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

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.

Sterling-Euro currency pairing

The past week has seen slightly more volatile movement for the Sterling-Euro currency pairing, with a 2.3% shift between the highs and lows of the week. To put this into monetary terms it would mean a difference of £4,600 on a £200,000 trade. We have however seen some positive growth with Sterling, rising to its strongest position in three weeks against a weaker Euro on Thursday, as it extended gains due to the report published on Wednesday with the welcome news that unemployment figures in the UK were lower than expected. This news paired with continued speculation as to the economic instability of several Eurozone countries provided Sterling with a chance to strengthen. Sterling dropped again slightly at the end of the week due to a number of factors, not least the speech made by ECB President Trichet with regards to his crisis management plan, volatility is often experienced during his speeches as traders attempt to decipher interest rate clues. Also responsible for Sterling slipping slightly were the remarks by a Bank of England policymaker that there was some risk of a double-dip recession, although only a subjective opinion, his words have carried with them a weight that has injected a slightly apprehensive feeling amongst UK investors.

This coming week could prove to be a volatile time for the pound as a conclusion to the Greece bail-out saga should come to a head on Thursday. Sterling could strengthen if the plan is insufficient and lacks backing from Eurozone powerhouses France and Germany, but could also do the opposite should the bail out plan prove successful, in which case the euro will strengthen, weakening the value of GBP against it. Until the plan is released, an air of uncertainty encapsulates the market, meaning it would be the ideal time to lock in a rate with the Foremost Currency Group through means of a forward contract or placing a stop loss or limit order,   allowing your currency to be traded at a specified rate to protect against any unfavourable movement. Please contact us for further information on how these tools can be implemented.

Security in your currency exchange is paramount in such unpredictable times and this is provided by a forward contract, where you can lock in a rate for up to two years. Those with impending purchases in the Eurozone might look to consider booking a Forward contract with the Foremost Currency Group. By placing a 10% deposit, clients can eliminate the risk of an unstable GBP/EUR rate by locking in a price today for a transaction that will take place in the future, up to maximum of two years.