Euro debt, the sequel

Market Summary

This report will take a look at the cost of sending money overseas and factors that could affect your currency transfer, focusing on:

• Sterling forecasts set to fall
• When to buy the euro?
• Cable prices improve
• JPY reach recent high

 The table below shows the percentage movement of exchange rates over the last 7 days along with the extra currency you could have bought if buying with £200,000.

Sterling forecasts set to fall

Tomorrow is a key day for the UK economy as the second revision of Q2 GDP figures are due to be released at 9:30.  It gives us a clearer forecast on how the UK economy is performing, remembering that we are trying to get out of a double dip recession. (Only Italy joins us with that status across Europe.)  The last forecast showed a contraction of 0.3% and currently we are expecting a larger fall of 0.5% to be announced.  I would expect this to be seen as a huge negative for sterling and exchange rates to reflect this.

Yesterday’s report highlighted the additional borrowing that was made by the government last month, up significantly compared to the same time in 2011. Since George Osborne’s March Budget, where he said he would cut the UK’s budget deficit, the Government has now borrowed £9.3bn more than it did over the same period last year. I personally would not be surprised to see a new round of public spending cuts in the near future which will only add more pressure on the Government and George Osbourne. The long term view for the pound, along with Friday’s, does not paint a good picture.

When to buy the euro?

Even though Euro news has been out of the media recently due to the August holiday break and the Olympics, everyone with a currency requirement should be aware of its pending return.  Moody’s the rating agency warned this week that it “will take many more years to complete the fiscal adjustment” program and structural reforms. They went on to warn that the task of sorting out the Eurozone crises is at best “only halfway through.” Read more here.

The first installment of news started yesterday as the Greek prime minister Antonis Samaras pleaded for more time to pay back debt. He said that the Greeks economy is “bleeding” and needs a little “air to breath,” this was at the start of several days of key meetings.

Any extension will need to be signed off by Germany who has been against any form of extra time, (a 2 year extension is expected to cost a further €20 billion to finance.)

The outcome from these talks will be key for anyone with a GBPEUR trade over the next 7 days; I would not be surprised to see GBPEUR swing of 2% in either direction making a potential difference of €2,400 for every £100,000 exchanged. If you need to complete a trade within this time please contact the trading desk for times and days on when to potentially complete your exchange.

Cable prices improve

This week cable prices, (GBPUSD) has moved up by over a 1%, making a difference of over $3,000 on a £100,000 trade.  The main reason for this is that recent data from the US is continuing to show an improving picture.  This is keenly linked with trader’s appetite for risk, as the US economy gets better, more money is moved from the dollar into risker currencies.  It has been due to this additional dollar sell off that has created a near 3 month high.

BREAKING NEWS: Last night after an announcement from the FED, the dollar weakened by another cent. This was due t commentary and as a result a respective speculation that additional QE in the US would be announced sooner rather than later. This makes another opportunity for USD dollar buyers.

Tomorrow we have more data that I would expect to continue this run of strength for USD buyers.  Durable goods orders released at 13:30 and are currently forecasted to improve to 1.6%. Clients looking to buy dollars may however want to buy before the release taking advantage of this expectation. Purely because it is misses these forecasts recent gains could to be lost quickly, 1.55 maybe.

Buying JPY at the best time?

GBPJPY hit a near 3 month high yesterday after some alarmingly trade figures were published by Japan. It is fuelling fears that the Eurozone crisis is now having a severe impact on the world economy. The Japanese trade gap with the rest of the world hit +£4.1bn last month, a record deficit for July which was driven by a 25% slump in exports to the EU.

I personally would be surprised if we did not hear similar news coming out of other export lead economies including the ZAR, AUD and NZD. These in turn could easily improve buying prices for clients so anyone with exposure to these currency pairs who are looking to buy at the best price please register your interest by email hse@currencies.co.uk