How could UK GDP numbers affect exchange rates?

Wednesday 24th April 2013

Good afternoon everyone. I'm only putting up a short post today ahead of tomorrow's key UK GDP figures. I thought I would outline what I think may happen depending on the actual numbers that are released tomorrow at 09:30am.

Let's start at the beginning. What is GDP?

Firstly, what is GDP? You can read a comprehensive outline here on the BBC website. In a nutshell, it's a measure of the economy in one simple number. If the GDP measure is up on the previous three months, the economy is growing. If it is negative it is contracting. And two consecutive three-month periods of contraction mean an economy is in recession.

How could the GDP result affect exchange rates?

Now, I'm sure regular readers are now getting a little bored of me talking about the GDP numbers, so you will be pleased to know the final result will be announced tomorrow morning at 09:30am! Markets have been waiting in anticipation for the result, and so we can finally put to bed the question of whether or not we're in recession. 

To summarise, in the last 3 months of last year, the UK's GDP shrank by 0.3%. If the first 3 months of this year also show a decline, then it means the UK is officially in recession for the 3rd time in as many years. 

A recent estimate showed that the economy may have actually shown growth of 0.1%. So not exactly a huge increase, but if confirmed it will mean the UK has avoided recession. So what would happen if the numbers are as forecast, or different than forecast?

Markets generally price in forecasted figures in advance, so the number of 0.1% growth will already be reflected in the current exchange rate. That's why we've seen the Pound make some gains in recent days. So if the number is as expected at 0.1%, then I wouldn't expect huge movements in the rate. We may see some modest strengthening of Sterling, but don't expect rates to shoot up to €1.20. 

If the figure shows a decline and confirms the UK is back in recession, then I would expect the Pound to fall, potentially by some margin. So there is the risk exchange rates could take quite a hit tomorrow if the numbers are poor.

Finally, the number could show growth of more than 0.1%, in which case I would expect exchange rates to rise.

Whatever happens tomorrow, I do expect rates to move in one direction or the other. 

Many clients are booking their currency today to avoid losing out if the market starts to move the wrong way. Send a free enquiry to me today to find out more about the rates that I can source for you - our rates are up to 5% better than banks, so you may be surprised in how much you could save.

Click here to send me a free enquiry on exchange rates. 

What next after the GPD numbers?

We can also start to look forward and talk about something else! It will finally confirm the direction the UK economy is taking, and so I would expect once this release is over and done with, focus will return to the EU debt crisis, and further economic released from the UK will be studied in detail to see how the economy is faring.

I personally expect the Pound to make gains against the Euro in the medium to longer term, but in the short term things may get worse before they get better. 

Getting the best exchange rates

If you need to buy or sell currency in the next 2 years and want to achieve the best exchange rate possible, then send me a free enquiry today. I can discuss your requirements, explain the different options you can consider, and help you make an informed choice on when to fix your rate.

When you decide to do this, the rates I can source are significantly better than banks offer. So find out today how we can help you. 

It's free, it doesn't obligate you, and you may be surprised how much you can save by using us to get exchange rates that are up to 5% better than offered by banks. Click below to send your free enquiry now, and get a response the same day.  

Click here to send me a free enquiry

UK may avoid recession; exchange rate forecast April 2013

Thursday 11th April 2013 
Good afternoon everybody. Things have remained relatively calm in the currency markets so far this week, and we have not seen the sharp volatility experienced in recent weeks. The latest UK GDP estimate suggests we may avoid recession which is keeping the Pound supported against other currencies. The Euro remains weak on concerns over countries other than Cyprus facing problems, and the US Dollar has also weakened following their recent budget statement. 

In today’s report I’ll take a look at the above, and also run over what other data is out in the coming days that may affect rates. And don’t forget, I can source exchange rates significantly better than the banks can offer, so if you need to buy or sell currency at the best exchange rates, send me an enquiry now to find out how I can help. 

UK may avoid recession 

This week numbers showed that Britain's economy may have grown by 0.1% in the first quarter of 2013 compared with the previous quarter. The numbers were released by the National Institute of Economic and Social Research said on Tuesday. Why is this important? It makes the chance of the UK entering a triple-dip recession unlikely for now. The news has kept the Pound from falling. 

The economy shrank late last year, and another contraction in the January-March period would result in a third recession in less than five years. The first official estimate of whether that was the case will be released on April 25, and then we’ll know for sure! 

According to NIESR's monthly estimate, Britain's gross domestic product grew at the same rate in the first quarter as in the three months ending in February. The estimate follows official data showing a surprisingly strong rebound in British industrial production in February, led by a rise in manufacturing output, as well as by higher demand for energy during the unusually cold month. 

But we’re not out of the woods yet. Many analysts think that the result is very finely balanced, as the cold weather will also have affected retail sales. So for now things look ok, but when the official numbers are released in a few weeks, exchange rates will correct accordingly. IF the estimate is wrong and we are in recession, expect a drop in the value of the Pound. 

Need to buy or sell Euros? Send me a free enquiry. 

Possible further EU problems 

Across the channel in the EU, debt problems persist in Cyprus and elsewhere, and this is keeping the Euro weak exchange rates supported. The European Commission has warned that Spain and Slovenia must quickly tackle the imbalances in their economies. Spain has already had its banking system bailed out and Slovenia is widely expected to become the next to ask for a debt rescue. 

Brussels highlighted the plight of banks in Slovenia by saying that "urgent policy action is needed". The Commission said that the other European Union countries experiencing "macroeconomic imbalances" to a lesser degree than Spain or Slovenia were Belgium, Bulgaria, Denmark, France, Italy, Hungary, Malta, the Netherlands, Finland and Sweden. 

If these countries do indeed need further assistance, then it could possibly weaken the Euro further. There are some however that are saying that the European Central Banks policy of doing ‘whatever it takes’ to combat debt issues means that the Euro could remain supported, which would limit any gains for the GBP/EUR rate. 

Need to buy or sell Euros? Send me a free enquiry. 

US Budget  weakens US Dollar

Also this week, US President Barack Obama has unveiled a $3.77tn (£2.4tn) budget that proposes fresh taxes on the wealthy along with cuts to benefit programmes. However, the Obama plan is viewed as having no chance of being fully enacted by the deadlocked Congress. The US economy is far from robust. Although last month economic data showed that the economy grew at a faster-than-expected annualised pace of 0.4% in the fourth quarter of 2012, which was still a marked slowdown from the previous quarter. 

The Fed has previously said it will keep its policy of spending $85bn a month on Treasury bonds and mortgage-backed securities in order to lower borrowing costs for households and businesses. It has said it wants to see signs of a long-term trend of falling unemployment before it changes policy. 

Due to this the US Dollar has weakened, pushing GBP/USD rates higher, and at the time of writing rates sit at 1.5384. 

Looking for the best USD exchange rates? Send me a free enquiry.

Summary

Exchange Rates are relatively good at the moment for anyone looking to convert Sterling to another currency. After the Pound fell by nearly 10% in the first few months of the year, better economic data of late has pushed rates back up again, giving good buying opportunities. Things seem to have stabilised however, and I don’t expect many further gains until the GDP figures are released at the end of the month, and that may happen should the number show growth. Any decline however would push rates down. 

As I mentioned above though, it really is on a knife edge. Any economic releases in the coming weeks that show weakness in the economy could pull rates down. 

Need the best exchange rates? Send me a free enquiry. 

How to get the best exchange rates

Regardless whether you need to buy or sell currency, the rates and service I can source are much better than available at banks and other financial institutions. We have various contract types that mean even if you don’t need currency for some time, you can fix rates now to protect against rates moving against you, and allowing you to budget effectively. 

I can also take instructions to fix a rate should exchange rates hit a particular target level you may be aiming for. 

 If you need the best exchange rates, send me a free enquiry today to find out how the service works, and the rates that I can provide. I look forward to hearing from you.

Will the Pound/Euro rate keep dropping?

Friday 18th January 2013

Good morning. The UK is in a cold snap, and snow is falling across the country. The UK economy and Sterling has also been getting a pretty frosty reception from investors recently. This week was another torrid one for the Pound/Euro cross I'm afraid, with exchange rates continuing to fall and dropping below the €1.20 level. In today’s report we will take a look at why Sterling has fallen & what the forecast and predictions are for the coming months. We will also look at what tools we can provide to help protect you against adverse exchange rate movements to help you make the most of your currency. 

In this week’s Report: 

• Pound/Euro tumbles below €1.20
• GDP figures this week could confirm negative growth
• Pound/USD drops below the $1.60 level. 
• Round up of the week’s other data that may affect rates

Sterling vs. Euro; Why have the rates fallen so much? 

The pound has now fallen 3% so far this year. Last week continued poor data pulled rates below the €1.20 level. It looks increasingly likely that 2013 could be a very disappointing year for sterling.

There are three main areas of concern for the pound: firstly, a raft of poor data shows the UK economy is struggling and that we could be headed back in to recession. Secondly we have the potential loss of the UK's AAA credit rating which is becoming increasingly likely. On Tuesday, the Fitch ratings agency warned that the UK's top-notch sovereign credit rating could be cut if the Chancellor of the Exchequer's March budget shows debt levels continuing to rise. 

Thirdly, Britain's unclear position in the EU is also weakening the Pound. We only have to look back a few months to see that currencies react badly to uncertainty. The longer this debate drags on, the harder sterling will fall. 

What could happen to rates this week?

So part of the reason for the drop is uncertainty over the UK economy. Next week will give some important clues on which way things are headed. On Wednesday we have the Bank of England (BoE) minutes, which will show how they voted on the recent decision to hold off changing interest rates or pursuing more Quantitative Easing. This may indicate further QE is on the cards and so could pull the Pound down further. 

Of even more importance will be Friday’s GDP figures. A recent estimate indicated the economy shrank by 0.3% in the last 3 months of 2012. If these figures are confirmed, it would mean the economy didn’t grow at all last year, and increases the chances of the UK heading back into recession for a 3rd time. 

The decline in the rate is not all down to the UK however, it’s also partly due to a strengthening Euro. In recent weeks we have had the ECB giving a very robust outlook for the Eurozone, and the markets now see the EU debt crisis being tackled. This has given confidence back to the single currency, and it has gained strength as a result.

So what are the forecasts for the rest of the year? 

The UK economy is still very soft and that adds up to testing times for sterling," said Daragh Maher, foreign exchange strategist at HSBC. He has forecast the Sterling/Euro rate to drop to 1.1250 by the end of the year. "There's going to be an erosion of the view that sterling was the best of a bad bunch," he said. In stark contrast, Barclays Capital still have their 12 month forecast at 1.28! This shows how uncertain things are for Sterling/Euro rates and that nobody knows which way it is going. 

In truth, nobody can accurately predict which way exchange rates will move. There are however ways you can protect yourself against adverse exchange rate movements, and make sure your currency doesn’t cost more than necessary.

How to protect against the rate getting even worse. 

Regardless whether you are buying or selling Euros, one option is fixing your rate now for up to 2 years with a Forward contract. You only have to lodge 10% of the total you want to convert, and you are then protected against the rate moving against you, and this allows you to budget effectively. 

If you think the rate will get better for you, then another option you can look at is a Stop Loss order. This allows you to set a rate below the current level, and if it drops below this your currency is automatically purchased. Using this tool allows you to take advantage of any gains in the rate, but should the market drop then you have a worst case scenario allowing you to budget. 

Make an enquiry today for free

Given there is so much uncertainty surrounding the exchange rate at the moment, with very different forecasts from major banks, now is the time to take stock of your requirements for the year. The first step should be a free consultation. In this way I can discuss your requirements and look at all the options available to you, allowing you to make an informed choice on when to fix your rate. 

Don’t simply leave things to chance and hope the rate will get better. Hope is not a reliable economy tool. Contact us today and take the first step to making the most of your currency.

Weekly Economic Data that may affect exchange rates 

Monday – Fairly quiet today as it’s a market holiday for Martin Luther King day. We do have some House Price data for the UK, and some inflation numbers from Germany, the EU’s largest economy. 

Tuesday – In the UK today we will see the latest Public Sector borrowing numbers, in addition to an industrial trends survey. In the Eurozone we have the EcoFin meeting and an economic sentiment survey. In the United States we will see the latest Home Sales and manufacturing numbers. 

Wednesday – An important day for the Pound: First we have the Bank of England minutes, showing how the vote went for the most recent QE and interest rate decision. This is followed by a raft of unemployment numbers. The only EU data of note are Trade Balance numbers from Italy. In Canada we see the latest interest rate decision. 

Thursday – UK Mortgage applications is the only data of note for Britain today. In the EU however we have Inflation data from France, Spain Germany, and the EU as a whole, which may dictate interest rate movements this year. Over in the states we have unemployment and jobless claims numbers. 

Friday – We end the week with the all-important UK GDP numbers. We could see confirmation the economy is in retraction again. Elsewhere there are some business climate assessment figures from Germany, and Home Sales data from the United States.  

Getting the best exchange rates 

You want the best exchange rates, of course you do. That's why you're reading this blog to try and gauge your timing. Take the next step and send us a free enquiry and have a consultation on all the options available to you. 

It's free, it doesn't obligate you, and you may be surprised how much you can save by using us to get exchange rates that are up to 5% better than offered by banks. Click below to send your free enquiry now, and get a response the same day.  

Click here to send me a free enquiry

Pound/Euro falls to lowest rate since April 2012

Friday 11th January 2013

Good afternoon. Things have not gone well for the Pound/Euro cross I'm afraid. It's been in general decline now for a few months, and this week saw further drops. Today alone it has dropped from 1.2280 to 1.2075 in the course of a few hours. This is not welcome news for those needing to buy Euros, however those converting the single currency back in to Sterling should consider taking advantage of the current highs.

All is not lost for those buying Euros however, as there are still ways you can protect yourself against further declines in the rate which I will go in to more detail about below.

In this week’s Report:

• Pound/Euro rates drop further due to strengthening Euro 
• Dollar weakens, pushing GBP/USD rates higher 
• UK GDP estimate indicates triple-dip recession 
• Round up of the week’s other data that may affect rates

Sterling vs. Euro; 

As I stated above, 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 this 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. 

UK headed back in to recession

The decline in the rate continued today, 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 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. A triple-dip recession would likely weaken the Pound even further, so we might see raets drop even more.

With most data being released from the UK below forecast it also 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. 

If you are buying Euros

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. Alternatively, you can place a Stop Loss order. This is where your currency is purchased automatically if it drops below a pre-agreed level. So if rates recover you can still take advantage of any gains, however should the market continue to fall, you have a worst case scenario. Find out more.

If you are selling Euros

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. 

If you need the best exchange rates, send an enquiry now.

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.  

Getting the best exchange rates 

You want the best exchange rates, of course you do. That's why you're reading this blog to try and gauge your timing. Take the next step and send us a free enquiry and have a consultation on all the options available to you. 

It's free, it doesn't obligate you, and you may be surprised how much you can save by using us to get exchange rates that are up to 5% better than offered by banks. Click below to send your free enquiry now, and get a response the same day.  

Click here to send me a free enquiry

Pound/Euro & Dollar forecast for 2013

Friday 4th January 2013

Good afternoon, and a very happy new year to all my regular readers, and of course those finding my site for the first time!

It's the first post of the year, so this afternoon I'm going to go in to quite a bit of detail on GBP/EUR rates, GBP/USD rates, look what's happened recently and where rates may be headed in the coming months. 

If you need the best exchange rates, don't forget to send me a free enquiry to find out about the exchange rates I can provide - they are significantly better than you can get at banks and other financial institutions!

In this week’s Report: 

• Pound/Euro recovery short lived as rates start to drop again 
• Pound/Dollar also drops slightly from 16 month high 
• Fiscal Cliff deal agreed in United States 
• Round up of the week’s other data that may affect rates

Sterling vs. Euro; 

In recent months the GBP/EUR rate has been falling; however at the start of 2013 we saw rates pick up slightly. This wasn’t to last however, as by the end of this week the rate had started to drop again. In today's report we’ll look at the reasons why, and where rates may be headed. 

How has Fiscal Cliff affected Euro

The New Year ushered in a late fiscal cliff deal, and with it a resurgent euro, at least initially. Much of the focus last week was on the United States; not only due to the fiscal cliff, but also on the US debt ceiling and the country’s most recent data releases. These results have largely been the driving force behind Sterling/Euro rates and this week’s Euro report will look at how this and other events have affected the GBP/EUR cross. 

The compromise between the White House and Congress’s dissident Republican faction meant that the US economy would not be automatically plunged into recession. As the world’s largest economy, the state of America’s finances will always have a peripheral effect on economies like those within the Eurozone; and as such, stalemate in the fiscal negotiations would have been disastrous for the single currency. 

Late on January the 2nd the act was signed into law, close enough to the deadline to avoid any drastic price movements. The equity markets, which largely mirror the euro, responded favourably with the FTSE 100 breaking through the 6000 mark. The euphoria was short-lived however, as the following day euro strength receded as fear began to re-enter the public imagination. An undesirable side-effect of avoiding the cliff is the effect on US spending. The debt ceiling has been an issue for some time and the new taxes imposed on the wealthy are viewed as not enough to justify current public spending. 

This meant that the risk-on approach adopted early in the week was side-lined in favour of repurchasing safe-haven assets, like the dollar, which had previously been subjected to aggressive selling. The shift from investors buying the euro to buying the dollar was further exaggerated by the publication of the Fed’s minutes, which hinted at an end to the QE infinity program, and by positive data stateside which would act as catalyst to a winding down of Central Bank intervention. 

How has UK data affected Pound/Euro

Friday saw a fight back from the single currency against the pound. Month on Month Italian CPI and Year on Year European CPI both exceeded expectation yet the UK’s PMI Services Index was down from 50.2 to 48.9; a score of 50 is the minimum level required to indicate growth. The move indicated that the UK economy could have contracted as much 0.2% in the final quarter of 2012 reawakening fears that our exit from recession may have been largely due to events like the Summer Games. If the UK were to fall into a triple-dip recession, sterling-euro rates could continue to fall, making the purchase of euros a more expensive process. 

Time will tell whether the Conservative Party can grow an economy through cuts; what is clear however, is that Friday’s data brought negative direction to a cross that was largely range bound, but erratic, in its path. 

Do you need to buy or sell Euros?

If you are purchasing euros, I can guide you through methods of protecting yourself against adverse movements in the rates. 

For those needing to sell, we’re close to the best rates in 8 months; Forward contracts can lock in today’s price giving you certainty in a volatile economic climate. 

Alternatively, if you have a minimum rate you need to achieve, a limit order can be placed in the market, which can be bought twenty-four hours a day, seven days a week, if the rate drops below the pre-agreed level. 

Send me an enquiry now to discuss further.

Sterling vs. US Dollar; 

As mentioned in the Euro report, the main driving force behind fluctuations in the GBP/USD rate this week has been the apparent resolution to the US ‘fiscal cliff’ problem. The fiscal cliff was the forecasted sharp decline in the US budget deficit that could have occurred at the start of the New Year, due to increased taxes and reduced spending. 

 

The deficit—the difference between what the government receives in revenues and what it spends—was projected to be reduced by roughly half in 2013. Although reducing a country’s deficit is seen as a positive move, the associated tax increases and spending cuts were forecast to plunge the US economy back into recession and increase unemployment levels as a result. 

The American Taxpayer Relief act of 2012 was signed into law by President Obama on January 2 and eliminated much of the tax side of the fiscal cliff. As a result, the safe-haven dollar fell sharply on Wednesday as investors moved away from the US currency into riskier assets. 

As a result, GBP/USD hit a seventeen-month high of 1.6337. However, optimism over the US budget deal quickly waned; giving way to concerns that more budget wrangling may lie ahead. Consequently, the dollar began gaining strength with safe-haven flows driving GBP/USD rates lower. The dollar is often favoured at times of market uncertainty and as initial optimism over the budget deal was replaced with scepticism, the trend in rate movements reversed and the dollar regained the ground it had lost over the previous two days. 

The greenback continued its march as the week drew to a close as minutes from the Federal Reserve’s latest meeting indicated the central bank looks set to continue its bond-buying scheme over the coming months, helping to stimulate economic growth. However, rate movements were not entirely one-directional as US employment figures caused a brief rise in Cable. However, this was only temporary with the rate sliding further as market players unwound their positions ahead of the weekend. 

Overall, it was a fairly eventful week for the currency pair, with a 2% difference between the high and the low. This is considerable, considering the short trading week and the usual post-Christmas lull in activity. To put this movement into perspective, the cost of purchasing $250,000 early in the week was around £3000 less than if the dollars had been purchased on Friday. 

Considering current market volatility, if the Dollar is the currency you need to trade, send me a free enquiry now.

Weekly Economic Data that may affect exchange rates 

Monday – Today’s UK data comprises of UK House Prices, and the CB Economic Index, which looks at overall economic activity and is considered as a measure for economic stability. In the Eurozone we have some inflation numbers and a measure of Investor confidence. 

Tuesday – The only UK data of note are the latest Retail Sales numbers. It’s quite busy in the Eurozone however with Trade Balance data from Germany and France, EU wide Retail sales, Unemployment and Industrial orders. In the USA we have an economic optimism survey along with some consumer credit numbers. 

Wednesday – Today is the UK’s turn for Trade balance figures which show overall imports and exports. In Europe we have some important GDP figures along with industrial production numbers from Germany and Greece. Further afield we have Trade Balance figures from New Zealand at 21:45pm. 

Thursday – Today we have the all-important interest rate decisions from both the Bank of England and European Central Bank. We will also see the latest decision on whether the UK will increase its Quantitative Easing programme. Also in the EU today we have Inflation figures from France and Greece. We also see Greek unemployment figures. In the USA we will see Jobless Claim numbers, and speeches by some key members of the Federal Reserve. 

Friday – We will see the latest GDP numbers from the UK today, along with Industrial and Manufacturing production figures. The only EU data of note is the French budget and Portuguese inflation figures. We round off the week in the states with a Budget statement and the latest Trade balance figures.  

Getting the best exchange rates 

You want the best exchange rates, of course you do. That's why you're reading this blog to try and gauge your timing. Take the next step and send us a free enquiry and have a consultation on all the options available to you. 

It's free, it doesn't obligate you, and you may be surprised how much you can save by using us to get exchange rates that are up to 5% better than offered by banks. Click below to send your free enquiry now, and get a response the same day.  

Click here to send me a free enquiry

Why is Pound still high despite UK Recession?

Friday 27th April 2012
Good morning. It's been a very busy week in the currency markets. In today's post I will look at the Pound/Euro forecast and predictions for exchange rates in a week that saw the UK heading back into recession. Read my analysis of the effect EU political instability could have on exchange rates, and why the Pound is still strong despite gloomy growth figures showing we are in recession. If you need the best exchange rates, send me a free enquiry for a detailed consultation on the options available to you.

UK back in recession

The UK economy has returned to recession, after shrinking by 0.2% in the first three months of 2012. The technical definition of a recession is defined as two consecutive quarters of contraction. The economy shrank by 0.3% in the fourth quarter of 2011 so the latest figures confirm we are back in recession – just!

The numbers were a surprise to analysts including myself, as most of us expected slight growth of around 0.3%. When the actual figures were released earlier this week, the Pound tumbled across the board, however the fall in rates was very short lived, and have since rebounded.

So despite the fact the figures were slightly worse than many expected, and the fact that the UK is now technically back in recession should not detract from the underlying reality, which is very much as predicted; The UK economy has been bumping along the bottom for more than a year and is still struggling to gain momentum.

So why is the Pound still strong?

This week’s GDP figure is only an early estimate, and is subject to at least two further revisions in the coming months. This is part of the reason why it didn’t have much of an impact. The numbers are compiled using 40% of the data gathered for later revisions, and as it’s only fractions of a percent, the markets haven’t reacted too much to it. This has surprised me.

Another reason the Pound is still strong is the fact all other general economic figures of late have been quite good. This was also underlined this week when UK consumer confidence hit a 9 month high last month. 26% of respondents asked by the Nationwide Building society said now would be a good time to make major purchases, which was the highest level for 10 months. Consumer confidence is a good barometer of overall economic optimism.

Finally, EU political instability has kept the Euro weak and rates supported…

EU political uncertainty keeps GBP/EUR rates above €1.22

One of the main drivers of exchange rates is economic information, of which we have lots to choose from in the last few years! Often overlooked is political instability, but it can have an equal or greater effect. This week we have seen Dutch Prime Minister Mark Rutte tender his government's resignation, paving the way for early elections.

His cabinet was plunged into crisis when Geert Wilders' Freedom Party (PVV) quit talks aimed at slicing 16bn euros (£13.1bn) from the budget. Mr Wilders refused to accept austerity demands to bring the budget deficit in line with EU rules. His party was not part of the coalition but supported the minority government. The crisis has also fuelled fears that the Netherlands might lose its triple A credit-rating.

We have also seen some surprise events unfold in the French elections. It was thought that Sarkozy would easily win a majority, but results in the first round of voting suggest otherwise.

So why does political instability in Holland and France affect exchange rates? It’s all to do with investor confidence. A new government in Holland or France may not be as sympathetic to austerity measures as the current ones. Indeed this is likely to be quite a vote winner amongst very low popularity of cuts needed. So with uncertainty surrounding the political future of some major EU economies, it casts doubt on the whole EU bailout plan.

Thus, the instability has weakened the Euro, and kept rates around the €1.22 level despite the UK falling back into recession.

Pound hits 7 month high vs. US Dollar

Sterling rose to its highest level in over 7 months against the US Dollar yesterday, keeping rates well above the $1.60 level, and briefly touching $1.62. It’s quite a surprise to see rates remaining strongly supported, despite the fact the UK is back in recession. So what caused rates to continue to climb? GBP/USD rates have been pushed up by weakness in the US Dollar, as policymakers in the states kept the door open for more monetary easing.

Federal Reserve Chairman Ben Bernanke said earlier this week that U.S. monetary policy was "more or less in the right place" even though the central bank would not hesitate to launch another round of bond purchases if the economy were to weaken. So despite the Pound being in Limbo due to the latest growth figures, weakness in the US Dollar caused by the fact more QE is possible, has made it cheaper to purchase.

Moving forwards, the forecast for GBP/USD rates will depend on events in the Eurozone. With debt problems and political instability giving continued uncertainty to the global economy, and further surprises could cause the Dollar to gain strength due to its safe haven status. When there is uncertainty, investors flock to safe haven currencies like the US Dollar, which can in turn make it more expensive to purchase. Failing any safe haven buying, I think GBP/USD rates will now remain above $1.60

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Have a great weekend. On Monday morning I'll do my usual weekly retrospective and forecasts.

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GBP recovers despite possibility of UK recession

Friday 30th March 2012
Good morning. Well, what a difference a day makes. After seeing Sterling fall earlier in the week as outlined in my recent post the Pound regained ground against a beleaguered Euro yesterday, however the Pound did fall away from the recent highs against the Dollar. And all of this on the back of a host of poor economic data.

So to end the week, let's look first at the data we had yesterday, then I'll explain why the Pound actually gained against the Euro despite this!

Poor UK Data casts shadow over UK economy

Yesterday saw quite a bit of UK economic data that was worse than forecast. Firstly we saw that mortgage approvals fell last month, and money supply for February posted its biggest monthly fall on record. This was followed by figures showing poor growth in Britain's dominant services sector. We then learned that UK House Prices had their sharpest drop in over 2 years.

Then, to put the icing on the cake of doom the Organisation for Economic Co-operation and Development (OECD) has calculated that the UK economy shrank in the first three months of the year - if true this means we're back in recession that I also touched on yesterday. You can read more about the OECD figures here on the Telegraphs website. All of the above came just a day after data unexpectedly showed the UK economy had contracted more than previously thought in the fourth quarter of 2011.

So, with all the poor data why did the Pound gain against the Euro?

There was an interesting report on the Reuters website that British electricity supplier International Power had received a proposal from its majority shareholder, French utility GDF Suez, to buy shares it does not hold already.

This basically meant there could be a huge demand for Sterling, and this speculation caused the Pound to gain a little. As the chart shows we saw steady gains throughout the day yesterday.

It was mostly however due to the Euro weakening and becoming cheaper to buy. Italian and Spanish government bond yields rose while Italian credit default swaps also moved higher, reflecting investor worries that the EU debt crisis is ongoing and that Greece may need further funds.

The news weakened the Euro enough to brush of the poor UK data, and that's why the Pound rose against the Euro yesterday.

Sterling falls against US Dollar

Despite gains made against the single currency, the Pound fell from it's recent 4 month high against the US Dollar. With the poor UK data and also weakness in the Euro likely to drive investors towards the safe haven US Dollar, I don't expect rates to break $1.60. If anything I wouldn't be surprised to see rates fall for GBP/USD this year given the current climate.

Today's data that might have an effect on exchange rates

There are no UK releases today. To end the week we have German Retail Sales, EU Consumer Confidence. Stateside watch for Personal Consumption Expenditure figures, Inflation data, and a consumer sentiment survey.

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