Wednesday, July 14, 2010

Exchange rates report

Please find below the latest currency exchange report from our friends at Foremost Currency Group.


Over the past week we have seen a steady decline for the Sterling-Euro currency pairing. With the bearish sentiment expressed towards the pound, Euro prices fell 1.6% over the week to a low of 1.1928 from previous highs just pushing over 1.21. Sterling began to slip on Monday after a weaker than expected reading of the UK services sector highlighted the fragility of the country’s economic recovery and thus prompted investors to take their profits from the pound’s rally over the last few weeks. With an increase in the supply of sterling on the currency market, prices naturally began to fall.

With few news releases holding much impact for the currency pairing this week until Thursday, the ongoing situation for BP as well as the aforementioned profit booking eroded the previously seen sterling strength, although at a pace subdued by weak GDP growth figures in Europe.

Financial talk within the UK recently has focused on the possibility of a ‘double-dip’ recession and the impact it would have. Whilst the risk of Britain sinking back into a period of declining economic growth has grown in recent months, a 12-strong team of respected economists and business leaders on the Sky News Money Panel unanimously made the call that the the UK would avoid a double dip. They confidently and correctly asserted the Bank of England would make no monetary policy changes following the July interest rate meeting. The same was true of the ECB who held European interest rates at 1%.

Economists said that the BoE was walking a tightrope between nervousness over rising inflation and growing concern about the impact of last month’s austerity budget on the struggling economy.
“The stickiness of UK inflation remains a concern but ‘lower for longer’ is likely to remain the theme when it comes to interest rates,” said Stephen Boyle, head of economics at Royal Bank of Scotland. Inflation is expected to climb even higher after the government ramped up VAT to 20% from 17.5%, set for introduction in January 2011.

It was because of this inflationary pressure that we saw dissent from policymaker Andrew Sentance at June’s MPC meeting. Expect to see more rumour and unrest within the MPC over the course of the year as pressure on inflation continues.

Sterling has rallied in the past month in the wake of a general election in May and the new coalition government’s budget announcement, this rally has however now started to wain due the possible impact of tax rises and spending cuts on the overall economy.

The trends displayed this past week demonstrate the worth of staying up to date in order to maximise your currency purchase potential. By contacting your account executive here at the Foremost Currency Group for a free consultation, we can help you to optimise that purchase. For example, buying €200,000 this past week on Friday instead of Monday, would have meant a loss of over £2400. We can help you to avoid losses by giving you relevant economic information and opinion on trends within the currency market.

For the week starting 12th July, we see a whole host of data releases in the UK; GDP figures on Monday and the claimant count on Wednesday holding the most potential for placing pressure on sterling. Whilst in Europe, the German economic sentiment survey on Tuesday and inflation figures on Wednesday hold the most gravity.

For more information on how upcoming data releases may affect your currency, see the below for a concise round-up of volatile market moves or call in for consultation with your Account Manager here at the Foremost Currency Group. We keep abreast of key announcements from prominent government figures both here and in Europe, helping us to help you maximise your Sterling/Euro currency potential.

Last week saw another volatile week for the GBP/USD pairing, with a high on Thursday of 1.5225 and the low of 1.5090 that was hit on Monday, Wednesday and Friday respectively. Sterling edged up versus a broadly weaker dollar on Friday as the day progressed as signs of an improving global economic outlook supported higher-risk currencies.
Sterling hovered near a two-month high hit against the dollar on Thursday. It slipped to its lowest against the euro in 2-1/2 weeks as the single currency also benefited after Thursday's upbeat U.S. jobless claims data.
"Sterling has been benefiting from weakness in the dollar," said Adam Cole, global head of currency strategy at RBC, adding that investors' greater appetite for risk was putting selling pressure on the U.S. currency. A climb above 1.5224 hit on Thursday would mark the pound's strongest since early May.
In other Dollar related news, the U.S. pledged to monitor China’s “undervalued” yuan in the next three months for signs that Asia’s fastest-growing market is living up to its commitments to help rebalance the global economy.
China took a “significant step” last month when it ended its peg to the dollar and allowed markets to drive the currency higher. A report by the US Treasury department, initially due April 15, concluded that no major U.S. trading partner manipulated its currency and said it’s not yet clear whether China’s policy shift will correct the yuan’s undervaluation. The Treasury promised another review in October. You may think these developments may not directly effect the GBP/USD pairing, but are worth keeping tabs on as if we see a weakening dollar in any area, it is surely good news for those looking to purchase with Sterling.
This week, we don’t have a great deal of significant data releases of note from the USA, other than the release of the Fed Budget for June on Tuesday, which may effect the markets depending on its content, anticipation of which way this will swing is somewhat limited at present but it is broadly considered unlikely that we will see any major change. We will however be looking to see if the pound can sustain it's recent gains against the dollar, or whether we will see profit taking by investors, where they reverse their positions to tie up any gains they have made in the rise of the currency. We saw this happen in previous weeks for the GBP/EUR cross, and as a result, the pound lost nearly 2% in value against the single currency.
Looking at the broader picture, we are still sitting at almost a 6-month high against the Dollar, therefore locking in at these levels and capitalising on your own currency gains is certainly worth consideration if you have any upcoming requirements in the short to medium term future. By paying a deposit of up to 10%, you can fix your exchange rate at the current level for anything up to 2 years, giving you peace of mind about the fluctuating exchange rate.

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