Wednesday, November 4, 2009

Currency Market Report

Below is this weeks currency market report provided by our friends at www.foremostcurrency
Sterling remains weak relative to the euro, which, in spite of low interest rates, is still a pain for those euro mortgage holders that are sending sterling each month to make their payments. The biggest force affecting the exchange rates at the moment seems to be how the UK and Eurozone are dealing with the recession.

Euro (EUR)
The Euro stabilised towards the end of last week after early losses against Sterling. Consumer prices in the Euro zone fell 0.1% during the year and combined with a slowdown in money supply growth, to 1.8% in September from 2.6%, made October the fifth consecutive month that the annual rate has remained negative. In turn this raised fears that the European Central Bank (ECB) may need to keep interest rates low in order to maintain support for the economy. Finally, the week ended with the announcement of a 9.7% unemployment rate, the highest since the Euro's introduction.
The GBP/EUR rate closed up 2.66% last week at 1.1159, from 1.0870 a week earlier, benefiting those converting Sterling into Euros. Those looking to do so in the future should discuss the possibility of a forward contract in order to take advantage of today’s rates up to two years into the future.
This week sees the release of the latest interest rate decision by the European Central Bank on Thursday. With a no-change decision widely expected the Euro is likely to gain strength and with it weaken GBP/EUR exchange rates. Finally, coupled with the prospect of further Quantative Easing by The Bank of England on Thursday those looking to purchase Euros should perhaps be considering the possibility of doing so before rates fall further.
British Pound (GBP)

The volatile nature of markets was illustrated by Sterling’s contrasting performance from the beginning to end of the week. Friday’s shock negative GDP sent the Pound into a nosedive against the Dollar falling as low as 1.6251. Towards the end of the week however, we saw the Pound keep pace with the greenback as risk appetite returned and showing rises above $1.66, its strongest in nearly a week and almost 4 points up from Monday's low of $1.6251.
The most important sentiments we hope to hear from the BoE are that of decisive and precise action; a categorical statement that either QE is finished or an exact final amount that will be allocated would bode well for the Pound in the future. With inflation figures in the UK still very low, GDP still negative, a country in recession and the banking sector still on its knees and now facing stiff reform measures implemented by the Government, it seems odds on, around 70/30, for more stimulus, many expect the BoE to increase QE by £25bn to £200bn on Thursday 5th November, although this would undermine the Pound an unexpected rise (rumors of a £50bn increase) would certainly mean a considerable Sterling downside as it we have seen before.
US Dollar (USD)
The US Dollar lost ground against Sterling last week, but finished higher relative to most other major currencies. As investor confidence in global economic recovery prospects waned, the US Dollar generally found support amid the weakness in global stock markets a characteristic relevant to its safe haven status. The GBP/USD rate closed up 0.85% at 1.6445, from 1.6306 a week earlier.
Brighter news came as the US economy exited recession, with US GDP expanding at a year on year rate of 3.5%. This was the first positive reading since the second quarter of 2008, but the US Dollar weakened slightly following an associated lift in investor risk appetite benefiting some major currencies such as Sterling.
Several key releases this week could induce greater volatility in foreign exchange markets. The US Federal Reserve's interest rate policy meeting is scheduled for Wednesday. Whilst no major policy changes are anticipated, changes in its assessment of economic conditions might impact on US Dollar exchange rates. Finally Friday’s Non-Farm Payroll report which has played an important role in the past with exchange rate movement will clarify conditions in the US Employment Market.

Christmas could come early if you need to repatriate your funds from the Dollar as the majority of the financial industry is expecting further QE which may result in Sterling weakness however, if risk appetite plays another role in the markets the initial weakness may well be short lived. If, however you wish to buy the Dollar, to avoid disappointment, it could be wise to do so before the BoE’s announcement on Thursday 5th November.

This Weeks Data

We have interest rate decisions for the USA, Australia, the UK and the EU.

The Euro’s prospects are likely to be driven by any comments about its strength from European Central Bank President Jean-Claude Trichet following the interest-rate meeting. The BoE is expected to increase its current stance on asset purchases, and inject further funds into the economy, and also keep interest rates at a record low.

The European Central Bank expected to keep rates on hold but may make further talk on exiting its loose monetary policy. This could cause further Sterling weakness, so contact your account executive early to discuss the possibilities of locking in current rates before the market prices in these future movements.

Wednesday also sees various measures of the economy and inflation for the UK, while Friday sees US non Farm Payrolls. The report presents the number of people on the payrolls of all non-agricultural businesses. The monthly changes in payrolls can be excessively volatile, and so often affects the value of USD.

Ger - Purchasing Managers Index
EU - Purchasing Managers Index
UK - Purchasing Managers Index
US - Home Sales

TuesdayAus - Interest Rate Decision
UK - PMI Construction
US - Factory Orders
US - Consumer Confidence

UK - Nationwide Consumer Confidence
Aus - Retail Sales
Ger - Purchasing Managers Index
EU - Purchasing Managers Index
UK - Purchasing Managers Index
UK - BRC Shop Price Index
US - Fed Interest Rate Decision
US - Unemployment
NZ - Unemployment

Aus - Trade Balance
Swi - Consumer Price Index
UK - Industrial and Manufacturing Production
EU - Retail Sales
EU - Interest Rate Decision
UK - Interest Rate Decision

US - Non Farm Payrolls

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