This report will address the factors that are likely to affect exchange rates today if you are buying abroad or making a currency transfer. The table below shows the difference you would have received when buying £200,000 at the high compared to the low over the last month.
| Currency Pair | % Change | Difference on £200,000 |
|---|---|---|
| GBP EUR | 2.33% | €5,840 |
| GBP USD | 3.08% | $9,720 |
| GBP JPY | 4.87% | JPY 1,224,000 |
EU Summit
Sterling made slight gains against the Euro yesterday hitting a high of 1.2521 before closing at 1.2480 following further worries that a long term solution will not be agreed at this summit. Several EU leaders have recently been backing the idea of a centrally issued Eurobond to guarantee individual countries’ debts and drive down borrowing costs. These kinds of talks had lent confidence in the Euro however Germany, the Eurozone’s largest economy, is completely opposed to pooling debt. Angela Merkel has insisted that before anything is done that would cost the German taxpayer, greater fiscal and banking union must be in place.
Also Spanish 10 year bond yields went over 7% yesterday, a level considered unaffordable, while Italian 10 year bond yields hit a 6 month high at 6.19%. These figures not only highlight the deteriorating situation in the Eurozone but that decisions need to be made soon before it is too late. If you have an immediate need and want to be kept updated with news that could affect the cost of your transfer please contact us today on 01494 725 353.
*Breaking News*- EU leaders agreed to make use of the EU bailout fund to lend to struggling banks directly without adding to government debt. They’ve also said they will create a single supervisory body for Eurozone banks by the end of this year.
*Key Data Watch* 10:00 – EU CPI (Consumer Price Index) – CPI measures inflation and could change the ECB’s (European Central Bank) view on Eurozone interest rates
UK In Deeper Than Expected Recession
Although Sterling did make some good gains in the morning against the Euro it lost that ground in the afternoon and made further losses against the USD following poor UK GDP data. This data showed that the UK economy contracted again between Jan-Mar by 0.3% while previous estimates of a -0.3% contraction in the final 3 months of 2011 have been revised downwards to -0.4%. This news weighed on the pound and was further cemented in traders’ minds when more figures came out showing the government’s spending grew at its fastest rate between Jan-Mar in nearly 7 years!
All in all the UK is in a deeper recession than first expected and Eurozone woes are likely to put pressure on UK growth. All of this negative data has really opened the door for another round of QE (Quantitative Easing) at the next interest rate decision on Thursday 5th July. QE usually causes Sterling weakness as it increases the supply of pounds into the system, theoretically diluting the value of the currency. That being said a proactive approach may be seen as a positive thing.
I have been saying for some time that the long term outlook for GBP/EUR will be dictated by its ability to make a sustained break above the key 1.25 resistance level. Over the last couple of months GBP has made a few attempts to break the 1.25 area all of which have ended in failure. Therefore, I am sticking with the opinion that GBP/EUR rates will head lower. Do keep in mind though, that where GBP/EUR rates are heading is on a knife edge and any clear breach of the 1.25 area will put my longer term view on the back burner. To determine the best way to approach your trade, call your account manager today on Freephone 0800 328 5884 or if you have not been allocated one register via this link.
*Key Data Watch* 10:30 – Bank of England Governor Mervyn King Speech – Press conference that will let us know how the BoE views the current UK economy
GBP/USD
During Thursday’s trading GBP/USD rates dropped to 1.5500 hitting a 2 week low. These losses came off the back of poor UK data but looking forward I feel GBP/USD movements are likely to be determined by the outcome of the Eurozone crisis. Some may argue further QE would be the next market mover, however, I feel this has already been priced in and unless Mervyn King has a major announcement to make today, any major GBP/USD movement are likely to come as a direct result of EUR/USD volatility.
There has been talk that with the EU summit so focused on promoting growth as the route out of their crisis, the ECB (European Central Bank) may cut interest rates which is likely to cause a run to safe havens like the USD. This would push GBP/USD rates back towards the 1.54 area. Although my forecast for GBP/USD is negative I expect any loses to be contained by the multi-year 1.52 low.
If you are looking at buying USD’s soon, it may be worth speaking to your account manager today on Freephone 0800 328 5884 to discuss how best to utilise a stop loss/limit order to maximise any potential gains in the market while limiting your exposure to losses.
*Key Data Watch* 13:30 – Core/Personal Consumption Expenditure – Indicator into inflation in the US
Further Loses Against JPY
Following yesterday’s 20th EU summit to resolve the Eurozone economic issues, GBP/JPY hit a 2 week low as investors continue to seek safer alternatives than Eurozone assets. JPY strengthened against all 16 of its major pairings and as with USD I feel the indecisiveness of European politicians is likely to continue to push traders in their direction. Any cut in ECB interest rates or monetary stimulus from either the ECB or BoE is also likely to continue to aid the JPY strength against GBP.
Whether you are buying or selling speak with your account manager today on 01494 725 353 to ensure you have the most comprehensive risk management strategy in place for your upcoming transfer.
