What Is Likely To Affect Currency Rates next week? Pound forecast
The Dollar has weakened against the pound by a couple of cents whilst the Euro has fought
back slightly from a 16 month low against the pound over a similar
period.
If you are buying Euros or buying Dollars then next Wednesday is
in my view likely to be key. The Dollar tends to strengthen during times
of uncertainty and the Euro zone crisis has certainly provided a lot of this
whilst at the same time weakening the Euro.
With slightly better received bond auctions in Europe in the last few days, investors are showing signs of
cautious optimism hence the Dollar weakness and Euro strength (albeit only a
minor move compared to recent levels).
During this period, we have seen inflation in the UK coming down, and retail figures up
(good news for the pound) but on the other hand unemployment is rising (very
bad news for the pound). In my view next Wednesday is going to be key as
we see the release of the Bank of England Minutes and UK Q3 GDP figures in the
morning, and later that evening we have the US Federal Reserve Decision.
If UK growth is very weak or negative then it will likely start alarm bells
ringing for the prospect of a “double dip” recession- if this is the case if
you are buying Euros I would be tempted to jump straight away and cut my losses
within a few cents of a 16 month high against the single currency.
Likewise, should the Minutes point towards further Quantitative Easing in the
UK then again I would expect a reasonable degree of sterling weakness meaning
your pound would buy you less. If this is the case, then the only thing
likely to avert sterling against the Euro in the short term would be another
flare up of the debt crisis in Europe- this is certainly possible but do
remember the more damage done in Europe, and the longer the crisis runs, then
the greater the likelihood of UK trade with Europe slackening (another possible
cause of recession in the UK!)
On the US side of things Wednesday night may give us a few more clues about whether the
slightly more optimistic figures coming from the US of late is the start of a
wider recovery, or will Bernanke raise the case for more QE in the US as
well? Any slackening of the Euro crisis is likely to help Dollar buyers,
as is the suggestion of a QE3 in the US. In my view the USD is likely to
weaken a touch but sterling weakness may counteract any serious gain.
As such Wednesday would seem to be the perfect day to look at stop loss and limit
orders to protect your position but try and maximize any gains- e-mail Colm at cmg@currencies.co.uk with a brief
explanation of what you need to trade eg amounts, currencies, buying or selling
(and potentially a contact number), and quote PSF as the subject header. I would be happy to talk you through what
we can do for you and some reasonable options on how to approach your trade.
