Tuesday, January 15, 2013

Exchange rate news Jan 2013

Here's the latest exchange rate news from our friends at The Foremost Currency Group... Sterling vs. Euro; Pound/Euro rates have not been faring well so far in 2013. We have seen the rate drop steadily to the lowest since spring last year. In today’s Euro report we will look at what has caused the fall, and what may be in store for Pound/Euro rates in the coming months. Despite the UK government resisting pumping more money into the economy via its QE program at its latest MPC meeting last week, the pound weakened significantly, hitting its lowest levels for nearly 9 months. Any news that could have helped sterling was over shadowed when the president of the ECB Mario Draghi in a TV interview said he was confident the Euro economy as a whole should slowly recover throughout 2013. This news really gave the Euro a boost, giving the single currency some strength and making it more expensive to purchase. He did not however remove the possibility of further interest rate cuts in the future from the table. The decline in the rate continued on Friday, when we saw further woes for the pound with much weaker than expected industrial production and manufacturing data being released, as well as a GDP estimate coming in below forecast of a positive 0.1 coming at negative 0.3%, indicating a contraction of the UK economy in the fourth quarter. If the figure is confirmed by official data later this month, it will mean that the economy returned to growth for only a single quarter. It would also mean the economy saw zero growth for the whole of 2012. With most data being released from the UK below forecast it further outlines the threat of the UK losing its prized triple A rating and if Chancellor George Osborne continues to fall short of his targets, a downgrade could very much be on the cards which will hinder investors’ appetite for buying sterling as it indicates the UK could go into a triple dip recession. For those looking to buy Euros, serious consideration should be given to fixing your rate now. Even if the funds are not needed for some time, you can lock in today’s rates for up to 2 years, and only lodge a 10% margin of the total amount you want to convert. This will protect you against a further decline in the rate. For those selling Euros, it’s the best it’s been in some time. Despite the outlook for the euro looking better, the euro economy as a whole is still walking a very fine tightrope. Greece for example has reported the highest level of unemployment ever recorded in the EU taking over Spain as the highest with a rate of 26.8%. This means we could easily see the rates swing back in the other direction if we see any bad data from any of the euro countries and especially any further indications of a rate cut. So things remain very uncertain, however you can have some control over the markets by knowing the options available to you, in order to make an informed decision on when to fix a rate and which type of contract to take. Take the time for a free consultation with us to discuss your requirements today. To put these movements into perspective, in just the last week a property purchase of 200,000 Euros would have a difference of around £3500. This outlines the importance of staying in close contact with your account manager ensuring you are aware of the latest rate movements and news on the markets. If you have not already done so, follow the link to open a no obligations trading facility today. Sterling vs. US Dollar; Last week saw some big movements for the GBP/USD cross. Early on we saw sterling fall to its lowest levels for a month to $1.5995 before a 1.1% gain towards the end of week saw cable push back towards $1.62. The gains came despite a relatively poor week in terms of data releases from the UK, so what caused the spike in rates? In this week’s report we will take a closer look at to what caused this unexpected rise. The Bank of England (BoE) and their policymakers met last week to discuss UK interest rates and their stimulus package. They met on Thursday and as expected kept interest rates on hold and decided against adding to the existing Quantitative Easing Programme (QE) and as a result there was little movement between the currency pair. One thing that would have been on the agenda in regards to stimulus would have been the poor retail sales data that was released at the start of last week. Figures released from the British Retail Consortium showed that Christmas sales barely increased for retailers and will once again fuel speculation that the UK economy may have contracted for the final quarter of 2012. All eyes were on the initial UK GDP estimate released on Friday afternoon, it had been predicted for the economy to grow by 0.1% but the actual figures showed a contraction forecast of -0.3%. As the data was released sterling fell just over half a point from $1.6160 to 1.6095. With Manufacturing and Industrial Production figures for November released on Friday morning also came in well below forecast, the UK is facing the possibility of a triple-dip recession. (Recession is two consecutive quarters of economic contraction) The focus will now turn to the 25th Jan when the official GDP figures are released, if the report shows the UK economy has contracted again questions will be raised as to how the BoE will attempt to solve the crisis. Some analysts are predicting we could see a further £50 billion of QE in the first half of 2013 and if the BoE opt to go down this road again it is likely we could see sterling lose ground against a number of currencies. (Under QE the bank creates money and uses it to purchase government bonds to try and stimulate the UK economy.) Despite the poor data and uncertainty surrounding the UK we did see a big spike for cable on Thursday. As mentioned in the Euro report, Mario Draghi did an excellent job in talking up the euro, increasing investor appetite for riskier currencies. This led to investors pulling out of the safe-haven dollar and heading back to the single currency, weakening the dollar which in turn pushed rates towards $1.6170. So what next for the GBP/USD cross? This recent surge may only be temporary. Over the last couple of weeks we have seen a steady decline for the pound against the dollar, the package put together by President Obama to avoid the U.S falling over Fiscal Cliff seems to have done its job and lent some much needed support to the greenback. With the UK coming under threat from losing it prized triple-A credit rating (which means investors could lose confidence in the pound) and safe haven flows into the UK easing as the euro-zone stabilises the potential for the pound to weaken against the dollar will continue to grow. To put last week’s movements into perspective, if you were looking at purchasing $200,000 it would have cost you nearly £1400 more at the start of the week compared to Thursdays high. It also highlights just how important it is to get the timing right on your currency transfer and to stay in touch with your account manager at Foremost Currency Group. If you haven’t done so already use the link below to open a free, no-obligation trading facility. Weekly Economic Data that may affect exchange rates Monday – Data is mostly from Europe today, including German Wholesale prices in addition to Italian and EU wide Industrial Production. In the USA we have speeches by key FED members. Tuesday – UK data today comprises of House Prices, Inflation numbers and Retail Sales. We also have inflation data from Germany and Italy. There is also EU wide Trade Balance figure released at 10am. Over in the states there are also a raft of inflation figures & Retail Sales numbers. Wednesday – There is nothing of note from the UK today. In Europe we have EU wide inflation numbers. The rest of today’s data is from the states: Consumer Price Index, Industrial Production and Housing Market data. Thursday – Unusually for a Thursday, there are no UK releases today. The ECB gives its monthly report, and there are also some EU construction numbers. The USA has jobless numbers, and further afield we see inflation figures from New Zealand. Friday – We end the week with UK Retail Sales, Italian Industrial Orders, and a US Consumer Sentiment survey.

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