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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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.

Sterling falls on BoE members comments

Wednesday 22nd June 2011
Good morning. Sterling fell against the Euro and US Dollar yesterday, after one of the Bank of England policy makers said there may have to be more Quantitative Easing in the UK, due to poor Pubic finance data and a fragile economic recovery. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1263


• GBP/USD 1.6229


• GBP/AUD 1.5295


• GBP/NZD 1.9929


• GBP/CAD 1.5760


• GBP/CHF 1.3647


• GBP/ZAR 10.868


• GBP/JPY 130.11


• GBP/HUF 300.21


• GBP/DKK 8.4002


• EUR/USD 1.4405

Sterling falls on Paul Fishers comments

Yesterday ths policy maker at the Bank of England painted a very gloomy picture of the UK economy, saying the economic recovery remains fragile and more monetary stimulus may be required in the UK. His comments caused investors to sell the Pound and as a result Sterling took a sharp fall against other currencies.

Investors are now not expecting a UK interest rate hike until next year, while the Eurozone is likely to raise their interest rates in July this year. This means the better return on offer in the EU will cause investors to move from Sterling to the Euro, and this will likely continue to push GBP/EUR rates downwards.

So what's going wrong with the UK economy?

Data yesterday showed that the UK has run up a record budget deficit in the last few months, and slowing economic growth is posing a challenge to the government that want to slash borrowing. Also factory orders are down, consumers have turned very cautious and manufacturing and services sectors have both disappointed in recent months.

Analysts say that the downside risks to growth far outweigh the risk of rising inflation, and it's because of this that interest rates are unlikely to move any time soon. Today we will see the minutes to the recent Bank of England vote on interest rates, and it will be interesting to see how the 9 member committee voted.

Greek government wins vote of confidence

The euro weakened very slightly yesterday after the Greek government won a vote of confidence as expected, but further losses may be limited as the market's focus turns to the Federal Reserve and its comments on the slowing U.S. economy.

The Greek government now faces a more arduous task of passing an austerity plan in order to secure a new bailout from the European Union and IMF. This is next Tuesday, and we expect volatility for the Euro.

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Pound vs Euro/Pound vs US Dollar weekly forecast

Monday 20th June 2011

• Poor UK data puts Sterling on back foot
• Greek debt weakens the Euro
• US Dollar strengthens on safe haven status
• 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 began with a bank holiday for Europe’s strongest economies France and Germany whilst Sterling hit its strongest levels in more than a week against the euro, helped by euro zone debt concerns. Sterling pared brief gains made against the euro on Tuesday after UK inflation data came in as forecast, giving investors little reason to believe the Bank of England will raise interest rates any time soon.

Wednesday saw mixed fortunes for Sterling. A fall after UK employment data showed the number of Britons claiming unemployment benefits rose sharply at their fastest pace in two years, then a rise as credit agency Moody’s said it would review the credit ratings of BNP Paribas, France's biggest bank, and its peers Societe Generale and Credit Agricole, focusing on their holdings of Greek public and private debt.

Greece continued to dominate headlines with violent protests, debt and bailout concerns and also received credit for causing a rift between France and Germany. Sterling was subdued on Thursday as a loss of risk appetite swept the financial markets however Friday saw the euro gain and recoup its losses after French President Nicolas Sarkozy said a “breakthrough” had been made on the Greek debt crisis, following a meeting with German Chancellor Angela Merkel.
The past week has seen Sterling's short term, upside prospects hurt by Bank of England Governor Mervyn King, who reiterated the case for ultra-low interest rates despite stubbornly high inflation. Sweeping cuts from the British government to try and put the UK finances on a firmer footing are also expected to dampen economic growth in coming months, lessening the need for monetary tightening and Sentiment towards sterling take a knock, as weak UK economic data added concern about a faltering UK economy.

Despite the doom and gloom, a ray of light could come from the Aid package for Greece which is dependent on the Greek parliament passing additional austerity measures. The past weeks volatility highlights the necessity of being prepared to act quickly and staying in close contact with your FCG account manager if you are exposed to the Foreign Exchange markets. If you have not done so already fill in this form to make a free enquiry now.

Sterling vs. US Dollar;

Another disappointing week for the UK saw Sterling dip down to a three week low against the Dollar last Thursday. The main pressure on the Pound is the ongoing expectation that base rates will not be hiked by the Bank of England until 2012.

This week’s data that reinforced this expectation was a downturn in UK retail sales which demonstrated an acute dip in British consumer confidence. Indeed the figures for May which showed a 1.4% decline struck a more than usually heavy blow as the pre data release rumours were for a slight upturn in retail sales. The ONS warned that UK spending trends have changed both year on year and month on month with even some of the usually heavy hitting major retailers of the UK high street suffering from lower sales.

Sterling appears particularly vulnerable to these changes and any further dips in confidence in the current socio-economic climate could see Sterling drop further against the Dollar. Indeed the back drop of the European sovereign debt crisis that is centred on Greece is triggering a pull out of riskier assets in favour of safe haven options. As we saw in the peak of the downturn the US dollar is always viewed as a global safe haven and may continue to hold its strength if no meaningful resolution is made in Europe.

It is not however one way traffic for Cable, as the graph above shows the currency climate is throwing up significant market volatility. There are still very real concerns about the US economic recovery, and of course whenever a short sharp dip is seen there is always a possibility of a quick correction: "With solid support around the $1.6000 area and the swiftness of the move from $1.6400 over the past two days the potential for a short squeeze remains quite high," CMC analysts said in a note.

In the back drop of such sharp movements it may well be a prudent move to discuss Limit Orders and Stop Losses with us, as they allow you set parameters that you choose in the market to potentially target the price you want to buy or sell at and allow you the protection of a guaranteed worst case scenario. To find out more about these tools contact us now.

Weekly Economic Data that may affect exchange rates

Monday 20th June 2011
UK House prices are released today, giving an indication on the health of the UK housing market. Also from the UK today is an inflation report. We also have EU investment flow figures, which could weigh on the Euro given the debt problems that are affecting some EU member states.

Tuesday 21st June 2011
Today we have the German ZEW index which is a measure of economic sentiment. Given Germany is by far the largest economy in the EU, this often has a big impact on GBP/EUR rates. From the UK we see Public sector borrowing figures and Industrial Orders. From the USA Existing Homes sales will give an indication on the health of the US housing market.

Wednesday 22nd June 2011
Today we will be privy to the Bank of England MPC minutes from their recent decision to hold interest rates. It shows how the 9 member committee voted and can affect Sterling if there are any surprises. Some consumer confidence measures from the Eurozone could affect the value of the single currency. Stateside we have a statement from the FED and a press conference shortly afterwards, both of which could affect GBP/USD rates.

Thursday 23rd June 2011
On to Thursday, and the main UK data is mortgage approvals and a BoE report on financial stability. Rom the Eurozone we have a raft of inflation figures that if high could support the case for a July interest rate hike, which could push GBP/EUR lower. Unemployment data is the main news from the States

Friday 24th June 2011
There is no UK data of note today. The main data are EU Retail sales and German confidence measures. Rom the US we have release regards GDP and durable goods orders.

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