The latest market report from our friends ar Foremost Currency Group
Last week we saw the Euro reach a high of 1.2456 for the first time in more than 18 months. This as investors shunned the single currency on funding concerns in the euro zone ahead of bank repayments to the European Central Bank as well as more debt auctions. The pound extended gains after Bank of England policymaker Andrew Sentance stated that drastic tax hikes and spending cuts outlined in the new coalition government's budget last week would not remove the need to start raising interest rates. As we have often seen in the past with sterling strength often comes some retraction. This as funding concerns in the euro zone eased with Spain's auction of 3.5 billion of five-year bonds having seen a lower bid-to-cover ratio but yields were only a touch higher than those at an auction in early May, easing concerns after a downbeat signal on ratings from Moody's the previous day.
With the current volatility in the market placing Stop loss and Limit orders on a rate may prove be useful. When markets are volatile, placing an upper and lower limit allows you to still aim for a higher rate should markets move in your favour, while protecting you from loss should the markets move against you. These contracts are suitable whether you are buying or selling foreign currency. Contact us today to discuss these types of contract further
Looking forward to the week ahead the most important news coming from the UK may be the MPC (monetary policy committee) Rate Statement and the official bank rate both of which are set to be released on Thursday 8th July. The rate statement measures the Interest rate at which banks lend balances held at the BOE to other banks. With Short term interest rates being the paramount factor in currency valuation this tends to be significant. The official bank rate most importantly discusses the economic outlook and offers clues on the outcome of future votes and is released with Official Bank Rate. Although only issued if the bank rate changes it is among the primary tools the MPC uses to communicate with investors about monetary policy.
In Europe the most crucial news could be the minimum bid rate and the ECB press conference. The minimum bid rate is the Interest rate on the main refinancing operations that provide the bulk of liquidity to the banking system and is usually delivered about 45 minutes before the ECB press conference. The ECB interest rate statement like the UK official bank rate is the primary method that the ECB uses to communicate with investors regarding monetary policy. It covers in detail the factors that affected the most recent interest rate and other policy decisions, such as the overall economic outlook and inflation. Most importantly, it provides clues regarding future monetary policy. With all this in mind it could prove to be a crucial week for the sterling/single currency pairing.
With the statements on the interest rate in both the UK and Europe and the growing financial crisis in the Euro zone this week is likely to be another volatile one. See the relevant data releases below for a concise round up of volatile market movers; however it is well worth taking the time for a consultation with an account manager here at Foremost Currency group.
Last week saw Sterling continue to make ground against the dollar, opening the week at 1.5043, reaching highs in excess of 1.52 in Friday trading. The main highlight of last week was the monthly non-farm payrolls release on Friday, which showed that unemployment was lower in the US than both the forecast, and last month’s reading. You can see below the improvement in the GBP/USD rate over the past month, from a low near 1.44 up to the current 1.52 at Interbank levels.
One factor behind the weakening of the Dollar this week has been the renewed pressure from the American government for China to un-peg its currency from the US Dollar. China had previously announced they would make moves to gradually allow their own currency to float freely. This weakened the US dollar, as it is seen as likely that the Chinese and other governments would in future reduce their US Dollar reserves, and invest in the Chinese currency the Yuan.
This week, we don’t have any significant data releases of note from the USA, so we will 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 last week 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 now 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.
For more details, and a free consultation to outline your options, contact us today on 01442 892 060.
This Weeks Data
The main event for the week is the interest rate decisions for the EU and UK on Thursday. While rates will be left on hold, any comments that indicate future interest rate movements can have a nig impact on exchange rates. Contact us today for a free consultation on how economic data can impact on the cost of your currency purchase.
US Holiday for Independence Day. For the EU we have Retail Sales for Germany and the EU as a whole, in addition to some confidence measures. IN the UK we have a measure of inflation. If it’s higher than expected then Sterling may gain.
A quieter day for data releases. There is an interest rate decision in Australia, although we expect rates to say on hold this month. In the USA there is some manufacturing data which reflects business conditions in the states.
Gross Domestic Product data is released from the EU today. GDP is considered as a broad measure of the Eurozone economic activity and health. A rising figure could strengthen the Euro and bring GBP/EUR rates down, and vice versa.
The busiest day of the week for data. We have an interest rate decision for both the EU and UK. Rates will probably be left on hold, but the comments that accompany the decision can affect exchange rates. Also in the UK, we have a GDP estimate, Industrial and Manufacturing production. These are significant releases and may well affect the value of Sterling. In the USA Jobless measures will be watched closely.
Inflation data from the UK in the form of the Producer Price Index, which is a monthly measurement of the rate of inflation experienced by the UK manufactures when buying goods and services. A high reading can boost Sterling but a lower reading may cause rates to drop. Consumer prices from Germany is the main data from the Eurozone.