Weekly GBP/EUR & GBP/USD and the weeks data

Monday 27th February 2012
Good morning. A new week, and as usual I will take a detailed look at the last weeks movements in Sterling/Euro, Sterling/US Dollar and the forecasts for where rates are headed through 2012. I will also list the weeks economic data releases that I think will have the biggest impact on exchange rates.

In this week’s Report:

• Pound falls to 10 week low vs. Euro
• Dovish BoE Minutes pushes Sterling down
• Greek debt crisis – is it really over?
• Round up of the week’s data that may affect rates

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

Sterling vs. Euro;

Last week saw the single currency gaining on investor relief that Greece’s second bailout package was agreed by European authorities. The end of the week saw the GBP/EUR Interbank rate around the 1.18 level, and the sharp decline is clearly illustrated in the chart below:













The start of the week saw the Euro strengthen against the Pound as the markets showed renewed optimism towards the Greek bailout fund being agreed. Talks progressed Monday and continued through the night. In the early hours of Tuesday morning Euro groups President Jean Claude Juncker announced that the €130bn agreement had been reached.

The Euro group made clear that reaching these debt levels was conditional on strict implementation of future policies. Greece would have to show that they are actively decreasing their debts, and accept a permanent presence of EU monitors to oversee economic management. The Euro did show gains through the day but not by much as many think it will not be the answer to Greece’s debt crisis and it is only helping to delay the inevitable Greek default.

Sterling reached a 10 week low against the EUR on Wednesday after the Monetary Policy Committee (MPC) minutes revealed an unexpected vote split with two MPC members voting in favour of more Quantitative Easing (QE). Analysts have expressed that further QE in May is highly unlikely and BOE actions will be tied to economic prospects. As a result the GBP/EUR cross fell from a high of 1.1928 to a low of 1.1820 with the pair opening slightly lower on Thursday morning.

The end of the week saw Sterling pull away from the 10 week low, although expectations of more monetary stimulus by the Bank of England could prevent the GBP/EUR cross hitting the 1.20 levels we saw earlier this month. It now seems that the UK economy may avoid another recession after a rise in customer spending and an upsurge in exports to help the UK economy bounce back, but the ever present threat of further QE will likely hamper any decent gains.

GBP/EUR has now broken €1.20 quite a few times in the last few years, but each and every time the spike is short lived and rates tumble back away. For those hoping rates will recover, recent UK data suggest the Pound will remain weak for some time to come.

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Sterling vs. US Dollar;

Last week was relatively quiet in the US after Presidents Day on Monday, but it did not stop it from being another volatile week for the GBP/USD cross as rates swung on the back of news from the UK and Europe. We started the week in the mid $1.58’s but as the week progressed we saw a sudden 1.5% drop as rates fell back into the $1.56’s before slowly recovering. To put this kind of movement into prospective a £200,000 trade would have seen you receive $4000 less on Wednesday than at the start of the week.













As news of the Greek bailout package came to light the GBP/USD cross began to move towards the highs we saw in October. However, Wednesday morning saw the Pound lose ground against the US Dollar as the Bank of England (BoE) minutes were released. In his last speech Sir Mervyn King announced that the bank would inject a further £50bn into the economy through its Quantitative Easing (QE) programme. However data has shown that two of the nine Monetary Policy Committee (MPC) members actually voted for a £75bn boost.

As soon as the data was released we saw rates drop across the board, the GBP/USD reacted by dropping briefly into the $1.56 level before recovering back into the low $1.57’s. With two MPC members voting for further stimulus it shows that some still believe the UK to be on fragile ground and believe the BoE should increase its asset purchasing programme. So far the bank has pumped £325bn into the economy since the UK credit crisis began.

With the recent gains from the from the Greek bailout and the positive data that has come out of the UK (retail sales and public sector borrowing) it shows how quickly the markets can move against you.

As the week progressed, news from Germany that business confidence was at a 7 month high would have given investors added belief that the Euro-zone could be about to turn a corner. When you have positive news coming from Europe investors tend to leave the Safe Haven status of the Greenback and head back into the bloc currency, this will lead to the dollar losing strength and make it cheaper to purchase.

With many analysts still concerned that the Euro is under threat any talk of a Greek default or a Euro recession could see the pound/dollar start to move back towards $1.50 as investors look to protect themselves with a flight to safety.

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Weekly Economic Data that may affect exchange rates

Monday – Today in the UK we will see House Price data from both the Halifax and Nationwide, showing how this sector is performing. It’s also a barometer of the economy as a whole and so could affect Sterling. German Retail Sales will also be watched and could affect GBP/EUR rates.

Tuesday – In the Eurozone today we will see measures of Economic Confidence, Consumer Confidence and Industrial Confidence. In Germany, there are some inflation measures and a Consumer Sentiment Survey, so lots that could affect the Euro. The only UK data of note is a CBI Trades Survey. In the USA we will see Consumer Confidence measures and Durable Goods Orders.

Wednesday – We start the day with German unemployment data, followed by inflation data from the Eurozone. In the UK we have Mortgage Approvals. Stateside the GDP figures will be closely watched to see how the economy is performing.

Thursday – The EU economic summit today could affect the Euro. In terms of Fundamental Data the most important releases are Swiss GDP, EU Inflation and Unemployment data, and US Jobless numbers. Also in the states we see Construction and Manufacturing numbers. Unusually for a Thursday there is nothing of note from the UK.

Friday – The EU economic summit continues, and there are further inflation numbers for the EU. There are some minor construction numbers from the UK, and GDP figures released from Canada at 13:30.

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Sterling falls on Bank of England MPC minutes

Thursday 23rd February 2012
Good morning. The Pound fell across the board yesterday, so the recent peaks are over for now. It was due to the Bank of England minutes, which most analysts, myself included, thought would actually strengthen the Pound due to better data of late. It actually showed the uncertainty over how much QE to pump in to the economy, and this caused Sterling to fall as the charts below show.

~Currency Movements on Wednesday 22nd February 2012~











Bank of England minutes causes Sterling to fall

Yesterday we saw the most recent Bank of England minutes to the decision two weeks ago to hold interest rates, and pump £50bn into the economy through Quantitative Easing. In the minutes it was revealed that 2 members of the Bank of England's Monetary Policy Committee (MPC) wanted even more money pumped into the economy than the £50bn that was agreed earlier this month.

Two of the MPC members voted for a £75bn stimulus to the economy in February, but the other seven disagreed. The majority considered that £50bn would be enough, with some saying no further action was needed.

So why did this cause the Pound to fall? Most analysts including myself thought the minutes would show a unanimous agreement for the £50bn agreed, and coupled with recent good data this had reduced the chance of further stimulus. That's why the Pound had gained well in recent weeks. Because the minutes showed a lack of consensus, it leaves the door open for even more QE in the future, which has weakened the Pound as it would flood the market with currency, thus devaluing it.

So like many in the market, I had expected the minutes to close the door on further QE, but that in fact they left open the possibility for more.

Traders said some in the market had positioned for the risk of one or two policymakers voting for no QE at all after this month's BoE inflation report predicted the economy would improve, dampening expectations of further stimulus. So as the opposite has happened, exchange rates have corrected accordingly.

Today's Data

Today in the UK we see the latest mortgage approval numbers showing the health of the housing market. There is also a UK Industrial Trend Survey. In the Eurozone there are some German Confidence measures. Stateside we have Housing Prices and Jobless claims.

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Greek Bailout and effect on exchange rates

Wednesday 22nd February 2012
Good morning. Yesterday exchange rates were driven by reaction to the Greek bailout, and in general the Pound fell against both the Euro and US Dollar. Today I will take a detailed look at how the Greek bailout could affect exchange rates, and the Pound Sterling forecast for other major currencies for the next few weeks and months. The below charts shows how rates moved throughout the day yesterday.

~Currency Movements on Tuesday 21st February 2012~










EU Greek Bailout and what it means for exchange rates

Yesterday markets were reacting to the fresh bailout which has finally been agreed for Greece. In the latest bailout deal, Greece is to receive loans worth more than 130bn euros, and in return it needs to to reduce its debts and accept an "enhanced and permanent" presence of EU monitors to oversee economic management.

It was widely expected that the deal would go through, and initially there was little to no reaction in terms of exchange rates. Indeed, Europe's financial markets have given a very muted reaction indeed to the announcement of a second bailout deal for Greece.

The Euro did gain a little strength through the day, but not by much. This is because few in the markets think the latest bailout is the final answer, and it’s really only just putting off the inevitable. When we look at the facts, you see that this is the second deal in two years. The baikout equates to €20,000 for every person in Greece, and even that amount will not solved Greece's problems. All it really does is stop Greece having a very messy and chaotic default in March, but even so there are a lot of steps to go through before then.


Will Pound/Euro go up or down?

For those needing to convert Euros back to Pound, be aware the Euro could start to weaken again if markets think the latest bailout is indeed a delay of the inevitable. For those needing to buy Euros, rates are still close to an 18 month high. Will it go higher? It could of course, however fears the UK is heading back into a recession are pulling rates back down.

A good strategy for Euro buyers would be a Stop Loss order – a worst case scenario – your currency is bought should the rate fall below a preagreed level. In this way you can still take advantage of any gains in the market, while not leaving your position exposed should markets move against you.

Bank of England minutes today

Sterling's recent moves against the Euro and other currencies have been dominated by developments in Greece, and signs of improved UK data such as better than forecast Retails Sales. This has recently kept GBP/EUR close to an 18 month high. Euro strength following the bailout has pulled rates down as explained above, and today the BoE release the minutes to the recent decision to hold interest rates, and increase Quantitative Easing by £50 billion.

The minutes are released today at 09:30am and will show discussions, differences of view and how the vote was split. Given recent data has been a little better than expected, the minutes could generate some short term strength for the Pound. Any gains however may well be short lived. A recent survey of UK directors show there is real threat of the UK heading back into recession, and this will likely keep the Pound on the Back foot.

Summary; how to get the best out of the market

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Weekly GBP/EUR & GBP/USD and the weeks data

Monday 20th February 2012
Good morning. As always on a Monday, today I will take a detailed look at movements in the last week against Pound/Euro, Pound/Dollar and the forecast for what might happen with exchange rates this week, in addition to the weeks economic data that might move the markets.

In this week’s Report:

• Key deadline on Greek bailout today
• BoE Inflation Report strengthens Pound
• Forecast for GBP/EUR and GBP/USD
• Round up of the week’s data that may affect rates

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

Sterling vs. Euro;

Sterling finished in a strong position last week against the Euro following better than expected retail sales and nervousness amongst investors over whether the long awaited Greek Bailout will be approved.













The Euro was also on the back foot on Friday following the resignation of the German President Christian Wulff. He was forced to resign after prosecutors asked for his immunity to be lifted as part of a corruption investigation. Whilst Chancellor Merkel played down the significance of his departure, it was significant enough for her to cancel a trip to meet the Italian Premier today ahead to the Greek bailout decision on Monday – which incidentally is deeply unpopular and controversial in Germany.

Movements in sterling have been dominated by developments in Greece recently, with the pound outperforming the Euro. Greece now expects Euro zone finance ministers to approve a deal on Monday that will pave the way to a debt swap with private bondholders, seen as crucial if the country is to avoid a disorderly default.

Earlier in the week the Pound drew support from the Bank of England's decision to keep interest rates on hold again and also the latest inflation report which dampened expectations of further monetary stimulus. But gains were limited as BoE Governor Mervyn King said there were still downside risks to a UK economic recovery given the tight fiscal conditions at home and weakness in Britain's major trading partners such as the Eurozone.

The BOE raised its two-year inflation forecast to around 1.8 %, higher than the expectation of most economists. The lower inflation expectations had been keeping alive prospects of it further quantitative easing. More QE usually has an adverse impact on the strength of the currency and so therefore this news bolstered the Pound.

All eyes will be on Greece heading into the new week and whether the bailout will be approved. An approval, despite its austere implications to the people of Greece will offer the markets some certainty and may see the Euro strengthen against the Pound. Send me a free enquiry now and discuss your options to protect yourself against any unwelcome market movement. A ‘Stop-Loss’ order can limit any losses to you in a falling market yet keep your position open for you to capitalise should the market do the opposite and move in your favour.

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Sterling vs. US Dollar;

It was a choppy week for the GBP/USD cross with rates moving between the $1.56 level and reaching highs of just below $1.59 on the mid-market.













The main factor behind the early week lows was the threat of a downgrade of the UK’s AAA credit rating by the credit rating agency Moody’s. This was due to a combination of weak growth and also due to the UK’s exposure to the Euro zone debt crisis. There was also key data released which showed that unemployment rose by 48,000 to 2.67 million in the three months to December, official figures have shown, the smallest rise in almost a year.

However, the number of claimants was nearly double the forecast. The rise in unemployment had been forecast because there is simply no growth. With this in mind, Sterling still took a hit pushing down into the $1.56 region against the Dollar.

The pound gained momentum after comments from BOE Chief Mervyn King regarding the interest rates being kept on hold and prediction of no further stimulus in the UK. This positive news for the pound was also coupled with a rise in retail sales which rose 0.9% in January compared with December, according to the latest figures from the Office for National Statistics (ONS). The figure was much stronger than forecast as many economists had expected sales volumes to fall.

Everything surrounding the future of where rates are heading depends on the outcome in Europe. With an announcement on new bailout due to be released today, it will be interesting to see what the outcome holds for Sterling and the Dollar.

If approved it could well see a flight from safety and see the dollar strengthen against the pound. A flight to safety is when global investors worry about economic uncertainty and flock to the ‘safe haven’ status of the US Dollar. This in turn strengthens it and makes it more expensive to buy, pushing the exchange rate lower. This could be reversed should a bailout be agreed today, and this in turn may push GBP/USD lower.

With so much movement between the GBP/USD timing is essential when buying or selling currency. By clicking here and making a free enquiry you can have a free consultation to help you make an informed decision as to when you make your move.

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Weekly Economic Data that may affect exchange rates

Monday – Markets will be very quiet for fundamental data today as the US is closed for President’s Day. This by no means mean the currency markets will be stagnant however, as today we expect the Greek bailout vote to be agreed by the EU, which is likely to have a big impact on exchange rates. The only fundamental data of note is UK House Price info and the RBA minutes from Australia.


Tuesday – Markets will continue to react to yesterday’s Greek bailout decision. We also see UK Public sector borrowing, Consumer Confidence measures from the EU, and Retail Sales from Canada.

Wednesday – A key day, as we will see the BoE minutes from the recent decision to increase QE. The discussion notes and votes often impact GBP. In the EU there are various inflation numbers from Germany and the whole EU. In the USA, Home Sales and mortgage applications are the main releases.

Thursday – Today in the UK we see the latest mortgage approval numbers showing the health of the housing market. There is also a UK Industrial Trend Survey. In the Eurozone there are some German Confidence measures. Stateside we have Housing Prices and Jobless claims.

Friday – Another key day for the currency markets. There is the G20 meeting which could affect exchange rates. Germany and the UK both release Gross Domestic Product figures; these often have a big impact on the value of a countries currency. In the USA we see home sales and consumer sentiment.

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Pound Euro rates go up Feb 2012 Forecast Outlook

Friday 17th February 2012
Good morning. Sterling gained well against the Euro yesterday as the single currency suffered from delays to a second Greek bailout. The pound was also supported by fresh questions as to whether there would be further UK monetary stimulus. Sterling was also up slightly on the day versus the dollar, as risk sentiment declined over Greece. The below charts show how rates moved throughout the day yesterday.

~Currency Movements on Thursday 16th February 2012~











Doubts over Greek Bailout weakens Euro; Pound/Euro up

Why have Pound/Euro rates gone up? Eurozone finance ministers have demanded much greater oversight of Greece's economy in return for the €130 billion bailout package. In a three-hour conference call this week, the ministers scrutinised Greece's planned budget cuts.

The single currency bloc praised Greece's "substantial progress", but demanded more detail, including a full timeline for implementing the measures. A decision on the bailout is expected to be finalised on Monday

The effect on the currency markets was a weakening Euro and a decline in risk sentiment. Investors worried about the continued wrangling have moved to the safe haven of the US Dollar – the net effect was a much weaker Euro that was cheaper to buy, and rates are now close to re-visiting the recent 18 month highs.

Pound/Dollar rates could fall due to EU uncertainty

Why may the Pound/US Dollar rates fall? As the bailout for Greece has been thrown into doubt, it has renewed the flight to safety. This is when global investors are worried about economic uncertainty and flock to the ‘safe haven’ status of the US Dollar. This in turn strengthens it and makes it more expensive to buy, pushing the exchange rate lower.


Getting the best exchange rates to buy Euros

As I’ve stated before in the blog, it should be noted that this is the 6th time rates have broken €1.20 in the last few years, and each and every time the spike is short lived, to be followed by a correction lower. If it were me needing Euros in the next 6 months, I would fix the rate as soon as possible, considering back in October it was €1.13. There is no way to predict exactly where rates will move, but looking at the historical movements, in my opinion there is more chance that rates will fall than continue rising.

Even if you don’t need your currency for up to 2 years, you can still lock in the current rate with a Forward contract, and only lodge 10% with us at the outset. The remaining 90% bulk remains with you until you need your currency transferred. In this way you are protected against markets going down, and allowing you to budget effectively.

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Pound breaks €1.20 vs Euro on BoE inflation report

Thursday 16th February 2012
Good morning. Sterling rose against the Euro yesterday on the back of the Bank of England inflation report, pushing a cent higher and breaking through the €1.20 level. Against the Dollar, we ended slightly lower. Today after the snapshot of yesterdays movements I'll cover how Sterling exchange rates may be affected by: The inflation report, UK unemployment, the prospects for UK recovery, and faltering UK growth.

~Currency Movements on Wednesday 15th February 2012~











UK Unemployment

As you can see from the chart above, as trade opened GBP/EUR rates fell due to UK unemployment figures. UK unemployment rose by 48,000 to 2.67 million in the three months to December, official figures have shown, the smallest rise in almost a year. However, the number of claimants was nearly double the forecast, and so Sterling took a hit pushing lower to €1.19 on the Euro and in the $1.56's against the Dollar. The Pounds fortunes were soon to change however, following the Bank of England's inflation report....

Bank of England inflation report

The UK economy will "zigzag" this year, dipping in and out of growth, but should avoid going back into recession, Bank of England chief Sir Mervyn King has said. The Bank's quarterly inflation report predicts the economy will grow by 1.2% and forecasts inflation will continue to fall in the coming months.

However, it now predicts inflation will decline to 1.8% by 2014, not as low as the previous estimate of 1.3%. So why did this cause the Pound to rise against the Euro? The revised inflation figures make it less likely the BoE will pursue further Quantitative Easing, at least in the short term, and it is this that pushed the Pound back through the €1.20 level against the Euro, getting closer to the 18 month highs we saw in recent weeks.

"The fiscal consolidation and tight credit conditions at home and the weakness of our major overseas trading partners are acting as a drag on growth," said Sir Mervyn.

"The underlying need for repair of balance sheets means that the path of recovery is likely to be slow and uncertain. For much of this year, there is likely to be a zigzag pattern of alternating positive and negative quarterly growth rates."

However exposure to the Eurozone debt crisis could keep any further gains in check. Analysts said given UK's high exposure and strong trade links to the euro zone, sterling's gains would be muted against the US Dollar and Euro, and as such many remain bearish about its prospects in the months ahead.

They also expect austerity measures to hurt the UK economy which would derail deficit reduction, raising prospects of a downgrade of its AAA rating.

Today's Data

Let’s start in Australia where we will see Inflation data in addition to unemployment figures. In Europe a report is released by the European Central Bank. Further afield in the states we have various Jobless measures and various numbers showing inflation. After all the data is released one of the FEDs members gives a speech.

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Pound Sterling Forecast affected by Inflation and Credit Rating

Wednesday 15th February 2012
Good morning.Credit ratings agency Moody's yesterday unnerved investors by warning it could cut the UK's AAA credit rating due to weak growth, and also due to it's exposure to the euro zone debt crisis. As the daily charts show below, this caused GBP/USD to drop significantly, and the GBP/EUR rate also fell, although not by as much.

~Currency Movements on Tuesday 14th February 2012~











Sterling falls on downgrade risks

Why has Pound Euro rate fallen Feb 2012? As mentioned above, the main reason for rate drop other than the UK QE programme and possible Greek bailout, is the credit warning given by Moody's, that has weakened the Pound off slightly this week.

Losses have been limited somewhat however as this isn't a huge surprise and had been a possibility for some time. Because of the strict government austerity measures that have contributed to a poor UK growth outlook, many in the market had been expecting this for some time. It is the first time the UK's very good rating has been reviewed in a few years.

The reaction in the currency markets was less severe than in 2009 as several large developed economies including the United States and France have already been downgraded by ratings agency S&P in the last year. In fact so many countries have now been downgraded, it's almost become meaningless and as such there was limited reaction, although rates have still dropped away.

"We are underweight sterling mainly versus the dollar. Some of what Moody's are saying are things that have been bothering us for some time. It's no surprise to us that the ratings agencies are catching up," said Clive Dennis, head of currencies at Schroders. As well as issuing a warning on the UK, the agency said it may cut the credit ratings of France and Austria and downgraded six other European nations.

UK Inflation data eyes / BoE report

Of other note yesterday was the latest inflation figures for the UK. They came out exactly as forecast, but still showed a sharp fall in inflation. It showed 3.6% - last month it was 4.2%.

Despite being as forecast, the lower figures makes it easier for the BoE to make the case for further monetary easing, and in turn could weaken the Pound.

Today we will have the BoE inflation report, following policymakers' decision last week to pump another 50 billion pounds into the economy to try to stimulate growth under its quantitative easing (QE) programme.

Other data today

We kick of the German GDP data at 7am, followed by a raft of UK data at 09:30am including Average Earnings, Unemployment, a BoE inflation report and a speech by BoE governor Mervyn King.

We will also see EU wide GDP and Trade Balance figures. In the USA there are some Industrial production figures followed by the Federal Open Market Committee (FOMC) minutes.

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