Pound vs Euro will the rate go up?

15th June 2011
Good morning. UK inflation figures yesterday offered little reason to believe the Bank of England will raise interest rates any time soon, and as a result Sterling fell slightly and struggled vs other currencies. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1385


• GBP/USD 1.6351


• GBP/AUD 1.5286


• GBP/NZD 2.0066


• GBP/CAD 1.5814


• GBP/ZAR 11.074


• GBP/JPY 131.78


• GBP/DKK 8.4933


• GBP/NOK 8.8843


• EUR/USD 1.4355

UK Inflation / Interest Rates

Inflation rose to 4.5% yesterday, in line with analysts expectations. Despite this being well above the governments target of 2%, it's unlikely the Bank of England will raise interest rates to combat this due to the effect it would have on the economic recovery.

The BoE has repeatedly warned that inflation could get as high as 5% before retreating, and the fact interest rates will stay low despite this is keeping the Pound weak.

With other central banks such as the EU expected to raise interest rates several times this year, the differential is likely to keep GBP/EUR rates low.

Sterling has risen slightly this morning however, as investors look to buy Sterling before the Retail Sales figures today. Also the EU finance meeting is casting doubt on the ability of Greece to repay it's debts, and this has weakened the Euro slightly.

What do the analysts say?

"I wouldn't want to buy sterling after the data," said Chris Walker, currency strategist at UBS. It doesn't change expectations that rates will stay low for the next six months, at least."

Other analysts said stubborn inflation was harmful to the broader economy, which has suffered as the UK grapples with strict fiscal austerity measures, and many see downward risks to the pound.

"High UK inflation remains a risk to growth, both via a squeeze on real consumers incomes and by limiting the BoE's ability to ease policy further in response to the fiscal drag from spending cuts in the next year," BBH analysts said.

Summary

Quite simply, it's expected Sterling will remain weak against other currencies for some time to come. Today we have some jobs data from the UK that could hurt the Pound even more, and Retail Sales figures tomorrow will also be closely watched.

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Pound vs Euro & Pound vs US Dollar forecast 2011

Sterling vs Euro; Pound steadies against after 7 week low



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



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



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



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



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



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



Pound vs US Dollar



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



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



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



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



Weekly Economic Data that may affect exchange rates



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



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



Tuesday

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



Wednesday

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



Thursday

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



Friday

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



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

Pound vs EUR, Pounds vs US Dollar, Fundamental Data,

Sterling gains as debt concerns weigh on the Euro; Pound vs Euro Forecast

We have seen a pretty volatile week for the Sterling - Euro exchange rate with the cross starting Monday morning at 1.1551 and reaching a high on Thursday afternoon of 1.1825; which for those buying euros makes a difference of over £2,000 on a €100,000 purchase. Make sure you keep in touch with your account manager at Foremost to ensure you are getting the best exchange rates.

Weaker than expected manufacturing & industrial data from both the UK and Eurozone earlier in the week meant that the rate remained pretty stable but on Wednesday the Bank of Englands monthly inflation report helped the Pound to recover some of the ground it has lost over the last couple of months. When delivering the report, Govenor Mervyn King, said that the outlook for the UK economy remains uncertain and inflation will be higher than expected until at least the end of 2011, giving Sterling bulls some optimism about a possible interest rate hike next year. He also stated that “the government's "substantial" austerity measures and deep cuts should not send the UK into a double-dip recession”.

Thursday & Friday saw further Sterling gains against the Euro as sovereign debt concerns in the Eurozone increased, and figures showed growth rates have slowed in some of Europe’s largest economies.

This week could give some real insight into how the GBP/EUR pair may fair over the coming months with some key data releases from both the UK & EU including inflation figures, unemployment numbers and house price data.

The big one however will be the Bank of England minutes from their November meeting. If the voting shows that only one of the MPC members is still voting for more Quantitative Easing then it could allay fears over the central bank announcing more austerity measures (which would weaken Sterling) and help to force the rate up, but more than one vote for QE could send it spiraling down.

There will almost certainly be more news about the state of affairs in Ireland, Greece and other poorer fairing Eurozone economies too, so without sitting on the fence it really could still go either way.

Sterling Forecast Gains pace after disappointing G20 summit; GBP/USD Outlook

Sterling rallied against the Dollar toward the end of last week after losses earlier in the week. After last week’s announcement that the Federal Reserve are engaging in a stimulus $600M quantitative easing the Pound benefited after the UK announced that it wasn’t going to follow suit. GBP/USD Exchange Rates reached almost a 12 month high at an Interbank level of almost 1.625.

In what was a relatively quiet week for the Greenback with a US market holiday, the main focus of the week for the US was the G20 summit in Seoul. The Financial leaders of the world met with the purpose of discussing and agreeing on how to put the world economy on a sounder footing after the recent financial crisis.

With the world’s media watching, US President Barack Obama lead the meetings as the group hoped to use the two-day summit to recapture unity forged in the depths of the crisis two years ago in order to sooth exchange rate tensions generated by imbalances between cash-rich exporting nations and debt-burdened importers.

However, rather than being a resounding success, the meeting proved to be rather a non-event with more squabbling over closing statements than genuine forged agreements. Even worse for the US, they were effectively accused of double standards by the Chinese regarding their recent announcement for Quantitative easing. The Chinese have been under pressure by many nations including the US for keeping the value of their currency low and therefore giving their export market a huge advantage over the rest of the world. Former Fed Chairman Alan Greenspan aggravated the situation, saying the U.S. central bank's policy was deliberately weakening the dollar.

U.S. Treasury Secretary Timothy Geithner immediately replied back "The U.S. will never do that," .... "We will never seek to weaken our currency as a tool to gain competitive advantage or to grow the economy." Yu Jianhua, an official with China's Ministry of Commerce, said Beijing had no intention to confront the United States over currencies or trade issues. But, Yu added, Washington "should not politicise the Yuan issue, should not blame others for its domestic problems and should not force others to take medicine for its own disease."

With the Dollar on the back foot and in its most vulnerable position for some time, those with a Dollar requirement could see a window of opportunity over the forthcoming days and should remain in close contact with their FCG Account Manager. It is uncertain whether the potential Sterling gains (if any) are sustainable as despite the recent vulnerability of the USD it is still widely acknowledged as a safe haven currency. The use of Stops and Limits could prove invaluable during this period as it could protect you should the Pound slide whilst at the same time maximising your currency position by targeting specific rates of exchange.


Better Economic Data helped Sterling last week, what’s on the agenda this week?

Monday
There is no data of note for the UK Europe releases its Trade Balance figures at 10:00am. This is a balance between exports and imports of total goods and services. A positive value shows trade surplus, while a negative value shows trade deficit. Markets expect a large deficit of €-1.4bn. If figures are better however, expect GBP/EUR rate to fall. From the US we have Retail Sales showing how confident consumers are about the economic recovery.

Tuesday
RBA Minutes as discussed in our Aussie Dollar report. From the UK we have inflation data, which will be watched with interest following the bullish forecast from the BoE last week. There are also inflation measures for the US and EU today, so it could be a volatile day for exchange rates.

Wednesday
A key day for Sterling; in addition to various measures of unemployment, we have the minutes to the recent Bank of England meeting. It will show who wanted more Quantitative easing, and will show if there was a consensus on the decision to hold off more stimulus. If the report shows indecision it could weaken the pound and push rates lower.

Thursday
Retail Sales is the only data of note from the UK today. From the US there are some unemployment figures at 13:30pm.

Friday
A very quiet day for data releases. Some inflation data from Germany is the only release of note.
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