Fluctuation in exchange rates

Last week we witnessed another volatile week for Sterling against the single currency with a 3.2% fluctuation in exchange rates across the week. In real money terms, this equated to a difference of over £5,500 when purchasing €200,000. The movements came following a series of economic announcements in both the UK and the Eurozone further proving the fragile state of both economies and in turn their respective currencies.

The main details of note from a UK perspective came in the shape of the Consumer Price Index showing a hike by 0.6% taking the annual rate to 3.7%, higher than the expected 3.5% that had been forecast making the current level the highest seen in 17 months. This was followed by the bank of England minutes which showed an expected 9-0 vote from the Monetary Policy Committee to hold the base rate at 0.5% and pause its quantitative easing program at £200bn. The final piece of data released on Friday saw the UK’s budget deficit revised down to £156bn from £163bn. With reducing this figure a top priority for PM Cameron and deputy PM Clegg the news would have been well received as the new coalition government attempt to bring the UK out of the financial crisis it is still in.

The biggest news of the week in the Eurozone came from Germany where Chancellor Angela Merkel announced a ban on naked short selling. This caused investors to sell off the Euro causing some short term weakness for the single currency. This was followed by negative economic sentiment figures from Germany and the Eurozone as a whole with figures of 45.8 and 37.6 respectively being released.

When reviewing the weeks activity and the highlights listed above it further proves that Sterling is still in a fragile state. In normal circumstances last week would have surely led to significant strength for the Pound with negative news in the Eurozone and positive news in the UK. This as we saw did not materialise and those with an account open here at FCG were in the best position to protect themselves from market fluctuation. If you have yet to open a trading facility with you can do so by clicking here.

The week ahead sees a host of data releases for both the UK and Eurozone starting with the UKs revised GDP figure released on Tuesday morning. The other main releases are the UKs mortgage approvals, house pricing index and consumer confidence figures. In the Eurozone we will see consumer confidence figures and German CPI data released on Wednesday and Thursday respectively. With the above releases known to cause volatility on the markets it could be wise to get in touch with us here at FCG. For more information call us today on 01442 892060, and we can go through the tools available to you.

USD

GBP/USD hit a 14 month low last week as a result of further safe haven demand for the dollar. Recent weeks have seen a lack of investor confidence causing a fall in demand for riskier assets and a sharp increase in demand for perhaps the world’s safest asset, the Dollar. This was partly the result of a fall in prices across the commodities market sparking a sell off of the so called ‘commodity currencies’ such as the Australian, New Zealand and Canadian Dollar. Further Dollar gains were made on Thursday when news from the continuingly troubled Eurozone filtered through that German Chancellor Angela Merkel had announced unilateral ban on naked short selling. This helped fuel further concerns for the state of Euro Zone economy and led to a sell off of Euro investments.

In the UK CPI (Consumer Prices Index) and RPI (Retail Prices Index) were up, however Sterling failed to make any gains as concerns for its fiscal position (government debt) continued to worry the market. Additionally the BOE (Bank of England) announced its unanimous decision to keep interest rates at hold and to continue to put a pause to Quantitative Easing as expected. Finally, Friday gave the UK it’s only major piece of positive data release when Mortgage Approvals recorded a positive reading. However the rate remained in the dollar’s favour, failing to reward anyone looking to purchase dollars and suggesting that the market may continue to fall.

Looking forward to next week we have both UK and US GDP along with a series of data releases from both sides of the Atlantic. Although it is likely that these could effect Cable (GBP/USD) there is a stronger likelihood that the global economic climate will take a greater effect. Those looking to sell dollars can take advantage of today’s rate should speak to their FCG Account Manager about Forward Contracts. This will allow you to lock in to today’s rate for up to two years in advance and allow you to make the most of your currency exchange.

This Weeks Data

Below is a summary of the key data releases scheduled for each day this week. These scheduled released can cause volatility in the markets, but don’t discount other factors that aren’t scheduled, such as ongoing developments in the Eurozone that caused lots of volatility in the markets last week.

This week is fairly quiet, with not much data from the EU or UK other than GDP on Tuesday. For this reason, markets will likely be continuing to focus on risk sentiment. What’s that? Well, when investors are wary, they will move funds to perceived safer currencies such as the USD. That’s what we saw at the end of last week, when big selling in riskier currencies (GBP & EUR) caused large swings in rates.

It’s this risk sentiment along with ongoing developments in the Eurozone will be more important than the scheduled data this week.

Monday

Holidays in France, Germany, Switzerland and Canada today. Elsewhere we have some home sales data from the USA. Other than that it’s a quiet day, with nothing of note from the UK or EU.

Tuesday

From the UK, we’ll be watching the GDP data carefully, along with mortgage approvals. In the EU there are some industrial measures. Later in the day from the states we have Consumer Confidence and housing prices.

Wednesday

Yet more homes sales info from the states, and Trade balance from New Zealand later in the day. Rates for the Kiwi have risen somewhat in the last week – good figures here could bring rates back down.

Thursday

Consumer Prices from Germany gives an inflation indication, and can therefore have an impact on interest rates. From the US, we have jobless claims and more importantly, Gross Domestic Product. At midnight, Gfk release their consumer confidence figures for the UK which could cause movements for the pound.

Friday

Retail Sales for Germany, and some income and expenditure data from the states. That’s it for this week.

For more information on the information contained in this report, contact :

Tel: 01442 892060

Web: www.foremostcurrencygroup.co.uk