Making the most of your currency

Currency Market Report Week Beginning10th June 2013

In this week’s Report:

  • UK GDP as expected, Sterling declines
  • Sterling falls against dollar but recovers towards end of week
  • Both BoE and ECB meet this week
  • Round up of the week’s other data that may affect rates

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

Sterling vs. Euro;

Looking at the GBP/EUR rate over the last week, which traded largely within a 0.5% range, you could be led to believe that it was a quiet week, but looking at the data and news released it was far from it.

We started with UK mortgage approvals dropping while a wave of manufacturing PMI data from the Eurozone was all better than expected yet the mid-market rate remained between 1.1620 & 1.1650. Thursday was the key day for the week as we saw UK GDP for Q2 2013 come out as expected at 0.6%. This is an increase from the first quarter where the UK economy only grew at a measly 0.3% and in a normal market we would expect to see Sterling rally on the back of data showing the economy was now growing twice as quickly as before. However, this was not the case and by 2pm the Pound had fallen to a 10 day Interbank low of 1.1570, and lost over 1 cent against the US Dollar.

So why did the Pound suffer if figures show that the economy is gathering pace? It looks like it will mainly be down to 2 key factors. In the short term investors may have been looking for a better reading than the 0.6% prediction so even though the actual figure wasn’t below forecast, the fact that it wasn’t above gave them no incentive to start buying Sterling. Looking at the way the rate then moved, they clearly decided to sell the Pound instead. Looking further ahead there will still be concerns about long term growth for the UK economy and while it is growing at present, we saw 1% growth in Q3 2012 quickly turn into a contraction of 0.3% the very next quarter so it may be too early to start celebrating. The UK is also very closely tied to the Eurozone (they are our largest trading partner making up nearly half of our trade) so the ongoing crisis is cause for concern as their economy is still contracting.

There is also still the concern that whilst the Bank of England have removed the possibility of more Quantitative Easing from the table in favour of “Forward Guidance”, which is a pledge to maintain lower interest rates in the short-term with a look to keep longer term interest rates low, UK data will now be even more heavily scrutinised. If we start to see below forecast readings over the next few weeks it could damage the Pound and also bring the threat of further QE quite firmly back to the table, while better than expected readings should boost the Pound.

The next week is relatively quiet on the data front until the end of the week when we have UK manufacturing and construction PMI, and most importantly BoE and European Central Bank decisions. At the moment we cannot see either Central Bank changing interest rates or announcing any further measures, but it will be interesting to hear the tone of ECB President Mario Draghi’s speech to see what the feeling for the future of the Eurozone holds.

In the last month we have seen the GBP/EUR rate fall 2 cents which doesn’t make any difference on the price of a beer during this holiday season, but in terms of a €200,000 property purchase it’s almost £3,000! This just highlights the importance of staying in touch with your FCG account manager, and if you haven’t yet spoken to The Foremost Currency Group then feel free to get in touch for a no obligation consultation.

Sterlingvs. US Dollar;

In this weeks report we will take a look at what has caused cable rates to fluctuate and what we can expect to happen over the coming weeks. As the graph below showsSterling gained ground on the dollar through out the week, this isdue to important data releases from both here in the UK and in the States.

On Monday the US released Existing Home Sales figures that came in worse than expected. The US had forecasted 5.27M but figures came in at 5.08M. This saw the start of the rise of Sterling over Dollar. How ever the US saw some positive data release on Wednesday with New Home Sales figures better than expected how ever this still saw Sterling rally on and gain ground on the Dollar.

There was aquiet end to the week with some revised consumer sentiment data being released for the US. All eyes were on Thursday with expectations of a strong GDP figure from the UK, the markets were disappointed with the minimum expectation of 0.6% growth being realised for the second quarter.

The quarterly inflation report in the UK released on August 7th is expected to have some form of forward guidance, with the Bank of England likely to keep rates low unless an economic recovery begins to look more sustainable. The BoE's monetary policy committee will also meet next week, but no action is expected despite a recent run of robust data.

Looking over the last 4 weeks trading for GBP/USD has moved up over 4%, from 1.48 to 1.54 at mid-market. A typical purchase of $200,000 would now cost you £5000 less than it would have back in June, this shows just how volatile the currency markets can be and how important it is to stay in contact with your account manager at FCG.

Weekly Economic Data that may affect exchange rates

Monday – Mortgage approvals and a consumer credit report from the UK, nothing of note from the EU, from the US housing price data and a manufacturing outlook survey from the Dallas FED.

Tuesday –From the UK a consumer confidence survey and retail price changes from the BRC, an economic sentiment indicator and CPI data from the EU, from the US a consumer confidence report and retail sales data.

Wednesday – No data releases from the UK, unemployment and CPI data from Europe, in the US there is employment data, GDP figures, an interest rate decision and the FEDS monetary policy statement, the outcome of which should cause some volatility for all USD crosses.

Thursday –provides some important data across the board with an interest rate decision and vote on QE from the BOE as well as a Markit manufacturing report. A press conference and interest rate decision from the ECB and a market manufacturing report. Unemployment figures, manufacturing data and national construction spending from the US.

Friday – From the UK the only data of note is construction PMI.A producer price index from the EU. From the US average personal income and spending data, factory orders and a speech from FED member Bullard. The key data release being non-farm payrolls out of the US which shows the number of people on non-agricultural businesses payrolls, which always proves to be highly volatile for currency markets.

Making the most of your currency