Sterling exchange rates fall as the UK officially heads back into recession.
Sterling exchange rates have fallen this morning following the release of Q1 UK GDP in which the UK economy has posted negative growth for two consecutive quarters officially bringing the UK into recession. This is the first time this has happened since 2009 and was a little surprising with early forecasts suggesting the UK would just scrape through into positive territory at 0.1%. Following the release the market reacted immediately with the pound losing 0.5% against most major currencies. But what now for the pound?
GBP/EUR
Following the positive showing from the pound yesterday with levels reaching a 20 month high at 1.2277 the market has quickly fallen below the 1.22 mark highlighting how quickly levels can fall away. Many clients that have waited for the market to continue to rise have had a nasty surprise this morning following the UK GDP data release. The difference in the space of less than 24 hours on a £200k transfer to Euros is €2,280 when compared to the high and low, indicating just how important it is to be in a position to strike should a spike occur, as more often than not they are short lived.
To be honest I am a little surprised at the data set this morning as recently the UK had been coming out with some much more positive data of late and I genuinely believed a positive figure would have been shown. Yes there is an argument that the political uncertainty in Europe with the ongoing French elections could hamper the Euro, however I do fear this could now be the start of a short term slide and we could easily see levels back towards 1.20 and beyond. Should you be looking to buy Euros in the short term and are worried the market might slip away then e mail Mike at mgv@currencies.co.uk to discuss your options. We have many clients utilising forward contracts and locking in on their exchange for a guaranteed delivery in the future. This contract enables you to lock in a price for up to two years in advance for a nominal deposit and thus avoiding the market uncertainty. Contact me today while the market is still above 1.21 should you wish to buy Euros.
GBP/USD
As with GBP/EUR, GDP data this morning has hampered the pounds recent surge against the greenback. Cable levels earlier this week hit a 6 month high at 1.6170 but has dipped below 1.61 this morning. This week continues to be a busy week for the dollar with the Federal Reserve releasing its latest interest rate decision this evening. Rates are expected to stay on hold at 0.25% and this is unlikely to drive the market too much, although watch out for the press conference held afterwards for any insight into future directions for monetary policy. More importantly from my point of view for anyone with an interest in the dollar, you should keep an eye on US GDP data on Friday. As with the the UK data today, this could have a major impact on short term moves for the dollar, expectations are for a fall month on month from 3% to 2.6% and any deviation from this is likely to cause volatility.
GBP/NZD
Sterling has posted some of strongest gains of late against the kiwi gaining over 10 cents or 6% since February, a difference of over NZD$24k ond a £200k transfer during this period. Again being a benefactor of riskier trades due to its higher interest rates, the kiwi could well benefit should economic confidence return to the market. Should the US post better than expected GDP data on Friday this could well lead to a surge into riskier currencies such as the NZD, ZAR and AUD through the use of a carry trade. This is where clients borrow in a low yielding currency such as the JPY or CHF and will purchase currencies offering much greater yields to benefit from the increased returns. This is a risky strategy and will often take place during more certain economic periods and with the US acting as a global barometer better growth figures may lead to an increase in demand for these trades and hence a boost in demand for the kiwi, of course the reverse could happen should the data be poor!!
Other data of note for the kiwi will be the Reserve Bank of New Zealand interest rate decision later this evening – expected to stay on hold at 2.5% but any comments from the central bank following this could cause volatility, keep an eye on the release at 10:00 BST.
Should you wish to discuss any of the points raised in this blog and to discuss the contracts options available to then please email me at mgv@currencies.co.uk or call on 01494 787478
