardest to call and will certainly see some hefty swings in the near future as it did last week. Whether you are looking to buy or sell the Euro therefore, the peaks and troughs that are likely to appear could represent a real opportunity for you. Register an account now and speak with an experienced trader to find out how we can help you get the best of your currency requirement.

Sterling vs. US Dollar;

News from both sides of the Atlantic last week was poor, but it didn’t stop the GBP/USD rate from falling to 6 week lows after hitting a 19 month high of 1.6708 just a fortnight before. Interbank levels on Friday afternoon were struggling to stay above 1.62.











The main reason for the downward slide was renewed risk aversion from investors as UK manufacturing and industrial production data disappointed. Manufacturing showed 0.2% growth (below market expectations) while industrial figures rose by 0.3% which was again below forecasts of 0.8%. The fall in Sterling was also encouraged as the NIESR GDP estimate for the UK was only 0.3% after a better reading last month.

This showed that even with the Bank of England suggesting that UK inflation could reach a whopping 5% this year, potentially slowing economic growth could tie their hands where interest rate hikes are concerned. This could potentially weaken Sterling against the Dollar as we move through the year but on the flipside US figures aren’t exactly promising. Initial jobless claims and inflation have both improved slightly while retail sales are slowing again but it still doesn’t look like the FED will look to tighten their monetary policy any time soon. Therefore with both economies looking like they may just drift through 2011, risk appetite could be the key driver of cable.

With the current risk aversion, especially with the renewed commodity price weakness we have seen lately, there is increased support for the Dollar as investors look to reduce their speculative positions and pump funds into the perceived “safe-haven” Greenback. If this is to continue then we could see the rate back below 1.60. However, if the state of play in UK, US and some of the faltering Eurozone economies looks to improve then any renewed appetite for risk could help to push rates back up towards 1.70, even if the Bank of England decide to hold tight on putting up interest rates.

There are some key data releases from both sides of the pond this week including Bank of England minutes, UK & US inflation data and unemployment figures, while there are also some speeches from members of both Central Banks. To see how these may affect any upcoming US Dollar requirements you may have, take a look at the market data section below.


Weekly Economic Data that may affect exchange rates

Below we list the main data released for the week ahead. For a free consultation on how they 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
At midnight last night Rightmove released House price data, which showed that . There is no other UK data today. From the Eurozone we have Trade Balance figures and Inflation figures. If these are high it could push GBP/EUR rates lower. From the USA we have a FED speech and inflation data.

Tuesday
Lots of UK data today: Retail Sales, Consumer Confidence, Consumer Price Index and House Prices, all of which will be closely watched as an indicator of the UK economy. Germany releases some sentiment survey which is the only EU data of note. From the USA we see Housing Data, Building permits and Industrial Production.

Wednesday
Jobs data today for the UK, in addition to the claimant count. More importantly, we see the BoE minutes to see how the vote was split in the recent decision to hold rates. Markets will look at this very closely as an indication of when interest rates may rise. Expect volatility.

Thursday
Retail Sales is the main UK release today. The ECB president Jean Claude Trichet will give a speech; last time he spoke he caused the Euro to fall by over 1 % so keep a close eye on his comments. The US has some Jobless figures and Home Sales data.

Friday
We end the week with Inflation data from Germany, the largest economy from within the EU. Other than that the only other data of note is from Canada: Retail Sales and inflation data.

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Sterling hits 6 week high vs Euro on BoE Inflation report

12 May 2011
Good morning. What a difference a week makes... This time last Thursday GBP/EUR rates were at a 13 month low of €1.1050, but with yesterdays bullish inflation report from the Bank of England, rates have climbed significantly, as you can see in the daily rate snapshot:

• GBP/EUR 1.1477
• GBP/USD 1.6328
• GBP/AUD 1.5360
• GBP/NZD 2.0699
• GBP/CAD 1.5739
• GBP/CHF 1.4470
• GBP/ZAR 11.248
• GBP/JPY 132.35
• GBP/NOK 8.946
• GBP/DKK 8.555
• EUR/USD 1.4225

Pound hits 6 week high vs Euro on BoE inflation report

Sterling climbed to a 6 week high against the Euro yesterday, after the Bank of England raised its inflation forecasts. This led markets to bring forward the possible timing of an interest rate hike, and as a result Sterling surged against other currencies.

Some analysts have said that with weakness in the Euro also caused by EU debt fears, rates could continue to climb higher. However, others said the pound's rally could reverse as it has not fully priced in lowered interest rate expectations, with sterling also vulnerable to further gloomy news about UK growth.

"The market was positioned quite short going into it, expecting a more dovish tone from the BoE, and that's the main reason sterling rallied, but I wouldn't want to chase that rally much higher," said Chris Walker, currency strategist at UBS.

The reason some think the pound could fall is that the BoE also downgraded its near-term outlook for growth since its last report in February, adding that first-quarter growth had been slower than predicted.

Other data yesterday supported views of sluggish UK economic growth, showing Britain's goods trade deficit widened more than expected in March, giving back some of the strong improvement seen in the first two months, limiting the pounds gains.

Summary

Despite the increase in rates of nearly 5 points in as many days, the near term future for Sterling is uncertain to say the least. It could go higher if there are more problems in the Eurozone, but the underlying facts in the inflation report are actually negative for the economy, and this could pull the pound back down.

For those that need to buy Euros, it could be wise to consider taking advantage of the best rates in 6 weeks. Likewise for those selling Euros, despite rates moving the wrong way, it's still not too far from the best in over a year, and with uncertainty over interest rates in the UK and EU coupled with debt fears in the Eurozone, it could move either way in the coming weeks.

Contact us today to discuss how to protect against adverse rate movements, whichever currency you need to buy or sell. Don't just leave it and hope things will move your way; leaving things to chance is not a reliable economic tool.

If you need to buy or sell foreign currency, click below now to send us an enquiry for free. Our exchange rates are up to 5% better than offered by banks. Take the first step to making the most of your currency now.

BoE Inflation report could affect GBP exchange rates

11th May 2011
Good morning. Exchange rates remained fairly stable yesterday, with little economic data of note being released. Today however we have some key UK data which could change things, which we'll look at in a moment after the usual snapshot of rates as at 08:30am:

• GBP/EUR 1.1381
• GBP/USD 1.6359
• GBP/AUD 1.5069
• GBP/NZD 2.0604
• GBP/CAD 1.5641
• GBP/CHF 1.4404
• GBP/JPY 132.05
• GBP/ZAR 11.087
• GBP/DKK 8.4842
• GBP/NOK 8.8777
• EUR/USD 1.4369

Key UK data today that could change exchange rates

The Bank of England today will release its quarterly inflation report. This is likely to forecast higher inflation and they will likely defend their decision to keep interest rates at a record low 0.5 %.

Traders said such a view may push back the chances of a UK rate hike and could weigh on sterling, allowing the euro to regain some lost ground against the pound. Recently it's the fact that EU interest rates are going up before the UK that caused GBP/EUR rates to hit a 13 month lows.

So why is Sterling so weak?

Recent downbeat UK data has painted a picture of a very patchy recovery in the UK, with the economy facing public spending cuts and weak consumer confidence. These facts coupled with other poor economic figures have kept the BoE from raising interest rates despite high inflation.

If the inflation report today is negative, it could see sterling test those lows we saw last week, while any comments from Governor King which are considered neutral for monetary policy could lend some support, although the fomer is more likely.

What do the analysts say?

"The fresh batch of commentary from BoE Governor King will heavily influence future price action for the pound, but currency traders may show a muted reaction to the report should the central bank head retain a neutral tone for monetary policy," said David Song, currency analyst at FXCM.

Other data today

In addition to the BoE report today, we also have trade balance figures which can often cause volatility for Sterling. There are also inflation measures from the EU, so don't expect GBP/EUR rates to remain at €1.1383 by the end of the day.

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Pound set to fall again vs Euro & USD?

10th May 2011
Good morning. Sterling fell against the US Dollar yesterday, due to worries in the EU over debt weakening the Euro and benefiting the USD. The net result is lower GBP/USD rates but slightly higher GBP/EUR rates. As we'll see in a moment though analysts do expect the Pound to fall again this week. At 08:30am rates are as follows:

• GBP/EUR 1.1408
• GBP/USD 1.6374
• GBP/AUD 1.5187
• GBP/NZD 2.0659
• GBP/CAD 1.5774
• GBP/CHF 1.4376
• GBP/ZAR 11.025
• GBP/JPY 132.03
• GBP/DKK 8.5044
• GBP/NOK 8.9732
• EUR/USD 1.4343

Pound falls vs US Dollars

The Pound fell to its lowest in nearly three weeks against the US Dollar yesterday, dragged down by falls in the euro against the U.S. currency as a downgrade of Greece's debt worsened euro zone debt worries. The debt worries have also weakened the Euro, and despite the fact last week rates sat at €1.1050, today rates are above €1.14 again due to this weakness.

Sterling to fall again this week?

Many analysts expect sterling to stay under pressure on concerns the Bank of England may downgrade its growth forecasts later this week and add to expectations that UK interest rates will not rise in the coming months.

With little UK data today, markets are focusing on tomorrows inflation report by the Bank of England. There may well be a downgrade in growth forecasts, and if so this would weaken Sterling and push exchange rates lower.

Recent poor UK economic data have added to expectations the BoE is unlikely to raise rates before the end of the year, and suggest the bank may give a more downbeat assessment on growth when it issues its latest forecasts on Wednesday.

What do the analysts say?

"Evidence that the BoE has adjusted its growth forecast to the downside even as its inflation forecast went up could support the view that a hike is still a long way coming in the UK," analysts at Citibank said in a note.

"This could prove less supportive for sterling and euro/sterling could correct further to the upside moving more in line with its fundamental drivers," they added.

In other words, if we get the growth forecast downgraded, the pound may start it's downward trend against the Euro again.

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Weekly GBP/EUR & GBP/USD currency forecast

In this week’s Report:

• Pound/Euro finally gains from it’s 13 month low
• Euro weakens significantly after ECB comments
• Pound vs US Dollar rates fall from 19 month high
• Round up of the week’s data that may affect rates

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

Sterling vs. Euro;

Despite the short trading week last week the GBP/EUR cross certainly didn’t lack in volatility with the total movements between the currencies amounting to approximately 3% over the week.











Early in the week Sterling fell to a 13-month low against the euro after a raft of data releases showed a patchy British economic recovery, this in turn suggested the Bank of England would not raise interest rates soon. The pound fell to 1.1048, its lowest since March 2010, as markets continued to factor in diverging rate outlooks with further hikes expected this year in the euro zone.

Analysts said further near-term gains were likely for the euro but the currency was reaching levels that may be unsustainable. “Whilst it is possible to build a 1.08/1.06 scenario based on a strong euro and a weak pound, we do not believe these gains will last," Chris Turner, analyst at ING.

After another rocky start on Thursday Sterling rebounded from the 13-month low against the euro after the European Central Bank signalled it may not raise interest rates again as early as next month. ECB President Jean-Claude Trichet offered a much less hawkish tone on the central bank's rate outlook than markets had been expecting after April's hike, prompting traders to book profits on the euro's gains versus sterling after weak UK services data earlier in the day drove the pound lower.

Jean-Claude Trichets comments helped push Sterling a little above 1.13 Vs. Euro where it stayed to round the week off on a high.

Both the ECB and the BoE kept interest rates unchanged, but many believe the euro will regain its upper hand against sterling while the ECB continues to tighten monetary policy much faster than the BoE. Markets are now not pricing in a BoE rate hike until November or December, while many in the market see the possibility of another ECB rate rise in summer.

"Once the dust settles, the market is going to realise that the next ECB rate rise is going to come before the BoE raises rates, We might see profit taking along the way, but the euro will find a foot hold, and we'll probably see it return to 1.11 in the short term," said Richard Wiltshire, at ETX Capital.

Sterling vs. US Dollar;

Pound vs. US Dollar rates have declined from the 19 month highs we have seen in recent weeks, and since the beginning of the month rates to buy Dollars have been in decline, as the chart below clearly shows:











At the beginning of last week, the news of the death of Osama Bin Laden initially caused global markets to soar, as investors took the news as a signal to move away from traditional safe havens such as the US Dollar.

It soon became clear however that the events will not really mean and end to the ‘war on terror’, and initial gains were short lived. As a result the US Dollar has gained strength on its safe haven status, and most of the week saw GBP/USD rates in decline as the dollar became more expensive to purchase.

There was also better jobs data from the USA on Friday, with many more new jobs being created than analysts had expected, again causing USD strength and a decline in rates. Analysts said the jobs data, while encouraging, was not sufficient to meaningfully shift the outlook for U.S. monetary policy.

Volatility in USD rates at the end of last week was mostly caused by events in the Eurozone however. As outlined in the GBP/EUR report, expectations for a rate hike in the EU have declined, and this is having an effect on the value of the dollar also.

"We're still looking at the divergence in interest rate outlooks between the Fed and ECB as the primary driver in market activity over the medium term," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

Rates in the US are at a record low, while EU and UK rates are forecast to go up before those in the US. This is keeping the Dollar weak and exchange rates favourable, despite the decline last week.

So in summary, despite a retreat in exchanger rates caused by a weak pound and Euro giving some USD strength, exchange rates are still very close to the best they have been in over 18 months. This is despite Sterling being weak against most currencies. It’s the fact that poor US data and low interest rates in the US have weakened the USD even more than the pound, and the net result is relatively high exchange rates despite the state of the UK economy.

If you need to purchase USD with Sterling, you may wish to consider taking advantage of the rate while it is so favourable. To have a free consultation on the services we offer, click the banner at the bottom of the post to send us an enquiry today.

Weekly Economic Data that may affect exchange rates

Monday
Today for the UK we have House Price Data and Retail sales, although the figures are released at midnight Monday. During the day expect GBP/EUR volatility as we have confidence measure from the Eurozone in addition to Trade Balance figures from Germany.

Tuesday
There is no UK data of note; however markets will be reacting to the UK data released at midnight Monday. Most data today is from the USA; Import Prices and a survey on economic optimism.

Wednesday
Today is key for UK data. We have an inflation report from the Bank of England, a speech by Mervyn King the BoE governor in addition to Trade Balance figures. Expect a choppy day for Sterling. Germany has some inflation figures that could affect the Euro. The US has a monthly budget statement at 7pm.

Thursday
A very busy day today for economic data. We have some Employment figures from Australia and Retail Sales for New Zealand.

From the UK watch a GDP estimate at 3pm, and also a Manufacturing Production report. For both the UK and EU there is an Industrial production report for both zones; expect GBP/EUR volatility. There is also a monthly report from the European Central Bank today, so lots here that could affect GBP/EUR rates.

Stateside we have Retail Sales, inflation Data and Jobless Claims.

Friday
There is no UK data today. There are GDP figures from Germany and the Eurozone as a whole. It’s an important release that will give a view of the EU economy and so could affect GBP/EUR rates. From the USA there are some inflation figures, but given rates in the US are expected to remain low, it may not have much of an effect.


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Pound gains almost 2% against Euro

6th May 2011
Good morning. Well, after weeks of GBP/EUR rates falling, we saw a significant gain in rates yesterday after the Euro weakened. We'll look at the reasons why after the usual rate snapshot, as at 08:30am:

• GBP/EUR 1.1270
• GBP/USD 1.6373
• GBP/AUD 1.5346
• GBP/NZD 2.0822
• GBP/CAD 1.5825
• GBP/CHF 1.4271
• GBP/ZAR 11.020
• GBP/JPY 131.60
• GBP/HUF 298.70
• EUR/USD 1.4526

Pound vs Euro rates gain nearly 2%

Yesterday both the Bank of England (BoE) and European Central Bank (ECB) left interest rates on hold as expected. It was the comments from the ECB president, Jean Claude Trichet, that caused the Euro to weaken and rates to rise.

He offered a much less hawkish tone on the central bank's rate outlook than markets had been expecting after April's hike, prompting traders to book profits on the euro's gains versus sterling after weak UK services data earlier in the day drove the pound lower against the common currency.

"The ECB sounded more dovish at its press conference, which is weighing on the euro," said Raghav Subbarao, currency analyst at Barclays Capital. "Today's move is a euro story rather than a sterling story."Markets are now not pricing in a BoE rate hike until November or December, while many in the market see the possibility of another ECB rate rise in summer.

So, because he signalled no futher rate rises in the EU are likely in the coming months, the Euro weakened and became cheaper to purchase. At one point yesterday rates sat at €1.1055, however by the afternoon rates had recovered to €1.1260.

Summary

A 2 point gain in one day is quite unusual. If you need to purchase Euros you may wish to take advantage of the single currencies weakness, as many analysts think that the general downward trend may continue in the coming weeks and months.

Today's Data

We end the week with PPI for the UK which can often cause volatility for Sterling. US and Canadian unemployment figures are released today also. The only EU data of note is French Trade balance figures and German industrial production.

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GBP at 13 month low vs EUR ahead of interest rate decisions

5th May 2011
Good morning. Sterling slipped to a fresh 13-month low against the euro on Wednesday after weak British construction figures boosted views UK interest rates could stay on hold till year-end, in contrast to a hawkish euro zone outlook. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1104
• GBP/USD 1.6529
• GBP/AUD 1.5405
• GBP/NZD 2.0869
• GBP/CAD 1.5831
• GBP/CHF 1.4151
• GBP/ZAR 10.966
• GBP/JPY 132.63
• GBP/HUF 293.33
• GBP/DKK 8.2791
• EUR/USD 1.4885

Pound remains weak against Euro

So why is Sterling so low against the Euro? It's all to do with interest rate expectations. Recent figures have meant analysts are now pricing in a rate hike from the Bank of England around the end of the year, while the European Central Bank is expected to raise rates for the second time this year by July.

Higher interest rates generally strengthen a currency as it provides more return for investors. As EU rates are now likely to rise well before the UK, the Euro is gaining against the Pound and this is why rates have fallen this week, following poor economic data that supports this view.

"The UK economy is struggling to get any real momentum," said Simon Derrick, head of currency research at Bank of New York Mellon. "The evidence continues to mount that UK monetary policy is going nowhere this year."

Interest Rate decisions today

We actually have interest rate decisions for both the UK and EU today, at 12:00pm and 12:45pm respectively. Most analysts expect no move from either central bank, however supporting comments from either side could cause volatility.

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Pound hits 13 month low vs Euro

4th May 2011
Good morning. Sterling fell to its lowest in over 1 year against the Euro yesterday, and also fell against the dollar after disappointing UK manufacturing data prompted investors to push back forecasts of a UK interest rate rise. At 08:30am this morning rates are as follow:

• GBP/EUR 1.1112
• GBP/USD 1.6512
• GBP/AUD 1.5186
• GBP/NZD 2.0775
• GBP/CAD 1.5731
• GBP/CHF 1.4231
• GBP/JPY 133.74
• GBP/ZAR 9.8280
• GBP/NOK 8.6920
• GBP/DKK 8.2850
• EUR/USD 1.4858

Sterling falls on Manufacturing data

The UK's manufacturing sector grew at its weakest pace for seven months in April, a survey suggests."There was a dip in the output prices component, but it is still the third-highest index reading since the series began in 1999," said James Knightley from ING Financial Markets.

"Consequently, the issue of weak growth and high inflation will continue to trouble the Bank of England (BoE). Given they have a mandate of targeting 2% inflation in two years' time, the worrying outlook for growth favours patience from BoE policymakers."

The data reduced the likelihood of an interest rate rise this week, he added. Due to the fact there is now less chance of a rate hike in the UK tomorrow, while in the EU they are braced for a series of hikes, the result is a weaker pound.

Sterling fell as a result to the lowest vs the Euro in 13 months.

Portugal reaches Bail out deal

Portugal's caretaker prime minister Jose Socrates says he has reached agreement on a bail-out from the EU and the International Monetary Fund.he deadline for the bail-out money to be in place is 15 June, when Portugal has to repay nearly 5bn euros of debt.

Portugal was the third eurozone country to have to ask for a bail-out, after Greece and Ireland. Its economy is expected to contract this year as a result of the latest set of austerity measures.

As this now gives some stability to Portugal, there has been some slight strength in the Euro pushing GBP/EUR even lower this morning.

Today's Data

UK data today comprises of mortgage approvals, Inflation data and lending info. From the Eurozone we see Retail Sales which are a barometer of consumer confidence. The US has inflation figures also in addition to employment figures. New Zealand has unemployment info in the evening and Australian Retail sales are released towards the end of the day.

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