Monthly Archives: August 2011
Sterling may still have a headache in the coming months, look out for spikes in the market and make sure you take advantage of them!!!!
This report will take a look at the cost of sending money overseas, if you are buying foreign property you may be surprised at just how much can be saved by using Foreign Currency Direct.
“Brighter times are on the horizon for Sterling, but you need a damn strong telescope to see them.”
The table below shows the difference you would have been able to purchase trading at the high compared to the low yesterday and the difference this would have meant on a £250,000 transfer.
| Currency Pair | % Change | Difference on £200,000 |
|---|---|---|
| GBPEUR | 0.62% | €752.50 |
| GBPUSD | 0.76% | $3,100 |
| GBPCHF | 1.04% | CHF 3,470 |
The UK Economy and Sterling Forecast
Sterling suffered against almost all majors yesterday despite the lack of any obvious driver in terms of data sets or breaking news – BUT WHY?
To me it seems alarmingly obvious. Whilst the headlines in business sections of newspapers continue to highlight the potentially catastrophic situation of the Euro or the growing debt in the States, canny investors are more focused on the unenviable position the UK economy find themselves in.
GDP remains on the balance between growing and shrinking, inflation is wildly out of control (easily more than double the BofE’s 2% target) and interest rates remain at record lows – with very little sign of increasing any time soon. On top of this we have just suffered the worst civil unrest since the 1980s for very little reason whatsoever. If this isn’t enough to upset your appetite to invest in Sterling then consider then that we are the third most exposed entity to Eurozone debt and a major trading partner to the US.
Another interesting fact to note is that the Misery Index (the combined measure of inflation and unemployment) is the highest in the UK since Cher topped the charts with the ‘Shoop Shoop’ song in 1991. Worrying times indeed.
Sterling / Euro Forecast
To put it blankly the future for Sterling looks extremely bleak, the question you ask yourself is when it is likely to change? Well in my opinion it isn’t, certainly not very soon. If you are holding off on selling Sterling in the short or medium term then you are looking towards other currencies weakness and not Sterling strength. I doubt we will see interest rates rise for over a year, GDP has shown very little signs of significant improvement in Q3 and as we aren’t raising interest rates inflation is likely to continue to stray. Very basically this means the Pound’s position is likely to get even more fragile and I’m sure each and every member of the MPC are suffering from an increasingly receding hairline as of late.
UK Data (like MPC members’ hairlines again) seems exceptionally thin this week. The only notable figures are Consumer Confidence (released as expected at -31) and Nationwide House Prices due out Thursday morning. Unsurprisingly these are expected to decline MoM to 0.1% from 0.2%.
Although there is arguably more pressure on the Euro than Sterling from Sovereign Debt, this is more long term than the predicament than the UK economy is in. It may be a bold statement but I could see GBP/EUR rates head towards parity as we approach Christmas this year before what could be a better year for the Pound in 2012.
There are few currencies at the moment that I would think are likely to lose ground against Sterling for the remainder of the year. Brighter days are on the horizon, but you need a damn strong telescope to see them. If are looking at buying overseas property from Sterling then give one of our dedicated team a call today to make sure your move does not burst the Bank 00 44 1494 787462
Dollar and the Safe havens
Speculators have been mooting that due to the extent of risk aversion seen on the markets this year (leading to record highs for Gold and the Swiss Franc) that they are no longer ‘safe’ assets, as should the global economic position improve they are vulnerable to a sharp sell-off.
“It is not difficult to believe that gold could correct a reasonable amount.” Ashok Shah stated, chief economist investment officer at London & Capital. I certainly understand this point, but to me this is a long way off – gold and the Swiss Franc are, in my opinion still likely to break into fresh highs and although they are likely to correct at one stage this is unlikely to be for some time yet.
A lot of this comes down to the American economy, which like the UK is showing very little sign of striding towards a full recovery. I think the Dollar (alongside the Pound) will struggle for the rest of the year (even against the Euro) and that as a result Gold and the Swiss Franc will continue to gain. As a further nail in the coffin for the Dollar today Consumer Confidence in the States slumped to 44.5 yesterday evening. If you are unsure how the global economy is likely to affect your transfer or whether your currency of interest is considered ‘risky’ or ‘safe’ get in touch today on our international number (+44) 0 1494 787 462 during U.K office hours asking form Daniel Wright
Australian Dollar Forecast
Unlike the UK things are looking very rosy in Australia. The economy over there is in better shape, Interest rates are 4.25% higher and data due out this week looks likely to improve as opposed to worsen, even the weather is better over there!
Retail Sales and Private Capital Expenditure are both expected to show an improvement MoM tomorrow and Private Sector Credit grew this month (released this morning at 0.2%). You wouldn’t need a pair of crystal balls to hazard a guess that Sterling’s temporary resurgence against the AUD may have subsided as the AUD continues to gain back ground at an alarming pace. We are still five cents away from record lows earlier this month, something I could foresee being broken again in September. If you are moving down under or have any Australian Dollar requirement you can utilize a Stop order to make sure your transfer does not become unaffordable. For a full explanation email me djw@currencies.co.uk and one of our currency specialists will be in touch.
Pound Sterling and majors – The week ahead, data you need to be aware of! GBP, USD, EUR, AUD, ZAR, NZD and more
This week promises to be an exciting one again for the Pound, less because of major data releases within the U.K but for those overseas, however do be extremely wary of Consumer Confidence figures out for the U.K overnight tonight. Confidence in the U.K is not exactly at great heights, as reported recently our U.K ‘misery index’ was sitting at the highest in 17 years which I would imagine has a small correlation – the markets do move overnight so if you have an imminent trade to carry out it may be prudent to get in touch before this release.
The three most notable of the overseas releases are firstly the Federal Reserve minutes, much like the Bank of England minutes they confirm economic plans going forward and can move all currencies as investors rush to shift around funds here there and everywhere depending on what is said. Be aware this is out at 19:00pm tonight when we will be closed.
German GDP (Gross Domestic Product) data due out on Thursday morning at 07:00am and U.S Non-Farm Payroll Data due on Friday at 13:30pm. The first of the two (German GDP) is a big release for those buying or selling Euros, with Germany being the largest economy in the Euro Zone their Germany’s growth will be key to the Euros performance first thing on Thursday.
U.S Non-Farm Payroll data can affect all major currencies and on its last release we saw a great movement for the Pound against the AUD, NZD and ZAR however rates can move either way dependent on how this release comes out. The data release is notorious for being predicted incorrectly and is as bigger market mover as interest rate changes so be prepared and make sure you are covered with either a limit or stop loss order to cover you on adverse market movements in what is an extremely volatile market.
If you need to transfer funds over the next few weeks, let me know djw@currencies.co.uk and I will keep you informed of market movements. Even if you don’t have full availability of funds, you can reserve your rate for a small deposit with a forward contract.
Bernanke – No new steps for stimulation
Ben Bernanke – Chairman of the Federal Reserve confirmed in his speech that at this present time he will not be looking for further economic stimulus. Many had expected the mention of further QE (Quantitative Easing) and indeed the possibility of round three for the States, however his hawkish mood and words to rule it out for the time being have led to a little Dollar strength.
Feel free to get in touch if you have any upcoming transfer as this news could affect all currencies over the course of the rest of today and next week.
People may become a little more open to risk, strenghening the AUD, NZD and ZAR as the U.S shut the door on QE for the time being.
You can get me on djw@currencies.co.uk - I can potentially save you £1000s on any transactions be it buying or selling foreign currency, along with offering a fantastic level of customer service. I look forward to hearing from you
USD Strengthens in anticipation of Bernanke Speech
The dollar gained versus all of its 16 most-traded peers amid speculation about what Federal Reserve Chairman Ben Bernanke will say this week regarding the US economy with the hope of new measures in the US to try to bolster its recovery.
Any hints of a third round of quantitative easing or a lack of will determine the fate of the US Dollar for an indefinite period of time. We assume that quantitative easing, in which the central bank injects new money into the economy, could weaken the value of the dollar.
Bernanke used last year’s annual Jackson Hole speech to hint at another round of quantitative easing, which eventually pumped $600 billion into the financial system.
As we get closer to Friday, the market will come to the conclusion that Bernanke’s speech will likely not include QE3, but will probably allude to it, that it’s a potential and will be left on the table. If QE3 does not occur then we could see the pound weaken back to the 6 week low of 1.58 so a forward contract may be ideal before we potentially see this occur.
The USD spiked yesterday on the back of the stronger than expected US durable goods data which grew by 4% in July beating the 2% estimate. Durable goods are products meant to last at least three years such as cars. With the US GDP data out on Friday it will if anything be a very volatile couple of days for the USD which will have a knock on effect on global currencies so stay in close contact for what I expect to be two very hectic days on the trading floor.
Call me now on 01494 787474 and ask for Ben quoting PSF. Or alternatively email me at bma@currencies.co.uk with your contact details and I will give you a call to discuss your requirements and explain the options that are available to you.
UK Misery Index – Highest for 17 years…
The UK economy is really struggling. Latest GDP (Gross Domestic Product) figures measuring the countries rate of growth have shown a decline and all the economic indicators from manufacturing to employment show tough times are still ahead. I really wouldn’t expect any major improvements for the pound anytime soon.
Three decades ago Arthur Okun devised the Misery Index. Quite simply it is the sum of Inflation plus Unemployment. Inflation is the rate at which the price of goods and services (which can be termed cost of living) is increasing and unemployment is the number of people out of work.
The latest Inflation reading on the CPI (Consumer Price Index) reading was 4.5%. This is the most favoured measure of inflation because it looks at the most relevant price changes affecting consumers. Latest Unemployment figures showed a rise to 8% unemployment. The Index therefore stands at 12.5%, the highest since February 1994!
This measure reflects the lack of confidence in the economy. Consumers will be reluctant to go out and spend money if they are concerned about their job and feel prices are rising too fast. Moreover they will have less disposable income as more of their cash is taken up on essential living costs. The knock on effect will hurt retailers and this in turn feeds through into the wider economy. Less tax revenues will affect government. I could go on and on.. The bottom line is things really aren’t good for the UK economy and with the Bank of England themselves saying that Inflaiton could hit 5% it may get worse. With growth falling unemployment will rise which will probably lead to a rise in the Misery Index. The Index is purely indicative but I think very useful as a measure anyone can relate to.
We all knew this recovery would take time and any expectations of a quick return to the kind of trading levels we saw 3-4 years ago are well and truly sunk. Let me remind you of my post on Monday http://www.poundsterlingforecast.com/2011/08/22/markets-settle-down-but-the-problems-are-far-from-solved/ where I highlighted that the OECD (Organisation for Economic Cooperation and Development) have reported four consecutive quarters of falling growth in the worlds main industrialised nations.
Friday we have UK and US GDP figures which could bring some light or equally turn off the lights. Expectations are low so any small improvements could trigger a sterling rally. Despite the turmoil we are very close to the two month high against the Euro and very close to the two year high on the Dollar. Due to the global uncertainty presented by the debt crisis in the Eurozone and the US many previously strong currencies have weakened as investors flock to safer shores. The Aussie Dollar, the Kiwi, the Canadian Dollar and South African Rand have all weakened considerably presenting some good opportunities as highlighted in yesterday’s post by Ben.
With confidence still very low we could well see the pound fall against these currencies in the coming weeks. If you have any currency requirements we are specialist currency brokers who have won awards for our rates and levels of customer service. If you are expecting to have any currency transfers to make why not find out from us if you could be getting a better deal? We have a real and genuine interest in the events that move the market and will be more than happy to not only ensure you get the very best rates from the market but also offer guidance to determine when is the most beneficial time to trade. You can contact the author directly on 01494 787458 or jmw@currencies.co.uk
Sterling could weaken by the GDP figures this Friday. Good buying levels still occur against the USD, CAD and southern hemisphere currencies.
Sterling exchange rates have weakened slightly this morning from yesterday’s close. Yesterday was very light on the data front but this morning Germany has started the first of this week’s major release with their PMI for the manufacturing and services sector. The levels came out above expectation and this had led to some short term Euro strength. Then Germany came out with their ZEW survey which shows what economic sentiment is within the strongest economy in the Euro zone. These levels came out particularly poor but that has not stopped the Euro strengthening.
In the UK we had mortgage approvals released this morning which showed a slight improvement. This will be positive moving forward and the biggest data release of the week will be out this Friday with the revised Q2 GDP figures for the UK. This can potentially be a very big market mover, GDP is a good measure of economic growth and is closely watched by investors. The UK is currently facing high levels of inflation at 4.4% year on year which is considerably above the BoE target at 2% plus jobless claims are high.
We could be facing stagflation where inflation is high and economic growth rate is low. The GDP figure on Friday may indicate slow growth and subsequently we may see sterling suffer as a result.
Recently we have seen the pound perform fairly well against a host of currencies due to investors seeking a safer investment at a time of heightened concern about euro zone debt problems and weakening growth in the United States. The risk of intervention by central banks have deterred them from buying Swiss francs and Yen hence turning to sterling.
With the recent highs that have occurred now may be a good time to purchase your currency especially against the likes of the USD, CAD, NZD, AUD & ZAR where the pound has been spiking. Please feel free to call me 01494 787474 or email me at bma@currencies.co.uk with your contact details and I will be happy to have a chat with you to explain how you can save on your currency exchange with us here.
Markets settle down… but the problems are far from solved
Following two of the most volatile weeks on financial markets today has seen some sense of calm return. Stock markets have seen a fight back today as it looks like Libyan Oil will be coming back online as fighting there is expected to cease. This has caused a brief rally on the stock market in Energy and Oil companies which has fed confidence through into other areas. A relatively quiet week on the currency markets is topped off with UK and US GDP (Gross Domestic Product) data on Friday. With major question marks over the ability of both economies to maintin growth amidst some very difficult conditions, these releases could be key. The OECD (Organisation for Economic Co-operation and Development) today confirmed that growth in the world’s main industrialised nations had slowed for the fourth quarter in a row. This is not good news and heightens the importance of Friday’s releases.
We can say with certainty therefore that the global economy is slowing. We are perhaps witnessing only the start of further problems. What does this spell for the pound? Well the bottom line is we just don’t know. With interest rates on hold there is little the UK can do stimulate the economy except Quantitative Easing. The mere mention of this (let alone it’s implementation) could see the pound go into freefall. How do we know this? Because it has happened before. It was such movements that caused the pound to go near parity against the Euro a couple of years ago.
We are really in uncharted territory as far the Pound and the global economy goes. Nearly all analysts expected the UK and the global economy to have undertaken a strong recovery by now. Pretty much all growth forecasts across the world have been torn up as data releases fail to reflect the high expectations.
With Eurozone GDP figures last week also showing growth rates falling the global recovery really does look on the brink of stalling. We are seeing some very attractive levels on buying dollars and we are only a cent away from the recent buying Euro high. If you have any currency exchanges we are specialist FX brokers who will help you get the best deal. The Sunday Times and The Telegraph have voted us Best Exchange Rates and we have also won awards for our levels of customer service.
We write this blog for the benefit of members of the public and clients who have an interest in the currency markets. If you want to find out for free and at no obligation not only whether you could be getting a better deal, but also a discussion of all the issues affecting your trades, fill in the contact form. Alternatively why not call 00 44 1494 787458 or e-mail jmw@currencies.co.uk quoting ‘JMW PSF’
GBP forecast for the coming week or so – strength or weakness?
Global Shares fall most notably the banks
The FTSE fell by the highest amount in 12 years yesterday, bank shares and indeed many others tumbled worldwide as investors continued to seem worried about the current worldwide situation. In cases like this you tend to see investors head for a ‘safe haven’. Currently gold (priced in Dollars) and the Swiss Franc are favourites, and both gained further ground yesterday. Interestingly, the Pound had a fairly good day too against the Euro and many other majors, it appears although the best of a bad bunch, heads are turning towards the pound leading to spikes in the market on days such as yesterday, I’m sure it will only take a few poor data releases for investors to shy away again, so in the current market taking advantage of a spike is key.
Overview and forecast for Sterling against the majors
With a reasonably quiet day ahead on the data front I thought I would give you a brief update on what is going on in the volatile markets and what we may see ahead.
GBP/EUR – The Sterling-Euro pairing has been relatively range bound of late, however this doesn’t mean this will be the case going forward. There are just so many factors affecting both sides at the moment that it is hard to know just where we will be in a few weeks time let alone the next hours trading. It appears that the ECB are willing to throw everything inclusive of the kitchen sink into helping the Euro survive and stay strong, whilst the BOE are in no rush to be raising interest rates for quite some time, Barclays in fact changed their rate hike expectations to August 2012 yesterday. In short, I don’t expect major movements for this pairing however there will no doubt be some great buying and selling opportunities in the coming weeks. In order to ensure you are in the best possible position you should make us aware of your requirements on 01494 787 462 so we can explain the various options available to you inclusive of limit and stop orders.
GBP/USD – The Pound came close to TWO YEAR HIGHS against the Dollar this week following some hawkish dissent from one of the Federal Reserve policy makers on Wednesday. He had mentioned that he felt the U.S would have to raise rates before mid 2013 and that growth forecasts should not be as high as they are. This led to a short term spike on Wednesday afternoon and a great chance for clients with an open trading facility with us to lock in to a fantastic level of exchange. America isn’t in great shape but as the saying goes when the U.S sneezes the U.K catches a cold so be aware we could have just as many problems around the corner too.
GBP/AUD/NZD/ZAR - The pound has seen great gains against all three of these more volatile currencies, as the risk appetite for investor’s decreases and they seek to unwind carry trades. Carry trades are where an investor borrows money in a currency with a very low interest rate (GBP,JPY) and shifts the funds to a currency with a very high interest rate (AUD,NZD,ZAR) making their return on the interest differential. When we see the unwinding of carry trades, you can see a snowball effect like we did in the past two weeks and very large movements over a period of days. Sterling is around 10 cents better now against the AUD and NZD and also roughly 7% better against ZAR than a few weeks back.. That is £14,000 difference on a £200,000 purchase!!
Once again this highlights the importance of letting us know your intentions, we can watch the markets for you and highlight movements like this meaning you do not need to have your own eye on these volatile markets all the time as I’m sure you have plenty to do all day yourself. make an enquiry today and one of our friendly and experienced brokers will call you bac, more than likely me personally.
GBP/CHF - Without a doubt the most volatile currency against the Pound on the markets at present… I have many clients who have Swiss Franc mortgages and are finding each month increasingly harder as payments soar alongside the Swiss Franc. The last week or so has been a little better for you with the Swiss national Bank stepping in to devalue the currency however be aware this may not last too long… this is why. The Swiss lost CHF21 Billion last year trying to devalue their currency, and cannot afford to keep on throwing money down the drain like this, there comes a point where they have to realize that the only thing to save the Francs increasing strength is a better risk environment and investors being more prepared to take on riskier propositions. We should still see increasingly volatile movements as the ongoing attempt to devalue continues, and the momentum of the CHF keeps pushing it back.
Public sector net borrowing today
This morning sees the release of Net Borrowing figures in the U.K and this can indeed be a key release. It essentially confirms exactly how much new debt is held by the Government and predictions can be quite a way out. This morning expectations are for £0.2Billion compared to £11Billion last month, a lower figure may be seen as positive for the pound and a higher one negative, it would not surprise me to see slightly higher than expected and the Pound to lose a little ground in early morning trading so it may be prudent to contact me on djw@currencies.co.uk first thing if you have an upcoming transaction to carry out.
If you have any questions or queries regarding anything in this report then please do feel free to email me djw@currencies.co.uk or call 01494 787462
Brief Update – Sterling gains rapidly against Dollar this afternoon following U.S growth expectation downgrade
The pound has made great gains against the U.S dollar this afternoon following comments from membersa of the Federal Reserve that growth expectations are lower than originally expected, also another member of the Fed has commented that he believes their latest policy will not work… leading to concerns that the Fed are arguing amongst themsleves – not a good sign at all!
Keep your eyes peeled, the week is getting interesting again 
Bank of England Minutes – Members vote 9-0 in favour of no change at all to interest rates – No sign of an interest rate hike for a long time – What does this mean to your transfer?
This morning saw the Bank of England minutes released, and as predicted led to Sterling weakness, not great news at all for those of you looking to send money overseas. The members of the MPC (Monetary Policy Commitee) voted 9-0 in favour of no interest rate movement at all. Markets move on rumour as well as fact and have already moved down slightly following this release. An interest rate hike is usually seen as positive for the currency concerned as it makes it much more attractive to investors (would you rather put you money in the U.K earning little to no interest or in Australia getting up to 7%???)
Now that all members are in full agreement it does really push the chances of a hike back condsiderably and some analysts are even questioning the chance of it happening at all in 2012, this may now hamper any serious Sterling strength in the short term against all major currencies. I am still in the belief that we may see Euro weakness at some point as there are just so many problems within Europe however when and how much is hard to work out, as the Euro has still managed to stand fuirm over the past year or so even though it is taking plenty of hits.
Should you have a pending currency transfer and want to achieve the very best rates of exchange we can save you anything up to 4% over using your bank – I work for Foreign Currency Direct and we are an FSA regulated company authorised as a payments institute so you can be sure you know you are dealing with a highly professional and safe company that has now been trading for over 11 years and currently has over 40,000 happy clients. Email me directly djw@currencies.co.uk or call my direct line 01494 787 462 during U.k office hours and I will be happy to explain exactly how I can help, I deal with Personal or Corporate transactions from any amount of £1000 to multi millions.
I look forward to speaking with you soon.
