Influential data releases

The markets re-opened on Tuesday after the long Easter weekend to Gordon Brown’s announcement to fix the date of the general election for the 6^th May. GBP/EUR immediately came under major influence from the opinion polls, not in favour of a particular party, but in speculation of either party achieving a strong majority. Due to the British first-past-the-post electoral system, if neither party can obtain a strong enough majority the outcome results in a Hung Parliament. It’s feared that this scenario will result in a Government that lacks the power to take the tough actions needed to tackle the UK’s mounting debt problems and ultimately provide a strong enough platform for Sterling to make any long-term gains. Although the polls generally showed a mixed outcome, those showing a Conservative majority had the greatest influence and GBP/EUR steadily moved through the 1.13 barrier further encouraged by reoccurring concerns over the Greek economy.

By Thursday morning the opinion polls began to take a negative effect on Sterling and investors looked ahead to two of the week’s most influential data releases, UK Industrial Output and House Pricing Index. Industrial output rose 1.0 percent on the month in February, reversing a 0.5 percent fall in January. Output rose twice as fast as expected in February and posted its biggest monthly rise since September. Likewise the House Pricing Index showed a general rise in the value of UK housing and as a result GBP/EUR climbed to a 7 week high. Finally Thursday also saw the Bank of England keep interest rates on hold at 0.5% and freeze its asset purchasing scheme as expected.

Looking ahead it is likely that Sterling will come under further political influence and suggested that it may weaken as the election draws nearer. If you are looking to buy Euros you can safeguard your rate of exchange from any adverse movement and take advantage of today’s highs by locking in to a rate of exchange for up to two years into the future through a Forward Contract. However, with the saga in Greece continuing to threaten the Euro and the latest batch of UK data possibly marking a turning point for the UK economy, those selling Euros should consider the possible threat that Sterling may continue to make gains.

Sterling optimism

Over the past week we have seen a steady positive movement for the Sterling-Euro currency pairing. With the bullish behaviour exhibited by the Pound, Euro prices rose 1.8% from the lows to highs of the week. Starting the week with bad news for Sterling was the data released stating that the number of home loans weakened during this last quarter. This suggests the expectation that the Bank Of England and Monetary Policy Committee are likely to remain dovish in outlook, maintaining their current currency policy throughout the second quarter as the economy continues it’s protracted recovery.

The final revision of GDP for the 4th quarter on Tuesday coupled with data for the House Price Index; saw better results than in previous forecasts. This aided the Pounds’s ascent against all major currencies, only slowing slightly on Wednesday as Germany announced a contraction in unemployment figures.

Thursday saw a statement from the Bank Of England addressing the home loan issue previously mentioned; “some lenders commented that much of the fall in demand in Q1 was driven by temporary factors, such as the cold weather and the ending of the stamp duty holiday.” The feeling is that next three months will see a positive stance adopted by lending institutions giving Sterling strength in the currency markets. This good news as well as unexpected drops in German retail sales meant a rise in the GBP/EUR rate to it’s high of the week.

The trends displayed this past week demonstrate the worth of staying up to date in order to maximise your currency purchase potential. By contacting your account executive here at the Foremost Currency Group for a free consultation, we can help you to optimise that purchase. For example, buying €200,000 this past week on Thursday instead of Monday, could have meant a saving of over £3200.

In the financial markets, as we moved onto the 4 day Easter weekend; the Greek debt crisis reared it’s head. The market’s were apparently unconvinced by the EU’s IMF-assisted scheme to bailout the debt-ridden southern European economy, should they fail to finance their gaping fiscal shortfall.  Against a backdrop of lackluster interest rate outlook, last week’s dismal auction of 12-year Greek bonds saw only €390m sold, compared to the €1bn on offer.

The market seems intent to test the resolve of the EU by actually forcing through a bailout, making the Euro’s performance reliant on the brevity of policymakers.

The sloppy approach to the situation so far also bodes ill for the single currency. Indeed, if the Euro Zone can’t muster a response to troubles in a small member state like Greece – just 2.6 percent of the currency bloc’s economy – this surely invites unfavorable expectations about the kind of havoc that could be caused if a country like Spain (11.8% of Eurozone GDP) or even Italy (17% of Eurozone GDP) meet a similar fate.

Improvements in the GBP/EUR rate are subject to pressure this coming week as the economic calendar presents major event risks with the BoE rate decision and PMI Services both due this week.

Expectations are that the central bank will keep it’s benchmark lending rate at 0.50% and continue to pause its quantitative easing program at £200 billion. It is difficult to gauge market reaction to such a move as previous months have shown a stark difference in reaction to the same news. Closing the curtain on the program shows a vote of confidence in an improving economy and could lead to an extension of the recent rally seen by Sterling.

As we move ever closer to an impending General Election, news has shown that the Conservatives have managed to widen their lead in opinion polls (conducted by YouGov Plc), commanding 39 percent of the vote against Brown’s ruling Labour at 29 percent suggest a 20 seat majority and no hung parliament at the upcoming elections set to take place on the 6th May.

This Sterling optimism suggest that those with impending Euro sales should get in contact with FCG to help minimise any potential loss by calling on +44 (0) 1442 892060.