Sterling uncertainty continues but gains could be seen ahead of the emergency budget – Angela Merkel’s new regulations and restrictions on short selling cause markets to free fall.
This report will aim to cover the movements seen in exchange rates what the driving factors have been and how this influences your decision when buying foreign currency
The euro fell more than 1% yesterday VS sterling amid fears that the sovereign debt crisis and banking sector concerns in the euro zone are far more severe than in the UK. Sterling/Euro has been moving higher because the UK does not have the concerns about the potential default or restructuring of debt that the euro has.
Below the chart shows the % movement between the high and low of yesterdays trading and the extra currency you could have benefited from.
| Currency Pair | % Change | Difference on £200,000 |
|---|---|---|
| GBPUSD | 0.78% | $2240 |
| GBPEUR | 1.31% | €3060 |
| GBPAUD | 1.89% | AUD 4000 |
| GBPNZD | 2.90% | NZD 6400 |
World banks president stated it would be very difficult for the euro zone to ease out of trouble with no growth plan and the European bailout has only bought time. He also stated, the IMF’S involvement is hugely important for the euro and believes the euro zone’s governments need to become more fiscally responsibly.
EURO FREE FALL
Sterling has continued to maintain its strength against the euro this week. This was helped not only by the announcement of our public spending cuts announced in the queen’s speech setting out the government legislative agenda for the next 18 months. Also the as expected GDP (gross domestic product) result showing an improvement from the previous print, but also, following the new regulations and market restrictions (such as Germany’s crack-down on the ‘short selling’ of shares) put in place by Angela Merkel in a bid to prevent another financial crisis . Markets have grown increasingly concerned that the debt crisis could spread to other countries. There was further turbulence in the FX markets this week following the Spanish takeover of one of its biggest regional banks adding to concern that the problems are extending beyond Greece.
This combination has forced levels of inter-bank lending down to those seen after the collapse of Lehman brothers in Sept 2008. Anyone with a foreign property purchase requirement could benefit hugely from euro weakness and should therefore contact their account manager at Foreign Currency Direct on 01494 725353 to take advantage of some of the tools available to capture a competitive rate.
Britain still has the highest forecasted budget deficit. The government’s first priority is to reduce this deficit through the recent 6.2billion reduction in wasteful spending recently announced by George Osborne, although these cuts are viewed generally as only a small first step in much larger cuts to come after the spending review in June. Although short term gains in the GBPEUR pair may continue closer to 1.20, my view is that this may not happen until the end of the year, so contact me at mcw@currencies.co.uk to secure your euro rate on a forward contract.
Double dip recession?
My view is that, with the latest US quarterly economic figures being some of the best reported and many companies beating expectations, prospects for US growth are positive and this could also be said of Europe and the UK, however, Britain, in particular, faces some uncomfortable obstacles and needs to sell a large proportion of its debt to overseas investors who are more likely to exit the market if they become wary of Britain’s fiscal prospects. The UK also faces the challenge of having to boost exports from the troubled manufacturing sector if it is to recover sufficiently. The prospect of a Japan style deflation in future is, therefore, a very real possibility if this improvement in exports is not achievable.
Aussie dollar
Worries that China’s economy is slowing is impacting on demand for Australian commodities and this is slowing Australian growth.
Australia’s mining super-taxes imposed by the current labour government is forcing investors out and weakening the economy. There is also an election expected to be called no later than April 2011 but more likely to take place by the end of Oct this year and this is also weighing on the economy(currently both parties are level in the polls). To discuss how this has affected the AUD rate please contact your account manager at Foreign Currency Direct
Asia
Korean tensions look to be reaching boiling-point. The North has reportedly cut off all connections with the south and
the North Korean army has been told to prepare for battle. Asian economies and currencies have been suffering and as a result, investors were given further reasoning to sell off riskier assets and buy dollars.
The JPY in particular has been weakening against the pound this week so if you have an Asian currency requirement or any thoughts on this recent development please email me at mcw@currencies.co.uk
Data releases to watch for
Today
- The release of the CBI (Confederation of British Industry) Distributive Trades Survey of realised sales made by retailers and wholesalers. 6:00 a.m.
- The U.S. economic data is likely to be the most watched event of the week, the U.S. GDP (Gross Domestic Product), the most important measure of economic activity and growth in the world’s largest economy. 8:30 a.m.
- The U.S. Jobless Claims, a gauge from the department of labor which measures new unemployment claims. 8:30 a.m.
