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Sterling Struggles As Predicted Due To Weak GDP So Is Another Interest Rate Cut On the Cards?
The pound dropped as anticipated yesterday following some horrendous UK GDP figures that will probably have George Osborne sleeping fitfully for some time. With the wet weather curbing spending and floods costing both insurance and delaying build projects it was no great surprise to see GDP much lower than forecast. Added to the extra bank holiday from the Jubilee which will have cost the economy much like the Royal Wedding, and the fact that our biggest trade partner, Europe, is slowing, then it is still difficult to see how the UK will get itself back on track to achieve growth in the near term.
The Bank of England have already pumped billions into the system and kept interest rates at a record low in an effort to kick start the economy. Whilst the debate rages as to whether this process is working (some say it has meant the recession is a lot better than it would have been without QE, others say it has been a total failure), it looks as though more QE will be on the cards in the not too distant future. More worrying though for anyone holding sterling are the rumours the Bank of England may cut interest rates by another 0.25% before the first quarter of next year, a move which would no doubt weaken the pound.
Why would they do this with rates so low already you may ask? Well it is all down to the current GBP EUR levels in my view. Whilst the government and BofE cant officially try and weaken sterling to gain a competitive advantage against other EU states, the idea of an export led recovery by UK manufacturers is largely being killed off by the problems in Europe. The decrease in European spending (our biggest market) and the cost of the pound going up against the Euro, has meant it is much more difficult for UK companies to export to the rest of Europe. Whilst the pound remains very weak against a whole basket of currencies, I disagree with many of my colleagues that GBP EUR will continue to rise much more. Europe will no doubt have huge amounts of obstacles to overcome, and the Euro will obviously remain under pressure. However, the euro crisis should not distract people from the fundamental weakness of the UK economy- if the economy is not growing then the whole deficit reduction targets upon which the government has based its strategy will be completely out of kilter. I wouldn’t be surprised to see an interest rate cut in another attempt to stimulate growth with a desired byproduct being a halt to the pounds recent surge to an ever weakening euro.
The future of exchange rates for the pound will depend on whether the Bank of England takes on board the recent data and makes a move sooner rather than later. If you are looking to buy Euros from sterling it may be prudent to secure something in case the markets begin to price in the possibility of a UK rate cut. For any more information please feel free to e-mail Colm at cmg@currencies.co.uk and I would be happy to help.
Should I Buy or Sell GBP At The Moment?
The answer as ever rests with which currency you are holding but if you do need to buy or sell currency for transfer abroad or back to the UK then the following is my generic overview of trends I expect to see in the currency market.
GBP – Sterling has rallied notably against Euro rising to a near 4 year high however much of this has been down to turmoil in Europe rather than real sterling strength as can be seen when you cross reference GBP rates with most currencies outside Europe. With another £50bn of QE added by the Bank of England, and Governor Mervyn King admitting the UK wasn’t even halfway through its own economic problems, I would expect sterling to remain vulnerable as there is still a very outside chance of an interest rate cut in the UK if QE doesn’t work. If you are holding most non European currencies then current levels to buy GBP are pretty good, however with the recent spike against the Euro (and CHF, PLN, and HUF) then it may be a good time to buy them- sterling has rallied nearly 3% in about 2 weeks so even if
you only need a £5k transfer for spending over the summer it would still save
you £150!
EUR – With a number of countries having been bailout out the single currency is still
under fire as no solution on how to tackle the debt problem can yet be reached
between Germany and the rest. This has created massive Euro weakness and provided a great buying opportunity from both the US Dollar and sterling. I do not think
the crisis will likely end any time soon and I think the Dollar will likely remain robust as a safe haven but I do fear sterling may be slightly overvalued at present against the single currency until we see the UK economy turning around.
CHF – Given the Swiss National Bank decision to keep a base peg of 1.20 to the Euro it has meant the CHF has lost its safe haven status, and pretty much as the Euro has weakened so has the CHF. Pretty much for any trade involving Swiss read Euro until the SNB change tack.
USD – Job creation figures in the US have been positive but a lot weaker than expected. This is likely to be a key election debate between Republicans and Democrats this year and how to tackle the economic slump- this will be key as once again the US national debt will come up for
debate in the run up to November which could weaken the Dollar as politicians
bring the US with brinkmanship to further their own policies. The other big threat to the Dollar is the possibility of “QE3” stateside and an extension of “Operation Twist”. However whilst crisis reigns in Europe, investors will need a safe haven which will be the Dollar. As such expect USD to remain strong against both GBP and EUR.
AUD – mining still dominates the Aussie as China still hoovers up huge amounts of its natural
resources. Wobbles in Chinese growth have seen the Aussie see-saw between 1.50 and just over 1.60 in the last couple of months and despite a fairly recent rate cut Down Under which temporarily weakened the currency I expect to see the Aussie strong against GBP unless the
RBA cut rates much further.
If you do want to transfer funds and want to see how a broker can help then please feel free to e-mail Colm at cmg@currencies.co.uk for an overview of where I think your currency may head and a good exchange rate.
Will Yesterdays Quantitative Easing By the Bank Of England Affect Pound Exchange Rates?
In a move widely anticipated by markets, we saw the Bank of England extend the Quantiative Easing program by another £50bn yesterday. Initially the only reaction on the markets was actually a rebound in strength for the pound as an interest rate cut had been avoided. However by late afternoon the pound had lost ground against most major currencies including the Aussie Dollar, USD, Kiwi Dollar, Rand, with the only notable exceptions being European currencies (more of which later).
Policy makers such as Mervyn King had been pretty transparent in recent public comments which allowed the markets to price in the QE which is why we haven’t seen much reaction so far but the sting could still be in the tale. The move is another clear admission that the UK economy needs help (otherwise why the need for more QE). Given comments last year that we would avoid a double dip recession and see better growth from everyone including Mervyn King, George Osborne, and many within the CBI, all of which proved to be wrong and subsequent growth forecasts have consistently been revised down. In my view the UK economy is likely to continue to struggle, particularly with the problems in Europe still running and the banking sector (one of the UK’s biggest revenue generators) once again under attack. On the whole if you are looking to move funds to any currency outside of Europe then I would not anticipate any huge long term gains.
US non farm jobs data this afternoon is likely to be an important in the short term for immediate global confidence, so if you need any imminent transactions feel free to get in touch for more info. It will also have important long term consequences with jobs likely to be a key battle ground for Democrats and Republicans in an election year. Should the jobs figures be poor then Republicans are likely to be abloe to use it to attack Obama’s economic policy as having failed but on the other hand strong data will give support to his campaign. Either way I’m sure the US debt issue will come to the fore before long – last time the political brinkmanship between both sides of the US political divide nearly caused the US to default and drove the Dollar back through 1.60. Weak jobs data could increase calls for more QE stateside, but also add fuel to the fire of how to tackle debt. If you need to buy Dollars at a good rate before November then it may be worth opening an account by clicking here http://www.currencies.co.uk/ and letting one of the team monitor the markets for a spike up as overall I think this is one of the few ways GBP USD rates will ever breach 1.60.
The ECB rate cut yesterday was one of the few saving graces for the pound in that it weakened the Euro substantially pushing it back through the 1.25 barrier, and it took with it the Swiss Franc (due to the Swiss National Bank policy of fixing a base to the Euro of 1.20), and a number of other European currencies like the Polish Zloty, Hungarian Forint, Czech Koruna and Swedish Krone (not pegged but suffered due to lack of European confidence). If sterling can hold above the 1.25 mark for a few more days then it could break through to higher levels but so far this year 1.25 has proved to be a bit of a ceiling. I feel current levels for the pound against most European currencies represent a good time for limit orders as sterling test higher levels with ocassional spikes up. If you want to know how to work these types of order in your favour then please feel free to e-mail me, Colm, at cmg@currencies.co.uk as it has proved very succesful for clients who are looking to buy euros at 1.25
US GDP Data Supports The Pound
US GDP data this afternoon came out at 2.2% showing the US economy is still on the road to recovery but the figures were significantly down on the 3% growth seen last quarter. The news has seen sterling push on against the Dollar rising to a near 8 month high offering a great opportunity to buy Dollars with the interbank rate hitting over 1.6250. Higher than expected consumer spending could not offset a slight cut back in business investment in the US and the data provides ammunition for both Republicans and Democrats in an election year as it is not a strong indication of growth, but does provide some evidence of economic recovery.
The global confidence helped sterling claw back some of this mornings session losses against a range of currencies and left the pound relatively unchanged from the market open (except against the USD). The next big indicator will be US Non Farm Payrolls this time next week and will be a sign of how many jobs have been created in the US and will be key to presidential election campaigns as well as global confidence and GBP USD rates. Despite entering recession the pound is presently at a 20 month high on a trade weighted basket of currencies and my suspicion is this may even rally a touch further next week but I would be surprised if we see substantial further gains until the next Bank of England meeting is out of the way which is a long time to wait in currency terms.
If you have a currency transfer to make and would like some free information and an indication of the exchange r
Will The Pound Breach 1.60 Against the Canadian Dollar?
The pound has once again made good gains today although still lies slightly below the 1.60 benchmark against the Loonie. Retail figures tomorrow for the UK will be important as if these are weak you may see the pound slip back but the key data is likely to be Canadian inflation tomorrow afternoon. Expectations are for a level of 2% although a very high figure may suggest more CAD strength. If you are looking at buying Canadian Dollars then it would be well worth geting in touch to see what we can do for you. Potentially a limit order might be useful in the current climate to maximise your rate. Simply e-mail Colm at cmg@currencies.co.uk quoting psf in the subject matter and a brief overview of your needs.
In other currency news the pound remains very robust against the Euro with the single currency surviving any further pressure from the Spanish bond auction today but this is unlikely to be the end of the story for this currency pair. In my view anything north of 1.20 represents a very decent buying level given the risk that UK GDP data could pose next week. Also sterling Dollar rates are over 1.60; another good target level so if you are looking to buy Euros or buy Dollars then forward contracts may be a suitable option depending on your exact requirements. If you would like to talk through them in more detail with no obligation or cost then call +44 1494 787 478 and ask for Colm.
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.
Make sure you have a good currency broker on your side
The last two weeks have highlighted how important it is to make sure you have a good
currency broker onside even if your currency requirements are intermittent.
For large parts of the last year or two we have had clients holding on for the
magical 1.20 level- something which has been available very infrequently given
how much the pound has struggled in recent years.
The writers on the poundsterling forecast site are also experienced currency brokers and when markets do move
quickly to peak exchange levels then part of our job is to contact all our
clients and let them know about the movement (we are aware the majority of you
have lives and cannot monitor exchange rates 24/7!)
In recent months we have had some very worthwhile exchange levels achieved including
1.20+ to buy Euros, 2.10 to buy New Zealand Dollars, 1.58 to buy USD, and
comfortably over 13 to buy ZAR. We take on board what a client’s requirements
are eg timescales, amounts, rates required and can act as your eyes and ears on
the currency market. You do not pay for our service- we make our money
when we execute your trade- so can not only save you money on your exchange
rate, but also hopefully time your exchange to catch the exchange rate at a
good time to buy.
If this is something you are interested in finding out
more about then please feel free to e-mail Colm at cmg@currencies.co.uk and quote psf (the
poundsterlingforecast site!)
Buying Euros at 1.20 to the Pound?
If you are looking to buy Euros at 1.20 to the pound then today is the day to call. The Euro exchange rate has weakened dramatically again following fears over European banks ability to raise credit as borrowing costs soar due to the Euro zone crisis. To see levels any higher than this you would have to go back into 2010 so if you are looking to buy Euros at 1.20 or better (obviously it depends on volume and the market rate at the time of the trade) then please feel free to contact Colm quoting PSF by e-mailing cmg@currencies.co.uk and I would be happy to help organise this.
