Why has Pound fallen against Euro August 2011

Wednesday 10th August 2011

Good morning. Sterling has fallen quite a bit in the last 24 hours, pushed down ahead of today's Bank of England (BoE) inflation report, that may well present a poor assessment of the UK economy. At 08:30am this morning rates are as follows:



• GBP/EUR 1.1312

• GBP/USD 1.6254

• GBP/AUD 1.5691

• GBP/NZD 1.9465

• GBP/CAD 1.5964

• GBP/ZAR 11.579

• GBP/JPY 124.76

• GBP/DKK 8.4263

• GBP/NOK 8.8614

• EUR/USD 1.4366



Sterling down vs Euro and US Dollar



So why has the Pound fallen against the Euro August 2011? It's mostly due to today's BoE inflation report, that is expected to issue a poor assessment of the economy today. This follows data earlier in the week that showed a surprise fall in manufacturing output. This reminded investors of the fragility of the economy as it faces new challenges from global financial turmoil and also the widespread riots in London and other cities.



Today's BoE report will show it's latest growth and inflation forecasts today. Markets will be looking for clues to more Quantitative Easing, and it's this expectation that has hurt the Pound and dragged it down from highs against the Euro seen earlier in the week.



Just a few days ago markets were talking about Sterling being a new safe haven currency, however analysts now realise Sterling's gains are mostly due to the fact it's the best of a bad bunch. With issues in the USA and the EU regards debt, the Pound had gained as other currencies lost out.



However, according to Reuters, in the coming weeks sterling could be "well-placed" for more gains given the concerns about debt problems in the United States and its credit ratings downgrade, as well as the debt crisis in the euro zone. Meanwhile rioting and looting across London and in other cities this week also darkened the outlook for sterling as it pointed towards spreading social unrest.



Today's Data



German inflation figures will be closely watched today, for any hint of a further EU interest rate hike. In the UK we see a confidence report, and there is a Bank of England inflation report, along with a speech by BoE governor Mervyn King. Watch for any comments regards further fiscal stimulus (Quantitative Easing) that may weaken the Pound further.



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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 rises after BoE Inflation report

11th November 2010
Good morning. Sterling rose again against the euro yesterday, extending gains from the previous day after the Bank of England's inflation report made a move towards quantitative easing in the near term unlikely. Rates have recovered well in recent weeks, and at 08:30am this morning things stand as follows:

• GBP/EUR 1.1726
• GBP/USD 1.6133
• GBP/AUD 1.6085
• GBP/NZD 2.0542
• GBP/CAD 1.6131
• GBP/CHF 1.5636
• GBP/ZAR 11.062
• GBP/JPY 132.76
• GBP/NOK 9.4729
• GBP/HUF 321.01
• EUR/USD 1.3754

Bank of England Inflation Report

Yesterday we had the Bank of England Inflation report. They said that inflation is likely to fall back to it's 2% target, and this means there is much less chance of Quantitative Easing. As a result Sterling rose throughout the day against most other currencies.

The report itself though wasn't all positive. Governor Mervyn King said the recovery was likely to continue, but its strength depended heavily on developments in the world economy. Adding to the uncertainty are government cuts which could trigger a slowdown in construction, Mr King said, which has been a key driver in recent faster-than-expected economic growth.

Commenting on the report, the Institute of Directors agreed the economic outlook was currently almost impossible to read. "Uncertainty is written all over this report, and rightly so," said chief economist Graeme Leach. "There are so many competing forces towards sustained recovery or recession, the economic models are overwhelmed."

Summary

For the moment, there looks like no further Quantitative Easing for the remainder of this year. This has strengthened Sterling and rates are the best for some time.

It's to do with the run of better data we have had of late;House prices rose, manufacturing output increased and the economy grew by 0.8%; double analyst’s forecasts. In addition, the Bank of England (BoE) decided to hold off another round of Quantitative Easing and have been quite bullish with their latest inflation report. The resulting strength means the best exchange rates to buy Euros in nearly 2 months, and the best US Dollar rate for 9 months.

Any bad news for the UK will tip the scales the other way and it wouldn't take much to reverse the recent upward trend.

Today's Data

US Markets are closed for Veterans Day and the only release of note is a report from the European Central bank. If this is positive, expect GBP/EUR to fall. If it's negative, we could see some further gains.

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BoE Inflation report may affect Sterling

10th November 2010
Good morning. Yesterday we hit 6 week highs vs the Euro, and 9 month highs vs the US Dollar. As we predicted in yesterdays report, the gains were short lived and Sterling fell back ahead of today's Bank of England report. Rates this morning at 08:30am are as follows:

• GBP/EUR 1.1578
• GBP/USD 1.5994
• GBP/AUD 1.5896
• GBP/NZD 2.0464
• GBP/CAD 1.6036
• GBP/CHF 1.5521
• GBP/HUF 316.10
• GBP/ZAR 10.942
• GBP/JPY 130.55
• EUR/USD 1.3723

Bank of England Inflation Report

Better UK data has been supporting sterling of late, which is the reason rates have risen over the last few weeks. Today though we have the Bank of England inflation report which could change things.

The quarterly report publishes a report of the detailed economic analysis and inflation projections on which the Bank's Monetary Policy Committee bases its interest rate decisions, and presents an assessment of the prospects for UK inflation over the following two years. It can give clues as to Interest rate movements and the chance of further Quantitative Easing.

There is a risk that the Bank of England Governor, Mervyn King, could adopt a dovish bias today which would take the wind out of sterling's sails. King's news conference just after the report should give some clue to how seriously policymakers considered following the Fed's lead and expanding the BoE's quantitative easing programme.

So, if the BoE are dovish and try to talk Sterling down, then expect the pound to fall from it's recent highs.

Today's other data

Other than the BoE Inflation report detailed above, today is US Focused. We have releases outlining Import Prices and Jobless Claims. The USD is very weak at the moment creating the best buying levels for 9 months. If the above data is good, then expect a reverse of this trend and rates to fall back below $1.60.

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