Sterling falls again on Poor UK data/Optimism on Greece

Friday 27th January 2012
Good morning. Sterling dropped yesterday to a 4 week low against the Euro on poor UK Retail Data, and hopes of progress in Greek debt talks bolstering the single currency. Against the US Dollar however, Sterling hit a 5 week high after a host of Economic data including Unemployment was much worse than expected, weakening the USD and making it cheaper to purchase. It's these points I'll cover today after the usual snapshot of yesterdays movements:

~Currency Movements on Thursday 26th January~











UK Data disappoints, weakening the Pound

Yesterdays UK data was the CBI Distributive Trades Survey, which is released by the Confederation of British Industry. It's an indicator of short-term trends in the UK retail and wholesale distribution sector, and can have an impact on the formulation of economic policy at the Bank of England and within Government.

The forecast was for a 12% gain, however the actual figure was a 22% decline. The poor result reversed the gains made on Wednesday, and pushed GBP/EUR rates to a one month low.

Also Reports that private holders of Greek debt would accept a lower coupon on new bonds, and a successful short-term debt auction in Italy, encouraged investors to cut hefty short positions in the euro. In plain English, this means there is now more hope of progress with regards to Greek debt, and as a result the Euro gained some strength, becoming more expensive to purchase and compounding the drop in Pound/Euro rates.

Sterling climbs to 5 week high vs US Dollar

As has been the case for some time, GBP/USD rates have been trading inversely, as the debt crisis drives flows of investment into and out of the US Dollar. So as a result of the better outlook in the EU, the Dollar has weakened off slightly.

Of more importance was yesterdays economic data from the states. There were various measures of Jobless Claims and Homes Sales from the USA yesterday, and all of them were worse than forecast. This also weakened the US Dollar slightly. In the last week GBP/USD had hit an 18 month low, so the spike to the upside should please anybody that needs to buy Dollars.

Today's Data

We end the week with Consumer Confidence figures for the UK, Money Supply data from the Eurozone, and the USA releases its latest GDP figures in addition to a measure of Consumer Sentiment.

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UK GDP poor, QE in Feb, Pound rises - why?

Thursday 26th January 2012
Good morning. Yesterday GDP figures showed the economy contracted by 0.2% in the last quarter, and in the run up to the release Sterling fell across the board. The minutes to the BoE meeting to discuss QE however revealed all 9 members voted not to increase it, and this then lent some support to the Pound. Concerns about the European Central Bank having to write down its Greek bond holdings as part of a deal to avoid a disorderly default also weighed on the single currency, pushing GBP/EUR rates up.

Today we will look at the GDP and BoE release, analyse why it pushed the Pound up, and take a look at how QE in February may affect Sterling exchange rates. Below you can see the drop in the run up to the data release at 09:30am, and then the recovery after the BoE Minutes:

~Currency Movements on Tuesday 24th January~











UK GDP shows we're headed to recession

UK economic activity shrank by 0.2% in the last three months of last year according to official figures released yesterday, in the form of GDP. The figures, from the Office for National Statistics (ONS), are a preliminary estimate, which could be revised either up or down by 0.2%. The quarterly fall in GDP is the first since the last three months of 2010, when freezing weather was blamed for a 0.5% drop.

The new figure was worse than had been feared, as most economists had pencilled in a 0.1% fall in activity. It also indicates the UK could head back to recession, defined by 2 consecutive quarters of negative growth.

In the run up to the figures, the Pound dropped significantly, as the market was braced for a possible worse figure. When the actual figure was released, it was only 0.1% worse than forecast, and so the effect on exchange rates was limited. In fact Sterling actually rose against the Euro, but this was due to the BoE minutes, which I'll cover in the next paragraph.

Bank of England minutes cause Pound to rise, despite more QE on horizon

Bank of England minutes released yesterday morning showed members voted unanimously to keep total asset purchases at 275 billion pounds. However, the minutes also said a further expansion of asset purchasing was "likely" to be required. The fact that no BoE policymakers voted for an increase in QE this month is what caused the Pound to rise after the release.

Many clients were surprised the GBP/EUR rate rose despite worse GDP, but it's because nobody voted for QE, signalling it's not quite the certainty that it was. Analysts still think it will happen in February however, and as this has already been widely predicted, the Pound actually gathered a little support.

"If they are saying "likely" in the minutes that pretty much means definitely. That's a pretty strong word from the MPC who would normally sit on the fence," said Lee McDarby, head of corporate dealing at Investec Bank PLC.

Although the last round of QE in October did not weigh significantly on sterling, traders said the need for further economic stimulus added to a shaky outlook for the pound.

Concerns about the European Central Bank having to write down its Greek bond holdings as part of a deal to avoid a disorderly default also weighed on the single currency, pushing GBP/EUR rates up.

Today's Data

Today Germany releases its latest consumer confidence measures. In the USA there is a host of data including Jobless Claims & New Home Sales. New Zealand releases Trade Balance figures in the evening.

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UK GDP and BoE minutes effect on Sterling

Wednesday 25th January 2011
Good morning. The Pound briefly hit a 4 week low vs the Euro yesterday, before recovering to around €1.20. Sterling also rose against the US Dollar, despite many in the markets predicting today could well generate weakness for the Pound. At 09:30 am today we will see the latest GDP figures, and the minutes to the most recent Bank of England (BoE) minutes - both of which could cause significant volatility for Sterling. We'll focus on this today, after the usual snapshot of yesterdays movements:

~Currency Movements on Tuesday 24th January~











BoE Minutes and GDP - Important day for the Pound

Today at 09:30 we will see 2 important UK data releases that will have an impact on the future of Sterling. GDP figures are released which will show if the economy is growing or not, and at what pace. It's a measure of the total value of all goods and services produced by the UK, and is considered as a broad measure of the UK economic activity.

We predict that the monthly figure will show a -0.1% contraction. 2 consecutive periods of contraction mean we're officially back in recession, so if the number is indeed negative it could weaken the Pound. If it's zero or above, expect the Pound to make modest gains.

We also have the BoE minutes released at the same time. This shows the discussions and voting in the decision 2 weeks ago to hold interest rates and Quantitative Easing. If it shows they discussed QE, or the discussions hint it's on the way in February, expect weakness in the Pound.

What effect could this have on exchange rates?

Analysts said upcoming British data and events could add to concerns about the prospect of more quantitative easing as austerity measures and the impact of the euro zone debt crisis hurt the economy, potentially weighing further on sterling.

BoE policymaker Adam Posen said on Monday Britain's economic outlook had improved slightly but more quantitative easing would probably still be needed, so for the most part it could be that this is already priced in to rates. markets move as much (sometimes more so) on rumour than fact, so as it's widely predicted, it's difficult to predict what effect this might have on exchange rates.

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Pound falls against Euro, rises against US Dollar

Tuesday 24th January 2012
Good morning. Yesterday Sterling fell against the Euro by around 0.7%, pushing rates down to the mid 1.19's. Against the US Dollar, the Pound rose by around 0.5%, as the Dollar weakened on predictions it's interest rates will stay at record lows for some time to come. The below chart illustrates how exchange rates fared throughout trading yesterday:

~Currency Movements on Monday 23rd January~





















Pound rises vs US Dollar



As you can see, rates steadily rose to buy the Dollar yesterday, although many investors were cautious about pushing the pound up further on growing concerns the Bank of England will have to inject further cash into the fragile UK economy. Expectations that the U.S. Federal Reserve will keep interest rates low for some years to come helped to weaken the US Dollar and made it cheaper to purchase.



Sterling falls against Euro



The Pound did not fare as well against the single currency. The Eurozone crisis has not escalated any further since last week, and the lack of any further bad news has taken the focus off the Euro, helping it to recover some strength. As a result exchange rates have fallen away from the 18 month high we recently saw.

Poor UK GDP and possible Quantitative Easing hurts Sterling



This week we will see UK GDP figures, to show the economy contracted, a factor that is likely to undermine sterling in the short to medium term. Bank of England Governor Mervyn King is also due to speak this week while the minutes from the most recent BoE Monetary Policy Committee meeting on Wednesday are all likely to reinforce expectations for further asset purchases.



It's now widely predicted that the BoE will pump further money into the economy in February, unless data released in the meantime suggests the economy is growing, which is unlikely. For these reasons it could well be that the Pound continues to drop against the Euro, while any resolution to the EU debt crisis could cause the USD to weaken, pushing rates back towards the $1.60 levels.

Today's Data



Today is a little busier, with figures showing the latest UK Public Sector borrowing. In the Eurozone there are some inflation measures, and data showing Industrial New Orders. Across the pond we will see US Manufacturing data, and Canada releases Retail Sales which show how confident consumers are about the economy.

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Weekly GBP/EUR & GBP/USD and the weeks data

Monday 23rd January 2012
Good morning. As always for a Monday, today I will take a retrospective look at last weeks movements in the currency markets, and what this week may hold for the Pound Sterling Forecast against the Euro & US Dollar. Also included is a list of the most important data to watch our for that might affect rates this week.

In this week’s Report:

• Pound/Euro remains range bound at €1.20

• Sterling recovers against weaker US Dollar

• BoE Minutes could signal further QE in February

• Round up of the week’s data that may affect rates

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


Sterling vs. Euro;

The start of the last week saw GBP/EUR rates trading around the 1.20 (Interbank) level as all eyes were still on the Euro zone. High UK unemployment figures and the hint of more Quantitative Easing could see a very volatile week ahead of us.













Tuesday’s key data showed a rise in unemployment within the UK and indicated that it had increased steadily through 2011. The number of Britons out of work hit its highest level in more than 17 years, but a much smaller than expected number of new benefit claims in December provided some hope that the labour market downturn may be levelling out.

With the UK government cutting hundreds of thousands of jobs as part of its five-year budget deficit reduction programme, unemployment is expected to keep rising. The private sector is picking up only some of the slack. "While the increase in headline unemployment this month is a negative sign, the strength of the claimant count measure provides evidence of some resilience in the labour market," said economists at Credit Suisse.

As the cost of living has continued to rise at more than twice the rate of underlying wage growth in the UK more pressure is put on households, hindering and slowing economic growth. The Nationwide have predicted that slowing inflation would help to ease the squeeze on household budgets and aid growth.

BOE minutes this week leave the door open on whether more Quantitative Easing will take place and what was and will be discussed in subsequent meetings. The last time QE was announced Sterling fell significantly and exchange rates dropped across the board. Due to the prediction of QE, it will be partly priced into the market prices already, and the EU debt crisis will also have an impact on the value of the Euro, Pound and US Dollar.

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Sterling vs. US Dollar;

The Pound started last week close to an 18-month low against the US dollar with the news that a handful of countries in the Eurozone had their credit ratings downgraded several days previously.













Britain’s economy has remained fairly stagnant over the past five months. A survey showed UK consumer confidence dropped close to its lowest level in seven years in December, adding to worries about a fragile UK economy. Recent weak UK data, including lower inflation numbers, have added to expectations the BoE will increase asset purchases under its quantitative easing programme next month. Caution will persist until news emerges from Greece, where the government and private bondholders are locked in negotiations about the size of any haircut on Greek debt.

This is the main reason that the dollar is so strong against the pound and the rates are sitting where they are. As stated above rates to buy Dollars are currently around an 18 month low, as the US currency appears very strong at the moment. This is nothing to do with any positive US economic data - it's simply the case that the USD is a safe haven currency, and with all the well-publicised problems in Europe and the UK, it's an attractive option at the moment.

The Pound pushed a little higher against the US Dollar at the end of the week, with gains after solid demand at a Spanish debt auction. Spain sold 6.61 billion euros of government bonds which was more than its announced target, in an auction that analysts said went well. This caused flows away from the US Dollar, weakening it and pushing rates up slightly, as the chart above shows.

US jobless claims released at the end of last week dropped to a new four-year low, which slightly dented the greenback’s safe-haven status and boosted the pound. The rates ended the week around 1.5520 on the interbank. This is a swing of around 1.5% throughout the week; meaning that you’re currency would have cost significantly more had you bought on Monday, instead of Friday. It is important to keep in touch with your account manager at the FCG so that they can give you the benefit of their experience and help you make the most of your currency.

Do you need to buy or sell US Dollars? Click here to send me a free enquiry.


Weekly Economic Data that may affect exchange rates

Monday – We have a very quiet start to the week, with no UK data of note. The only EU release is a measure of consumer confidence at 3pm. The other data is from Australia where we will see the latest measure of inflation.

Tuesday – Today is a little busier, with figures showing the latest UK Public Sector borrowing. In the Eurozone there are some inflation measures, and data showing Industrial New Orders. Across the pond we will see US Manufacturing data, and Canada releases Retail Sales which show how confident consumers are about the economy.

Wednesday – This will be the most important day of the week for Data. At 09:30am we will see the latest BoE minutes from their recent decision to hold rates and QE. These will show what was discussed, and who voted for what. Should this indicate further QE is likely next month Sterling could be affected. At the same time, UK GDP figures are released, which will show if the economy is growing, and at what pace. We also have the FOMC minutes from the USA, followed by an interest rate decision in both the USA and New Zealand.

Thursday – Today Germany releases its latest consumer confidence measures. In the USA there is a host of data including Jobless Claims & New Home Sales. New Zealand releases Trade Balance figures in the evening.

Friday – We end the week with Consumer Confidence figures for the UK, Money Supply data from the Eurozone, and the USA releases its latest GDP figures in addition to a measure of Consumer Sentiment.


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