GBP/EUR & GBP/USD Forecast Outlook August 2011

Monday 1st August 2011

As always on a Monday, we'll take stock of the movements in exchange rates for GBP/EUR & GBP/USD over the last week. In this week’s Report:

• Euro debt again weakens Euro
• US debt issue weaken US Dollar
• Sterling benefits despite continued weak data
• 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;

Markets continue to expect the Bank of England to hold interest rates at record lows well into 2012, with some speculation that more asset purchases may be needed to revive flagging growth in the UK economy.

After figures showed the economy barely grew in the second quarter, BOE policymaker David Miles said last Wednesday that the recovery appeared to have slowed and there is a risk the economy could tip back into recession. On the upside, analysts said sterling was likely to benefit from any downgrade to U.S. debt by rating agencies as the UK, with a sound fiscal plan in place, is likely to retain its AAA rating.

But austerity measures to curb Britain's budget deficit are also crimping growth and consumer spending, meaning sterling is unlikely to strengthen significantly in coming months. UK data has been lacklustre of late, with the CBI figures reminding investors that consumers are struggling and that growth in the current quarter is unlikely to be encouraging.

Sterling did however rise against a broadly weaker euro last Thursday as the single currency slipped on lingering concerns about euro zone debt. British retail sales fell at their fastest pace in a year in July and stores expect a further deterioration in August, as hard-hit consumers clamp down on spending, a survey by the Confederation of British Industry showed. Movements in sterling over the past week were largely driven by a broad sell-off in the euro after an Italian bond auction. Also, the pound has benefited as investors have shunned the dollar and the euro due to fiscal issues plaguing those areas, while the UK has been making progress on reining in government spending, although some analysts say this has come at a cost to economic growth.

Commerzbank currency strategist Peter Kinsella said this view would keep the pound supported, but still added the belief that UK interest rates will stay low due to a sluggish economy that would cap any significant upside in Sterling. Many times in July we have seen that data releases haven’t necessarily dictated the movement of the markets, the euro has fallen roughly 3 percent versus sterling so far this month, showing a confused and volatile time for the GBP/EUR cross.

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Sterling vs. US Dollar;

Sterling slipped against the Dollar last Friday, tracking a slide in the Euro versus the U.S. currency after a threat by ratings agency Moody's to cut Spain's credit rating prompted some investors to sell riskier currencies for the Dollar. But losses versus the Dollar were limited given that investors remain negative on the U.S. currency as Washington remains far from reaching an agreement on government borrowing before a deadline next week. The Pound ended July around 1.5 percent higher versus the Dollar.

Debt negotiations in the US were hit by further complications at the end of last month as Republican leaders abandoned a vote on plans to increase the debt ceiling after failing to secure enough votes to get the plan approved. This failure gave US politicians 4 days to complete any deal. If they struggle to arrange a deal and the US misses a coupon payment, a technical default would have occurred, but what does that mean for the world economy and the US Dollar?

Any default would lead to a huge adjustment in the value of the Dollar, which would be reinforced by the almost certainty of the Fed starting QE3 to offset the compulsory reductions in governmental spending. We are in uncharted territory in terms of the potential effects on the world economy, particularly with the inter-bank rate which could, according some economists, be affected more by a US technical default than the aftermath of the Lehman Brothers failure.

Some analysts have said Sterling is likely to benefit from any downgrade to U.S. debt by rating agencies, as the UK (with a sound fiscal plan in place) is likely to retain its AAA rating. But austerity measures to curb Britain's budget deficit are also restricting growth and consumer spending, meaning Sterling is unlikely to soar above the $1.70 level in the coming months.

The US problems would have worrying implications for the European debt markets, since if the safe haven of the US cannot meet its obligations, who can? The recent problems in Spain and Italy would be amplified and may lead eventually to those countries requiring some sort of bail-out. However, since money would have to flow somewhere, the Euro could actually benefit from the US problems. The recent shift away from the Greenback has been profound in all currencies, in the shorter term and over the past weeks, as investors have been protecting themselves from potential Dollar fallout.

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Weekly Economic Data that may affect exchange rates

Monday – Inflation data and unemployment figures are released from the EU today. In the UK we have House Prices and Inflation data. In the US there are manufacturing prices.

Tuesday – After the holiday in Australia yesterday, today we have House prices, building permits, commodity Index and an interest rate decision, all of which could strengthen the Aussie. Closer to home, we have Inflation data for both the UK and Eurozone. Also from the UK there are shop price index figures from the BRC.

Wednesday – Australian Retail Sales and Trade Balance figures are released today. From the Eurozone there are also Retail Sales figures. The EU and UK both release Purchasing Managers Index which is a measure of inflation. Stateside, watch for Mortgage Approvals and Factory orders.

Thursday – As with every first Thursday in the month, the UK and EU announce their latest interest rate decision. Both are expected to leave rates on hold, but watch for any mention of Quantitative Easing from the BoE. The USA has various measure of unemployment.

Friday – A busy end to the week, with PPI (Inflation) data from the UK, in addition to Industrial Production figures from Germany. A busy day in the states also, with Unemployment and Non Farm Payrolls at lunchtime.

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Pound up vs Euro on debt fears

Friday 29th July 2011
Good morning. Sterling rose against the Euro yesterday after the Euro weakened on concerns about the EU debt problem spreading, weakening the single currency and pushing rates up. Poor UK data however pushed the Pound down slightly against other currencies. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1431
• GBP/USD 1.6312
• GBP/AUD 1.4908
• GBP/NZD 1.8808
• GBP/CAD 1.5506
• GBP/ZAR 11.029
• GBP/JPY 126.52
• GBP/DKK 8.5139
• GBP/NOK 8.8411
• EUR/USD 1.4266

Sterling up vs Euro on debt fears

Yesterday there was a broad sell off of the Euro after an Italian bond auction, and fears the debt problems will spread to other countries weakened the Euro, pushing it up into the €1.14's. It was only a week or two ago rates were at €1.10, and the gains have been largely driven by problems in the EU rather than any particular strength in the Pound.

Pound still weak after more poor data

British retail sales fell at their fastest pace in a year in July and stores expect a further deterioration in August, as hard-hit consumers clamp down on spending, a survey by the Confederation of British Industry showed.

This just adds to the poor economic picture. UK data has been lacklustre of late, with the CBI figures reminding investors that consumers are struggling and that growth in the current quarter is unlikely to be encouraging.

After figures showed the economy barely grew in the second quarter, BOE policymaker David Miles said on Wednesday the recovery appeared to have slowed and there is a risk the economy could tip back into recession. For this reason we think the Pound could continue to fall.

US Debt issues could help Sterling

Analysts said sterling was likely to benefit from any downgrade to U.S. debt by rating agencies as the UK, with a sound fiscal plan in place, is likely to retain its AAA rating. The problems in the US have weakened the US Dollar, and with the Euro also facing problems, investors like the fact the UK has a firm plan in place, and as such the Pound may benefit from any weakness in the other major currencies, despite poor data.

Today's Data

UK figures today are Consumer Credit, Mortgage Approvals and Money Supply. From the EU we see inflation data, and Canada and the USA both release GDP figures.

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Getting the best exchange rates for Euros, Pounds, Dollars

Thursday 28th July 2011
Good morning. Further poor data on Wednesday hurt the Pound, however exchange rates remained high due to Sterling being supported by the problems regarding the US debt ceiling. Today we'll look at the implications of this, and where rates may go moving forwards.

Sterling supported due to problems in US

Sterling dipped slightly on yesterday after disappointing UK factory data, but remained within sight of a 6 week high versus a weak USD and looked set to retain support in the absence of a deal to raise the U.S. debt ceiling. Against the Euro the Pound also rose, as investors bought it as an alternative to the USD, and this supported the Pound.

So what do the analysts say?

"Everyone is looking at the bigger picture of what is going on with the U.S. with the debt ceiling, so sensitivity to data has been somewhat diminished," said Charles Diebel, head of market strategy at Lloyds. This basically supports what happened yesterday, with the Pound rising despite poor UK economic data.

"This data is a little disappointing but to a degree most of the expectations for UK data have been skewed to the downside. When you get a weak number like today it's more an affirmation of people's thinking than a shock."

This following Tuesdays poor growth figures showing that UK economic recovery is sluggish.


What about Sterling to Euro rates for the coming weeks?

Despite the euro zone debt crisis and threat of a Greek debt default the single currency has remained strong against the pound as a result of favourable rate differentials.

The Bank of England is expected to keep interest rates on hold at a record low 0.5 percent until late next year because of concerns over the fragility of the UK economic recovery while the European Central Bank has already embarked on a tightening cycle.

It's hard to know which way things will go. If UK data continues to be poor and the EU continue raising interest rates, then it is likely GBP/EUR will fall. If however there are further debt problems in the EU, or economic data in the UK starts improving, rates could go up further.

So what are the options to protect against rates moving the wrong way?

If you need to buy or sell currency, then at the moment rates are volatile and there's no way to now which way rates will move. In uncertain times like this, simply hoping rates will move in your favour is not a reliable method, and you could end up with a significantly worse rate than necessary.

You can use Stop Loss and Limit Orders to your advantage. A stop loss is an order for us to buy your currency should the rate fall below a pre-agreed level. In this way you have a safety net and a worst case scenario. At the same time, a Limit order can be placed to buy should rates spike to a level not currently achievable. In this way you can aim for a higher rate, without leaving yourself open to a significant cost increase.

These orders are useful if you are buying or selling property abroad, and need the best exchange rates. They can also be useful if you are a business and need to pay or receive payments in a foreign currency.

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.

Sterling vs Euro down due to GDP

Tuesday 26th July 2011
Good morning. Sterling is down this morning, ahead of GDP figures later today that are expected to show the economy has slowed. This has pushed the Pound down against other currencies, as the rate snapshot as at 08:30am below shows:

• GBP/EUR 1.1266
• GBP/USD 1.6335
• GBP/AUD 1.4942
• GBP/NZD 1.8736
• GBP/CAD 1.5398
• GBP/ZAR 10.941
• GBP/JPY 127.50
• GBP/DKK 8.3961
• GBP/NOK 8.7538
• EUR/USD 1.4494

UK GDP Figures today

UK growth figures published at 09:30am this morning are expected to show that the UK economy slowed between April and June. They may even show it contracted, some analysts forecast, after growth of 0.5% in the first quarter. This news has weakened Sterling, and exchange rates are down in anticipation of poor figures.

A weak figure from the Office for National Statistics will put pressure on the government to boost growth. The problem for the government is its plan for reducing the deficit relies on a certain amount of growth in the economy to increase the amount it raises through taxation and reduce the amount it spends on benefits.

However some organisations, including the International Monetary Fund (IMF), have supported the government's policy despite the lack of growth in the economy. The IMF said last month that the UK's high inflation and low growth had been unexpected but were largely temporary and that no changes to policy were yet needed.

Lacklustre growth or a contraction in the UK would add to expectations the Bank of England will keep interest rates on hold until late 2012 , and increase speculation policymakers may consider another round of quantitative easing, pumping more cash into the market to kickstart the economy. This would only weaken Sterling further.

Today's Data

Lot's of data from the UK today, including UK House Prices and UK GDP which if poor could push the Pound lower. Germany releases measures of Consumer Confidence and Retail Sales. From the USA we have Home Sales and Consumer Confidence.

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Weekly GBP/EUR & GBP/USD Forecast Outlook

In this week’s Report:

• EU bailout agreed, strengthening Euro
• US deficit and credit rating threat weaken USD
• Global Markets surge on the agreement
• 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;

The main news of last week was of course the details surrounding the European Sovereign debt crisis. Details of how Greece will restructure its massive debts emerged last week as euro zone leaders agreed a package they hope will help resolve the debt crisis. The share prices of banks seen as most exposed to distressed euro zone government debts rose by more than 5%, led by Lloyds, which ended the week almost 20% higher than on Monday.







The news also strengthened both the Euro and to some extent the pound (against other major currencies), as investors calmed about investing in riskier currencies. Against the Dollar, the Euro stayed near a 2 week high as news of the agreement broke. The latest Greek bail-out by the 17 euro zone governments and the International Monetary Fund is part of a comprehensive package to shore up the single currency unveiled on Thursday.

On the GBP/EUR cross rates were knocked down accordingly. Sterling has also strengthened on the news due to the UK's exposure to Greek debt, but despite the Pound gaining the Euro has become much stronger, and the net result is lower exchange rates to buy Euros.

With the uncertainty over the Euro zone seemingly over, markets will likely focus on fundamental data, and given the UK economy is in a poor state at the moment, we expect further falls for Sterling. It has only been the debt crisis keeping GBP/EUR rates high, and now this is resolved we could see further drops for the currency pair. If however this unified agreement shows any signs of cracking, perhaps if more peripheral EU nations require funding then the potential for a weakening of the Euro is a distinct possibility.

With such uncertainty in the markets it is essential to keep close tabs on your positions. To make the most of our commercial exchange rates, make an enquiry with us now for free.

Sterling vs. US Dollar;

Last week started with Sterling encountering losses of almost 1 cent against the Dollar following concerns about UK banks' exposure to the euro zone debt crisis. However, sterling rallied on Tuesday, helped by a rebound in equities market when banking stocks were hit by concerns Europe's bank stress tests were unrealistic.








Sterling is seen as especially vulnerable to renewed euro zone debt worries, particularly against the dollar due to concerns about UK banking sector health and given the UK's close trade links with Europe. "Sterling's outlook is still very closely linked to sentiment towards Europe. Ultimately the UK is so closely entwined with Europe that a crisis would certainly hit the UK". Lee Hardman, currency strategist at BTMU said.

This is likely to dominate the cross in the coming weeks despite the growing concerns in the US over the problems the growing deficit in the Federal budget as discussed in last week’s report. The most anticipated data release over the course week was the minutes of the Bank of England committee meeting which was held at the beginning of the month. With a 7-2 split in favour of keeping rates on hold at 0.5% there were no great surprises contained within the minutes and as a result virtually nothing happen with regards to the cross.

The problems with the US deficit in the Federal budget continue to rumble on following the threat from ‘Moody’s’ and ‘Standard and Poors to downgrade America from their AAA rating. This is unless a compromise between Obama’s camp and Congress can be made within the next 2 years to find a way to move forward and repair the damage.

Speculation continues however, that many in the Republican camp would prefer that a compromise in not reached and that the country is downgraded - in a political more to try and topple Obama’s government. Sterling finished the week up against the Dollar hanging on the shirt tails of the Euros performance following the conclusion of a draft report created at a Eurozone summit outlining a method to it would go about solving the region’s debt problems.

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Weekly Economic Data that may affect exchange rates

Below are the main releases for the week ahead. For a free consultation on how these releases 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 is quiet for data releases. Mortgage Approval data from the UK at 09:30am, Inflation figures from Australia and Trade balance figures from New Zealand are the only releases of note.

Tuesday – Much more to watch out for today, including UK House Prices and UK GDP which if poor could push the Pound lower. Germany releases measures of Consumer Confidence and Retail Sales. From the USA we have Home Sales and Consumer Confidence.

Wednesday – Onto Wednesday, and today we see Consumer Confidence figures from the UK. In the Eurozone we have inflation figures from Germany. In the USA we see Mortgage approvals, Durable Goods Orders and the Feds beige book which reports on the economic situation in the USA. We also have inflation figures from Australia today.

Thursday – A busy day for the EU today, with German Unemployment, EU Economic, Consumer and Industrial confidence measures. From the USA we have Jobless figures.

Friday – UK figures today are Consumer Credit, Mortgage Approvals and Money Supply. From the EU we see inflation data, and Canada and the USA both release GDP figures.

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Sterling & Euro strengthen on aid package, GBP/EUR down

Friday 22nd July 2011
Good morning. The conclusion from the EU summit yesterday has raised confidence they would solve their debt problems, and both Sterling and the Euro are higher as a result. Sterling has hit a 5 week high vs the US Dollar, but has fallen against the stronger Euro. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1301
• GBP/USD 1.6307
• GBP/AUD 1.5044
• GBP/NZD 1.8897
• GBP/CAD 1.5397
• GBP/ZAR 10.997
• GBP/JPY 128.27
• GBP/DKK 8.4211
• GBP/NOK 8.7812
• EUR/USD 1.4425

Eurozone Aid Package Agreed - Euro strengthens

Details of how Greece will restructure its massive debts have emerged as eurozone leaders agree a package they hope will help resolve the debt crisis. The share prices of banks seen as most exposed to distressed eurozone government debts rose by more than 5%, led by Barclays, which ended the day 7.8% higher. The news also strengthened both the Euro and the Pound, as investors are calmer about investing in riskier currencies.

Meanwhile, the euro stayed near a 2 week high against the dollar, reached as news of the agreement broke. The latest Greek bail-out by the 17 eurozone governments and the International Monetary Fund is part of a comprehensive package to shore up the single currency unveiled on Thursday. Eurozone leaders hailed the comprehensive agreement.

So what next for GBP/EUR exchange rates?

The Euro has pushed higher, knocking GBP/EUR rates down accordingly. Sterling has also strengthened on the news due to the UK's exposure to Greek debt, but despite the Pound gaining the Euro has become much stronger, and the net result is lower exchange rates to buy Euros.

With the uncertainty over the Eurozone now over, markets will likely focus on fundamental data, and given the UK economy is in a poor state at the moment, we expect further falls for Sterling. It has only been the debt crisis keeping GBP/EUR rates high, and now this is resolved we could see further drops for the currency pair.

Today's Data

From the Eurozone today we see Industrial orders, showing the health of this sector. We also have confidence measures from Germany, the largest economy in the EU. In Canada we have retail sales and inflation data.

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EU summit today to cause volatility for GBP/EUR

Thursday 21st July 2011
Good morning. Sterling has stabilised slightly after the BoE minutes yesterday. 2 members voted for an interest rate hike, but 7 voted to keep rates on hold. 1 member voted for further Quantitative Easing, less than had been thought and this gave the Pound some support. Today we have a crunch meeting of eurozone leaders to resolve the Greek debt crisis and prevent further contagion to other eurozone economies. We'll look at this after the usual 08:30am rate snapshot:

• GBP/EUR 1.1335
• GBP/USD 1.6169
• GBP/AUD 1.5070
• GBP/NZD 1.8863
• GBP/CAD 1.5286
• GBP/ZAR 11.070
• GBP/JPY 127.26
• GBP/DKK 8.4487
• GBP/NOK 8.8331
• EUR/USD 1.4259

Bank of England Minutes

There is a reduced chance of a rise in interest rates in the near term, given recent economic weakness, Bank of England policymakers have said. Minutes from its July meeting showed the Monetary Policy Committee voted seven to two in favour of holding rates at 0.5% for the second month in a row.

The fact only one member voted for further Quantitative Easing did give the Pound a slight boost, but the fact rates will be low for some time to come is likely to keep Sterling weak. Analysts said focus would now switch to what is expected to be sluggish preliminary UK growth data for the second quarter, due to be released next week. UK retail sales for June released on Thursday are forecast to rises at a modest 0.5 percent.

EU debt crisis, Summit to discuss solution

German Chancellor Angela Merkel and French President Nicolas Sarkozy have hammered out a common position on the euro debt crisis. A statement by the French president's office said agreement had been reached after seven hours of talks in Berlin.

It comes ahead of a crunch meeting of eurozone leaders to resolve the Greek debt crisis and prevent further contagion to other eurozone economies. Policymakers are set to discuss a range of measures at the meeting later on Thursday, including a new loan package to Greece and the role of private investors in any debt restructuring.

What effect will it have on exchange rates?

The meeting is at 1pm today, and it could cause significant volatiliy for GBP/EUR rates. If they agree a plan that calms the markets, we could see rates plummet. If they don't agree a plan and it leaves the EU in turmoil, the Euro could weaken and rates could go up.

We think they have to agree a plan, after the International Monetary Fund has also called on European leaders to take swift and decisive action. Delaying such action further would be "very costly" for the world economy, it said.

Today's Data

Today is busy for Fundamental data. Starting in the EU, we have various measures of inflation, which could support the cause for further interest rate hikes in the EU, which may strengthen the Euro. In the UK we have Retail sales and a measure of Public Sector borrowing. From the US we see various measures of unemployment. Of course the EU summit is the main event today, and we will be posting regular updates on this and exchange rates on twitter.

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Pound down vs Euro ahead of BoE minutes

Wednesday 20th July 2011
Good morning. Sterling rose against a weaker US Dollar yesterday, but fell against the Euro ahead of today's BoE minutes which could hurt the Pound further. Also buried in the news under the hacking scandal was the fact the IMF have warned on the global economy. Despite the BBC leaping onto the scandal with glee, giving it wall to wall coverage to the detriment of other news stories, markets took note of the IMF's warning. We'll look at all this in a moment after the usual rate snapshot as at 08:30am this morning:

• GBP/EUR 1.1345
• GBP/USD 1.6076
• GBP/AUD 1.4971
• GBP/NZD 1.8786
• GBP/CAD 1.5257
• GBP/ZAR 11.098
• GBP/JPY 126.80
• GBP/DKK 8.4573
• GBP/NOK 8.8700
• EUR/USD 1.4166

Sterling up against US Dollar

A recovery in equities yesterday helped Sterling rise against the US Dollar, as this created sovereign demand for the Pound. This was also helped by a rebound in UK banking stocks, however gains are still limited due to the UK's exposure to the EU debt crisis. Sterling is particularly vunerable against safe haven currencies like the USD and CHF, due to the concerns over the banking sector and our close links with the EU.

Pound down vs the Euro

Despite EU leaders struggling to reach an agreement on the debt crisis, the Pound fell against the Euro due to the interest rate differentials. The EU have raised interest rates twice this year to 1.5%, while in the UK our rates remain low at 0.5%. The better return on offer for Euros mean Sterling is struggling against the single currency, despite all the problems with EU debt.

BoE Minutes today - Sterling to fall against Euro?

Minutes of the Bank of England's July meeting are expected to add to the view that interest rates will stay chained at a record low 0.5%, and this could hurt the Pound today. Short-term interest rate markets do not price in another UK rate rise until late 2012 and concerns are growing that policymakers may edge towards considering further quantitative easing.

"At the moment there are few reasons to buy the pound apart from medium-term valuation concerns, and the many reasons to sell the pound still exist: low yield, the full effects of austerity yet to be felt and non-existent consumer activity," Commerzbank analysts said in a note.

If they mention further Quantitative Easing, expect Sterling to fall against other currencies. If however the minutes suggest that they are unwilling to pursue further QE, then we may see GBP/EUR rise back towards the €1.15 we saw recently.

Today's Data

Today we see the minutes to the recent BoE decision to hold interest rates. Any talk of Quantitative easing in the notes may cause Sterling to fall. Germany has some inflation numbers today, and the EU releases consumer confidence measures, which are unlikely to be good in light of the debt problems.

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Pound/Euro falls from 2 month high

Tuesday 19th July 2011
Good morning. Yesterday Sterling hit a near 2 month high vs the Euro nearly getting to €1.15, however the gains were short lived, as the Pound fell through the day on fears the UK economy is slow, debt is high, and the BoE minutes this week could also be negative. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1384
• GBP/USD 1.6114
• GBP/AUD 1.5104
• GBP/NZD 1.8992
• GBP/CAD 1.5395
• GBP/ZAR 11.193
• GBP/JPY 127.28
• GBP/DKK 8.4858
• GBP/NOK 8.9483
• EUR/USD 1.4155

Sterling vs Euro falls on UK economy fears

The EU sovereign debt crisis in the past week had significantly weakened the Euro, helping to push GBP/EUR rates to a near 2 month high. The Pound fell however yesterday, as figures paint a less than rosy picture of the UK economy, meaning interest rates will stay low for some time to come.

It's this weakness in Sterling that has caused rates to fall back away, and the gains have not been anything to do with strength in the Pound, rather weakness in the Euro.

"There are not so many fundamental reasons to buy sterling.. it has a low yield, low volatility that enables investors to hold onto short positions and the BoE won't be raising rates any time soon," said Peter Kinsella, currency strategist at Commerzbank.

"So investors are buying it basically as a reflection that it's not the euro."

The euro struggled in the aftermath of results from European bank stress tests last week which investors said were too lenient as they did not test the impact of a Greek sovereign default. However, analysts said sterling's gains against the euro may be limited due to concerns about the weakness of the UK economy and its high levels of debt.

"Sterling is a very cheap currency, but it can't bounce independently until the UK has weathered the economic and fiscal storms," said Kit Juckes, currency strategist at Societe Generale

Today's Data

Australia releases its minutes to the recent interest rate decision, the EU releases measures on economic sentiment and construction output, and the USA has some number showing Housing Starts and building permits. There is also an interest rate decision from Australia. Markets may also be positioning ahead of the BoE minutes tomorrow, which if dovish could cause a further drop in 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.

Weekly GBP/EUR & GBP/USD Outlook Forecast

In this week’s Report:

• EU bank stress tests weaken the Euro, pushing GBP/EUR rates to 1 month high
• Talk of US QE weakens USD, causing GBP/USD to rise
• Weak UK data keeps Sterling’s gains limited despite this
• 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;

At the beginning of the week the EU debt crisis seemed to have resurfaced with the Euro and European shares falling on concerns that the debt crisis in the Eurozone may spread to Italy and Spain. The concern is that Italy and Spain may have to follow Greece, Portugal and the Republic of Ireland and seek a European Union and International Monetary Fund (IMF) bail-out.












This news had significantly weakened the Euro, and GBP/EUR exchange rates had surged as a result. Just a week ago rates were in the €1.10's, and on Monday morning they were around €1.14. It's important to remember that Sterling is still fundamentally weak, and it's only the debt news from the EU that has caused the recovery.

Midweek data showed a sharp rise in the number of Britons claiming unemployment benefit, adding to concerns that stale growth prospects may prompt more Bank of England policymakers to call for additional quantitative easing and further scope to keep interest rates at record lows.

Toward the latter part of the week, sterling punched a one-month high against the euro ahead of European bank stress tests putting focus squarely on the euro zone banking industry. The results of Europe-wide stress tests on 90 banks could force some banks to seek further state aid. When the figures were released at 5pm on Friday, the Euro initially strengthened slightly as most major banks passed the test. Largely rates are unchanged however, as the results were widely expected and as such already priced into exchange rates.

Looking to the week ahead GBP/EUR could struggle to extend its current levels on a sustainable basis with the release of the BoE (Bank of England) minutes this week. This could signal a further shift in the balance of short-term risks. Markets expect the BoE to keep rates on hold until well into the second half of 2012. In contrast the European Central Bank has raised rates twice this year, leaving euro zone rates at 1.5 percent, three times that of the UK.

In summary, despite very poor UK data dragging Sterling down, GBP/EUR rates are the best they have been for a month due to the EU debt crisis. For those buying Euros, you may wish to consider locking in the current rate with a Forward contract, protecting you against a return to the levels of €1.10 we saw a week ago. Conversely if you are selling Euros, further developments from Europe could cause the Euro to weaken further, so the market is currently extremely volatile and could move either way.

The volatility of the market over the past week illustrates the importance of keeping in regular contact with your FCG Account Manager. It’s worth having a free consultation on the contract types we offer, to protect against adverse exchange rate movements and ensure your currency does not cost more than necessary.

Sterling vs. US Dollar;

Early London Trade kicking off last week resulted in Sterling losing over half a pre-cent against the US dollar, tracking losses in a broadly weak euro as concerns that Italy may be the next country to be affected by the euro zone debt crisis prompted investors to seek safety in the U.S. currency.
Sterling clambered back from a 5-month low versus the dollar in volatile trade on Tuesday but analysts suggest the outlook for the pound as weak after UK inflation unexpectedly eased, denting slim rate hike expectations.











U.S. Federal Reserve Chairman Ben Bernanke hinted at the possibility of more monetary policy easing if the economy weakens and inflation moves lower adding to the dollar’s decline midweek. The U.S. currency fell broadly in response, pushing the pound up more than 1 per-cent which took it more than 3 full cents above Tuesday's five month low. Gains for the pound are expected to be limited, with many not ruling out the prospect of further quantitative easing in the UK too.

The last two days of the week were perhaps the most volatile with Sterling near a three week high as investors stepped up sale of the U.S. dollar after Moody's and Standard & Poor's threatened to downgrade the United States' prized AAA credit rating unless the Obama administration and Congress find a way to slash the yawning federal budget deficit within two years.

Chairman Bernanke said that a Treasury default would be "a calamitous outcome. It would create a very severe financial shock that would have effects not only on the U.S. economy but the global economy." Whilst the market has always assumed the threat of default would force a compromise, concerns are growing that some Republicans actually want to see the government default.

With the continuing political wrangling in the US and uncertain global economic forecasts causing a sharp increase in market volatility, last week’s events presented ideal buying and selling opportunities and highlight the necessity to keep in close contact with your FCG account manager.

To discuss your options and make the most of your currency, contact us for a free consultation.

Weekly Economic Data that may affect exchange rates

Below are the main releases for the week ahead. For a free consultation on how these releases 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 is quite quiet data wise, with only some Housing data from the UK and USA.

Tuesday – Australia releases its minutes to the recent interest rate decision, the EU releases measures on economic sentiment and construction output, and the USA has some number showing Housing Starts and building permits. There is also an interest rate decision from Australia.

Wednesday – Today we see the minutes to the recent BoE decision to hold interest rates. Any talk of Quantitative easing in the notes may cause Sterling to fall. Germany has some inflation numbers today, and the EU releases consumer confidence measures, which are unlikely to be good in light of the debt problems.

Thursday – Today is busy for Fundamental data. Starting in the EU, we have various measures of inflation, which could support the cause for further interest rate hikes in the EU, which may strengthen the Euro. In the UK we have Retail sales and a measure of Public Sector borrowing. From the US we see various measures of unemployment.

Friday – From the Eurozone today we see Industrial orders, showing the health of this sector. We also have confidence measures from Germany, the largest economy in the EU. In Canada we have retail sales and inflation data.

If you need to buy or sell foreign currency, 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.

Sterling up vs USD and EUR despite weak data

Friday 15th July 2011
Good morning. Sterling has surprised many in the markets this week, recovering well against the Euro and US Dollar, despite weak data showing the economy is slow. We are at a 3 week high vs the US Dollar, and the debt problems in Europe means the Euro is cheaper to purchase also. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1423
• GBP/USD 1.6121
• GBP/AUD 1.5138
• GBP/NZD 1.9197
• GBP/CAD 1.5492
• GBP/ZAR 11.111
• GBP/JPY 127.63
• GBP/DKK 8.5161
• GBP/NOK 8.9720
• EUR/USD 1.4109

Sterling up against US Dollar and Euro

Sterling's bounce has primarily been on the back of a bearish outlook for the US Dollar and has had little do with any signs of improvement in the UK economy. In fact most analysts had expected the pound to fall further given all the poor data we have seen of late, however with the US Dollar weak, and the Euro facing problems due to debt issues, Sterling has benefited as analysts sought out the Pound as an alternative investment.

Data on Wednesday showed a sharp rise in the number of Britons claiming unemployment benefit, adding to concerns that stale growth prospects may prompt more Bank of England policymakers to call for additional policy easing. "The sceptre of more quantitative easing in the UK is hanging over the pound and is a big weakening effect," said Kathleen Brooks, research director at FOREX.com.

She added concerns about high debt levels, the hit to the economy from harsh austerity measures and UK exports failing to benefit significantly from a weak currency would keep sterling weak, particularly against currencies other than the dollar.

So despite these gains, most analysts are still saying Sterling may drop again due to all the negative economic data we are seeing. If you need to buy Euros you may wish to take advantage of the current rates with a Forward contract, which allows you to fix today's rates for up to 2 years in the future.

Today's Data

Most data is US based – inflation data and industrial production are the main releases of note. There are also trade balance figures from the EU. The most important event today though is the EU bank stress tests, which could cause weakness in the Euro.

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.

Sterling up vs US Dollar, still weak vs Euro

Thursday 14th July 2011
Good morning. Sterling has shot up against the weak US Dollar, after the Fed chairman said more monetary policy easing may be necessary. This has significantly weakened the USD, and rates have shot up from $1.58 a few days ago to $1.61. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1352
• GBP/USD 1.6135
• GBP/AUD 1.5017
• GBP/NZD 1.9064
• GBP/CAD 1.5474
• GBP/ZAR 11.017
• GBP/JPY 127.45
• GBP/DKK 8.4644
• GBP/NOK 8.8969
• EUR/USD 1.4207

Sterling gains against US Dollar

Sterling is a full 3 cents higher vs the US Dollar than the 5 month low we saw last week. Ben Bernanke's comments hinting at further Quantitative Easing has significantly weakened the US Dollar, helping GBP/USD rates recover well.

Pound still weak against Euro

However despite gains against the Dollar, Sterling was weaker against the euro after data showing a sharp rise in the number of Britons claiming unemployment benefit added to concerns a faltering UK economy will ensure a prolonged period of record low interest rates.

As I mentioned in yesterdays post, the Euro is at it's weakest in years due to all the debt problems in several EU countries, however gains in GBP/EUR are limited because of the state of the UK economy, and the fact the two economies are inexorably linked.

UK economic figures still poor

The UK claimant count saw its biggest jump in two years last month, taking the total to the highest since March 2010. This added to the growing view that the UK outlook is worsening, which has pushed back expectations for interest rates to rise until well into next year and raised the prospect of the Bank of England opting for more monetary easing.

The weaker growth outlook for the UK was highlighted last week by the UK's National Institute of Economic and Social Research, a leading think tank, which estimated economic growth slowed to just 0.1 percent in the second quarter of this year. For these reasons we expect Sterling to remain on the back foot, and further drops in exchange rates could well be likely.

Today's Data that may affect rates

No UK data of note. EU inflation figures combined with a report from the ECB though could still affect GBP/EUR rates. There is also a speech from the ECB president, so we will be watching this closely for any coded comments that signal future fiscal policy. From the USA we have retail sales, inflation data and jobless claims

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.

Pound vs Euro Forecast predictions July 2011

Wednesday 13th July 2011
Good morning. Sterling lost ground against all currencies yesterday, as inflation figures were much lower than expected, as were retail sales and trade balance figures. This shows the Pound is incredibly weak at the moment, despite the problems in the Eurozone. We'll look at this in a moment after the usual rate snapshot as at 08:30am:

• GBP/EUR 1.1360
• GBP/USD 1.5975
• GBP/AUD 1.4954
• GBP/NZD 1.9328
• GBP/CAD 1.5352
• GBP/ZAR 10.888
• GBP/JPY 126.72
• GBP/DKK 8.4705
• GBP/NOK 8.8642
• EUR/USD 1.4058

Sterling weakens on poor economic data

Inflation figures, Retail Sales, Trade Balance figures, Consumer Prices and House Prices - these are the data releases we had yesterday, and all of them were much worse than expected. This pushed Sterling lower against other currencies, and the spike vs the Euro was also short lived, with GBP/EUR losing over a point during trading yesterday.

The data goes to show that the UK economy is very fragile, and interest rates are unlikely to rise for at least a year, which will keep Sterling weak and limit any gains in exchange rates. Analysts said sterling would be pulled around by moves in the euro against the dollar and developments in the euro zone debt crisis.

So with all the problems in the EU, why aren't GBP/EUR rates higher?

There are significant problems in the Eurozone, with Italy and Spain having similar problems to Greece and Ireland. The debt crisis has weakened the Euro significantly. Many have been asking why this hasn't resulted in much higher GBP/EUR rates.

Firstly it's important to note that the Euro is at it's lowest vs the Swiss Franc and US Dollar in many years, however against Sterling it remains fairly strong. This is partly due to the fact interest rates are higher in the Eurozone, but also because the UK is a close trading partner, and of course part of the European Union, meaning we have also been involved in bailing out troubled countries.

Sterling is a risky currency, and so when there are times of economic uncertainty as there are now, investors move to safe haven currencies such as the US Dollar and Swiss Franc. This compounds Sterling's problems, and this is why rates remain low despite all the issues in the Eurozone.

So what should you do if you need to buy or sell Euros?

Will Pound EUro rates go up in July? Will GBP/EUR rates go down? The last few weeks have illustrated the swings we can see, with rates between €1.10 and €1.14 in the last week alone. The currencies are being pulled in different directions due to interest rates and EU debt problems.

We think rates will continue to fall, but there is so much uncertainty things could go either way. In times like these Stop Loss and Limit orders are very useful, as they allow you to aim for a higher rate but have a safety net should rates move the wrong way. To find out more about how these contracts work, send us an enquiry today.

Today's Data

Today we have EU Bank stress tests, which will determine how able they are to weather a financial storm. There are also EU Industrial production figures released today. From the UK we have various measures of unemployment. It’s also quite a busy day for US data, with Mortgage Approvals, Import prices and a budget statement all likely to affect cable.

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.

Sterling vs Euro rates surge on Italy debt fears

Tuesday 12th July 2011
Good morning. The EU debt crisis has resurfaced, this time with fears Italy will be the next country to be affected. The news has significantly weakened the Euro, causing GBP/EUR rates to surge. Against other currencies Sterling continued to fall. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1402
• GBP/USD 1.5833
• GBP/AUD 1.4996
• GBP/NZD 1.9472
• GBP/CAD 1.5420
• GBP/ZAR 10.918
• GBP/JPY 126.31
• GBP/DKK 8.5005
• GBP/NOK 8.8589
• EUR/USD 1.3889

Euro weakness due to Italy/Spain causes GBP/EUR to surge

The Euro and European shares have fallen on concerns that the debt crisis in the eurozone may spread to Italy and Spain. The concern is that Italy and Spain may have to follow Greece, Portugal and the Republic of Ireland and seek a European Union and International Monetary Fund (IMF) bail-out.

The news has significantly weakened the Euro, and GBP/EUR exchange rates have surged as a result. Just a week ago rates were in the €1.10's, and today we are around €1.14. It's important to remember that Sterling is still fundamentally weak, and it's only the debt news from the EU that has caused the recovery.

If you need to buy Euros in the next 6 months, bear in mind the Barclays Capital forecast still suggests rates will drop to around 1.06, so you may wish to contact us to discuss ways of locking in the current rate even if it's some time until you need your Euros.

Sterling falls against USD and other currencies

The Pound fell against the dollar on Monday, tracking losses in a broadly weak euro as concerns that Italy may be the next country to be affected by the euro zone debt crisis prompted investors to seek safety in the U.S. currency. This has strengthened the US Dollar, as investors get the jitters and move funds to the safe haven US Dollar, pushing GBP/USD rates into the $1.58's.

Today's data - lots that could affect Sterling

There are lots of UK releases today: Consumer Confidence, Retail Price Index, Goods Trade Balance, Overall Trade Balance, Consumer Prices and House Prices. So, clearly much here that will affect the Pound, depending if the numbers are above or below forecast. From the Eurozone we have German inflation figures and a meeting of EU finance ministers, in which the EU debt crisis will no doubt be discussed. Stateside we have FOMC minutes and Trade balance numbers.

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.

Weekly GBP/EUR & GBP/USD Forecast July 2011

Weekly Currency Report 11th July 2011

In this week’s Report:

• Sterling vs. US Dollar remains largely range-bound
• Sterling Euro bounces up due to US Dollar sell-off
• Forecast for GBP/EUR & GBP/USD
• 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;

We finally saw some respite for the Pound on Friday afternoon as rates moved back above 1.1250 for the first time this month.

The week started with some better than expected UK house price, service sector and manufacturing data but the positive readings did little to help Sterling as the ECB interest rate decision was looming on the horizon. It had widely been expected (and most likely already priced in to the market) that the ECB would raise interest rates by a quarter point to 1.5%, especially after Jean-Claude Trichet, the head of the European Central Bank, had used his codeword of “strong vigilance” with regards to inflation after last month’s announcement.

This time however, he stated that “there were still upside risks to inflation” which was similar to what he said after the last hike in April and suggests that the central bank were expecting to have to raise rates again later this year, and perhaps as early as August. However, there are still concerns within the markets about debt problems spreading to the peripheral economies, and also fears about how these economies would deal with further interest rate increases.

On the other hand the state of the UK economy isn’t exactly doing much to help the Pound. The NIESR estimate for GDP growth slowed sharply in the three months to June, dropping from 0.5% to 0.1% which only reinforced the view that the UK economy will remain weak for some time. If UK inflation data released Tuesday either slows or remains the same then it could add fuel to the Bank of England’s argument that inflation it will cool on its own and there is therefore no need to raise interest rates until growth is back on track.

This kind of reading could have longer term implications for Sterling, as we saw last week when banks started to suggest that it could be May 2012 before UK rates go up. This then led to Barclays Capital reducing their 3 month forecast for GBP-EUR to 1.05 on Wednesday of this week, while some investment institutions maintain that rates will settle back up around 1.15 later this year.

While a fall well below 1.10 is possible, the continuing problems the Eurozone is facing will continue to limit confidence in the Euro so the slightest change in one of the countries concerned could have quite an effect on the exchange rate. For a more detailed look into this week’s data releases from the UK and EU have a look below at our market data section.

Sterling vs. US Dollar;

US economic activity in the first six months of the year was hampered by rising commodity prices and supply chain disruptions following Japan’s devastating earthquake in March. Although more positives can be taken from the early part of the second half of the year, the US economy remains unquestionable volatile. Most notably, efforts to improve unemployment have been encouraging, as US companies increased hiring measures throughout the month of June however; job growth is not expected to be strong enough to make any large dents into the mounting levels of unemployment. The private sector will account for all the jobs created, as has been the trend over the last seven months, with layoffs at state and local governments continuing.

The debt ceiling crisis remains the biggest grey cloud over the United States. President Obama insisted that he would not sign a short-term extension on the U.S. debt ceiling but instead would work through the weekend on a more permanent deal to avoid a debt default. Trying to break a budget deadlock to enable a debt ceiling increase remains a stiff challenge for Obama and his Democrat colleagues ahead of the August 2 deadline - the US treasury has warned it will run out of money to pay all of the country’s bills if the debt ceiling is not increased by the cut off date. Although it is likely that a deal will be firmed up before the deadline, the constant negative press is likely to see the greenback struggle to continue to rally as a consequence.

Cable has weakened from $1.68 to $1.59 over the last quarter, and is widely expected to remain trading around these levels for at least the medium term, according to the median average of 60 banks and analysts polled by Reuters, who predict Sterling will be trading at around $1.61 during the next 6 months.

Weekly Economic Data that may affect exchange rates

Below are the main releases for the week ahead. For a free consultation on how these releases 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’s UK data comprises RICS House Price balance, and BRC Retail Sales. Both of these give an overall barometer of the UK economy and so can affect Sterling exchange rate. Other than that it’s a quiet day with no data of note from the US or EU.

Tuesday – There are lots of UK releases today: Consumer Confidence, Retail Price Index, Goods Trade Balance, Overall Trade Balance, Consumer Prices and House Prices. So, clearly much here that will affect the Pound, depending if the numbers are above or below forecast. From the Eurozone we have German inflation figures and a meeting of EU finance ministers, in which the EU debt crisis will no doubt be discussed. Stateside we have FOMC minutes and Trade balance numbers.

Wednesday – Today we have EU Bank stress tests, which will determine how able they are to weather a financial storm. There are also EU Industrial production figures released today. From the UK we have various measures of unemployment. It’s also quite a busy day for US data, with Mortgage Approvals, Import prices and a budget statement all likely to affect cable.

Thursday – No UK data of note. EU inflation figures combined with a report from the ECB though could still affect GBP/EUR rates. There is also a speech from the ECB president, so we will be watching this closely for any coded comments that signal future fiscal policy. From the USA we have retail sales, inflation data and jobless claims.

Friday – Onto Friday, and most data is US based – inflation data and industrial production are the main releases of note. There are also trade balance figures from the EU.

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.

Getting best exchange rates for Euros

Friday 8th July 2011
Good morning. As expected yesterday, the Bank of England left interest rates on hold, and the ECB raised rates to 1.5%. After the usual snapshot of rates we'll look at the effect of this on exchange rates.

• GBP/EUR 1.1142
• GBP/USD 1.5958
• GBP/AUD 1.4805
• GBP/NZD 1.9151
• GBP/CAD 1.5294
• GBP/ZAR 10.657
• GBP/JPY 129.73
• GBP/DKK 8.3105
• GBP/NOK 8.6163
• EUR/USD 1.4313

Bank of England

As widely expected, rates were left on hold at 0.5% yesterday, and analysts do not expect any rise until well into 2012. The BoE also decided to not pursue any further quantitative Easing, and due to this there were slight gains for Sterling. There were also slightly better manufacturing numbers yesterday, helping the pound gain slightly.

Any increase in rates were shot lived however, and the numbers did little to change overall market expectations that the Bank of England will leave interest rates at a record low 0.5% for some months to come.

Sentiment towards the pound was further dented by leading thinktank the National Institute of Economic and Social Research, which said British economic growth slowed to just 0.1 percent in the second quarter of this year. We expect further falls for Sterling in the coming weeks and months.

European Central Bank

In contrast, the European Central Bank raised rates by a quarter of a percentage point to 1.5% as expected, further widening the interest rate differential between the UK and the euro zone, a factor that will keep the pound subdued. As this was widely forecast, it was mostly priced into exchange rates already, and so initially after the decision there was no movement at all in rates.

In the press conference afterwards however, the president of the ECB made comments suggesting there would be further interest rate hikes to come in the Eurozone, and this strengthened the single currency slightly and pushed GBP/EUR rates down as we had expected would be the case.

Summary: Getting best exchange rates Buying Euros / Selling Euros

The interest rate differential between the UK and EU is increasing, and this is likely to keep Pound vs Euro rates low. Unless we start getting good economic figures from the UK signalling a faster recovery, there is not much to suggest Sterling will gain strength. Indeed the latest forecasts we read suggest GBP/EUR rates could fall to €1.06 / €1.07 in the coming months.

However, if there are further debt problems in the EU such as Portugal or Spain requiring financial assistance, this could weaken the Euro back off again. So it's very hard to know which way rates will move, as the relative economies are being pulled in different directions.

Despite the uncertainty, there are measures you can take to protect against lower rates while still holding for an increase. Contact us today for a free consultation on the contract types we offer, and how you can take control of your currency requirement and achieve the best 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.

Interest Rates and effect on exchange rates

Thursday 7th July 2011
Good morning. Today is the busiest and probably most important day of the week. Starting in the UK, we have various measures of manufacturing and industrial production, and also a GDP estimate. We will also see the BoE interest rate decision, but we expect no change in rates. Moving to the EU, we have an interest rate decision and we expect a rise from 1.25% to 1.50%. This could well strengthen the Euro and push GBP/EUR rates lower. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1169
• GBP/USD 1.5971
• GBP/AUD 1.4878
• GBP/NZD 1.9303
• GBP/CAD 1.5425
• GBP/ZAR 10.718
• GBP/JPY 129.21
• GBP/DKK 8.3274
• GBP/NOK 8.6467
• EUR/USD 1.4297

Interest Rates and effect on exchange rates

Today we have interest rate decisions in both the UK and EU. Starting in the UK, while we expect no change in rates, there has been recent speculation that the Bank of England may opt to restart its asset purchase programme (Quantitative Easing), which continued to keep the UK currency under selling pressure and weak. The decision in the UK comes at 12:00pm today.

In the EU at 12:45pm we have their interest rate decision. They are widely expected to raise interest rates today by 0.25% and signal more tightening ahead. It's hard to know how much of this is already priced into the market, but usually an interest rate hike strengthens a currency and makes it more expensive, so there is a good chance we could see GBP/EUR rates fall today.

What should you do if you need to buy or sell Euros?

You have various options:

Forward Contract; You can fix the rate now with a Forward contract, which locks in today's rates for up to 2 years, and you only have to lodge 10% of the total initially, with the remainder due when you need the currency. This option removes uncertainty and allows you to budget effectively, although if rates do go up you're stuck with the rate you've fixed.

Do Nothing; This high risk strategy means relying solely upon a spot contract and one won’t know the rate of exchange achievable until the actual point of buying the currency. The volatility and unpredictability of the currency markets makes this strategy high risk and speculative. The markets do move both ways, so it could result in a win (or lose) situation, however it does make budgeting for the future virtually impossible.

Use Currency Options; The two key tools are a Stop Loss order, which will protect you against adverse exchange rate movements and secure your currency if it falls below a pre-agreed level. The other is a Limit order, which is placed at the top end of the market to secure currency at a specific price that may not be currently available. This type of contract is particularly useful when the markets are moving in a positive direction for you.

Whatever you need to do, contact us today to discuss the different options so you can make an informed decision on when to buy. Don't simply leave it to chance and hope things will move your way, hope 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 exhange rates are up to 5% better than offered by banks. Take the first step to making the most of your currency now.

Will Sterling vs Euro rates go back up?

Wednesday 6th July 2011
Good morning. Sterling actually made some gains yesterday, pushed up by better than expected PMI data, however the recovery is still sluggish and so gains are limited. Portugal's credit rating has also been downgraded to 'junk' and the Euro has weakened slightly. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1129
• GBP/USD 1.6009
• GBP/AUD 1.4967
• GBP/NZD 1.9390
• GBP/CAD 1.5432
• GBP/ZAR 10.785
• GBP/JPY 129.43
• GBP/DKK 8.3001
• GBP/NOK 8.6188
• EUR/USD 1.4381

UK Services PMI pushes Pound higher

The UK service sector sustained "solid" growth in June as volumes of new business continued to rise, according to a closely-watched index. The purchasing managers' index (PMI) edged up to 53.9 in June from 53.8 in May. A reading above 50 indicates expansion, and the figures were much better than had been forecast. As a result Sterling rose slightly against other currencies.

Portugal credit rating downgraded

The credit ratings agency Moody's Investors Service has downgraded Portugal's debt to junk status. The agency said there was a growing risk the country would need a second bail-out before it was ready to borrow money from financial markets again. It said that the programme of economic measures announced last week was "the only way to reverse the course and restore confidence" in Portugal.

Discussions are under way about the possibility of banks that have lent money to Greece waiting longer to be repaid. The news weakened the Euro slightly making it cheaper to purchase, although it's important to remember that the gains in GBP/EUR have been very small as Portugal is a small economy.

Sterling vs Euro still expected to fall

Due to an expected interest rate hike in the EU tomorrow, the Euro is still much stronger than the pound and that's why exchange rates are still quite low, and expected to drop further.

Today's Data

Today we have EU Gross Domestic Product (GDP) figures. This could show growth in the EU, and so expect volatility for GBP/EUR 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.

Will Pound fall lower vs Euro? Forecast July 2011

Tuesday 5th July 2011
Good morning. The markets remained flat yesterday with markets closed in the USA for Independence day. Sterling remained near it's 15 month low vs the Euro still due to interest rate differentials. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1056
• GBP/USD 1.6010
• GBP/AUD 1.4965
• GBP/NZD 1.9311
• GBP/CAD 1.5395
• GBP/ZAR 10.758
• GBP/JPY 129.81
• GBP/DKK 8.2465
• GBP/NOK 8.5717
• EUR/USD 1.4476

Sterling remains low vs Euro on interest rate differentials

The pound hovered near the 15 month low hit against the euro last week as investors awaited Thursday's central bank meetings in the UK and the euro zone. A further monetary tightening by the European Central Bank is expected while UK interest rates are seen chained near record lows. Higher interest rates in the EU will mean a higher return for investors, and therefore the single currency will strengthen due to the demand, pushing GBP/EUR lower.

Sterling has suffered against a widely recovering euro after the passage of Greek austerity measures last week helped the debt-laden country to avoid a default for now, resulting in a hefty bounce in the single currency. At the same time, t he euro's recovery versus the dollar has dragged the pound higher versus the U.S. currency.

What do the analysts say?

"When you have the interest rate differentials between the euro and sterling becoming quite wide, and widening even further, that's going to put pressure on sterling to go lower," said Peter Kinsella, currency strategist at Commerzbank. So it seems likely Sterling could drop further against the Euro.

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 forecast, GBP/USD outlook, weekly data

As usual for a Monday, today we'll have a detailed weekly look at Sterling vs Euro forecast, Sterling vs US Dollar outlook, and the weekly data that may affect exchange rates:

In this week’s Report:

• Pound vs. Euro drops to 18 month low
• EU Interest Rates likely to go up this week
• Greek austerity plan agreed, affecting EUR and USD
• Round up of the week’s data that may affect rates

Sterling vs. Euro;

The GBP/EUR rate plummeted last week to the lowest since March 2010, falling against a basket of currencies as well as the Euro. Britain’s currency slid against the Euro in particular on predictions that a faltering economy will limit the policy makers’ scope to raise interest rates, as the European Central Bank lifts borrowing costs to curb inflation. A report on Thursday showed U.K. consumer confidence fell more than economists forecast in June while the Bank of England’s Credit Conditions Survey said mortgage demand is predicted to drop in the third quarter.











It was a dramatic week with market sentiment swinging from worries that Greece would go bankrupt to relief that it would get through the crisis, against a backdrop of violent protests and general strikes over austerity steps. The Greek parliament approved a detailed austerity plan on Thursday, paving the way for 12 billion euros of international aid.

“The market is bullish on risk and looking to buy euros,” said Paul Mackel, director of currency strategy at HSBC. “The Greek issues still linger, but there is a bit of calm now with the markets' focus on data.” Barclays Capital pushed back its forecast interest-rate hikes for the UK, saying the central bank will now most likely keep its main rate unchanged until May 2012.

The bank, which previously forecast a rate increase in November, said the change reflects weaker than previously expected economic growth and recent comments from central bank officials. This is in start contrast with the euro zone where even with weak manufacturing surveys, little changed regarding strong expectations that the European Central Bank would raise interest rates next week.

Sterling has fallen 9 percent in the past 12 months, making it the second-worst performer among 10 developed-market currencies after the U.S. Dollar, according to Bloomberg Correlation-Weighted Currency Indexes.

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Sterling vs. US Dollar;

It looks like the US market holiday for Independence Day today will mean a continuation of the relatively flat trading range for Cable that we saw over the last week; the pair hit a low on Tuesday of 1.5923 with a high Thursday of 1.6117.











Media & market attention was mainly focussed on the continuing debt problems in Greece and whether or not the austerity measures would be passed by the Greek parliament. Both the US & UK economies are struggling so both currencies are weak on paper, but how the EU handles the spiralling debt issues within its smaller nations will help to determine how the GBP/USD exchange rate moves.

The US Dollar is the world’s safe haven currency (for now) and as the global financial problems persist, risk-averse investors will continue to plough money into the Greenback, keeping the Dollar strong. If we get to a point where the crisis starts to ease then we should see a return of risk appetite whereby investors will start to put money into perceived risky assets (of which the Pound is one), taking them away from the Dollar and that should start to push the rate back up again.

There were still some data releases last week and we have seen confirmation that UK mortgage activity and consumer spending is still well below levels seen before the credit crunch took effect. With credit conditions this subdued, it continues to highlight the struggle the UK economy is facing and further strengthens the Bank of England’s argument for keeping UK interest rates at their current low of 0.5%.

Barclays Research is among a number of investment institutions forecasting that they will remain this low until 2nd quarter 2012. Without an interest rate hike there isn’t much on the horizon that looks like it will give the Pound a much needed boost, but we have to remember that the US is in the same boat, and some ratings agencies are starting to warn about the risk of the world’s largest economy defaulting on its debts. Unless the government can push through a $2.5 trillion increase in the debt ceiling, the Dollar could be in for a very rough time.

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Weekly Economic Data that may affect exchange rates

The week starts very quietly, but Thursday and Friday both have key releases that could upset the currency markets. Below are the main releases for the week ahead. For a free consultation on how these releases 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 – Very little data today due to US Markets being closed for Independence Day. In fact the only real data of note is an investor confidence release from the EU.

Tuesday – Again, a very quiet day for fundamental data. We have an interest rate decision for Australia, and factory order data from the USA. From the EU we have Retail Sales and Services PMI.

Wednesday – Today we have EU Gross Domestic Product (GDP) figures. This could show growth in the EU, and so expect volatility for GBP/EUR rates.

Thursday – The busiest and probably most important day of the week. Starting in the UK, we have various measures of manufacturing and industrial production, and also a GDP estimate. We will also see the BoE interest rate decision, but we expect no change in rates. Moving to the EU, we have an interest rate decision and we expect a rise from 1.25% to 1.50%. This could well strengthen the Euro and push GBP/EUR rates lower. We also have various measures of unemployment from the US, indicating how their economy is performing.
Friday – Again pretty busy today, with UK inflation data (PPI) and German trade balance figures. Germany now has the lowest unemployment since reunification and so further good data from Europe’s largest economy could strengthen the single currency. From the US we have Non Farm payrolls. This shows how many people are employed outside the agricultural sector (as it’s seasonal) and the numbers are very hard to predict. As such, the actual result can differ to forecasts and often causes big swings for GBP/USD and GBP/EUR.

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