Surprise Retail Figures Give Pound Short Term Boost

The table below shows the % change in GBP exchange rates yesterday.

Surprise Boost In UK Retail Figures Provides Short Term Boost For Sterling Exchange Rates

Exchange rates for the pound got a shot in the arm yesterday after UK retail data defied expectations posting some strong results.  The news saw sterling climb against most major currencies through the morning as it showed a glimmer of light in the recent economic doom and gloom, and also led some analysts to suggest the Olympic effect may provide more positive news to come.  Unfortunately the increase in sterling exchange rates was a bit more like a sprint by Usain Bolt rather than the steady increase of a Mo Farrah, because although it is a positive marker for the UK, it still doesn’t show the turnaround in the economy that sterling will need to make significant headway.

General consumer confidence in the UK still remains pretty low and it remains to be seen if the general uplift in mood the country experienced following Team GB will translate into a spending increase.  Many are still worried about job security or cuts in wages and even the recent decrease in the unemployment rate is being attributed as a short term boost provided by temporary jobs created during the Olympics.  Much of the big infrastructure projects that create positive growth in the construction sector have already happened, and although we are still waiting on the impact of tourism and TV rights during the Games, I suspect London 2012 will not be the cash cow many are expecting.

The Bank of England have recently ruled out an imminent interest rate cut but given weak GDP data there is almost certainly going to be more Quantitative Easing in the UK, and there is growing pressure on George Osborne to do something to turn the UK economy round.  To this end I think sterling will be heading down a rocky road in the autumn- for certain currency pairs forward booking now may be a good idea.  Speak to your account manager on 0800 328 5884 for a more detailed analysis of your individual requirements.

Euro Faces A Critical Period To Contain Debt

Traditionally August is a very quiet month in Europe and at the moment markets are playing a bit of a waiting game.  Last month Mario Draghi managed to buy the single currency some breathing space when it was facing a heavy sell off and nearing 1.30 against the pound.  His statements that enough was being done to prevent further debt crisis and all would be revealed in due course had the desired effect of calming the market down and almost single-handedly move the price of the Euro to safer lower levels.  However something has to be unveiled soon or Draghi risks losing credibility.

Whilst August was expected to be too soon for any announcements given the holiday season, September has been earmarked by most as being the latest European leaders can leave it before showing their hand.  My view is that we may see Euro weakness in the run up to this, but I feel there may well be plans in place behind the scenes to support the Euro and will give more detail on how this will be done.  If you are buying Euros then I would be inclined to move in August or early September on the back of any spike as I fear rates will slip back below interbank 1.25 if they can calm these fears down.

USD Continues Tight Trading Range As The Political Battle Ratchets Up

You could be forgiven for thinking the Dollar only trades in the 1.50-1.60 range given the trends this year as the rate has sea-sawed back and forth.  Both economies face similar problems of higher than desired unemployment, high budget deficits, and very different political plans on how to tackle the previous two problems.  The advantage the Dollar has over the pound is that it is still posting reasonable economic growth at a time when the UK is stagnating.  It is also seen as a safe haven away from the Euro crisis whilst the UK cannot avoid the turmoil of Europe as a whole caused by the eurozone.

As a result I think current Cable rates will continue to remain within this trading range as there is not the political will to risk anything stateside before the presidential elections in August, both countries look likely to extend their respective QE programs, and the coalition cannot yet find the answer to UK economic growth.  It is the kind of market range where a well-placed stop loss and limit order can ensure you maximise your rate but minimise your losses should GBP USD rates break out of this range following an unexpected event on the market.

Inflation In Canada And The Effect On CAD Exchange Rates

The Canadian Dollar has been pretty much consistently strong against the pound this year with some brief spikes in sterling’s favour but again they have been very short-lived.  With Canada exporting a host of raw materials, and commodity prices very high, it has been very beneficial for the Canadian economy.  Signs of a slow pick up in the US have also helped as its biggest trading partner.  Today does provide the possibility of a short term pick up in exchange rates though as we see the latest set of Canadian inflation data published.  If the data is on the weak side it may increase calls for an interest rate cut in Canada to ensure that economic growth isn’t stifled particularly with a strong “loonie” making it harder to export.  Whilst I don’t expect a huge pick up in rates given the problems facing sterling any opportunity like this should be closely examined should you need to transfer money to Canada in the near future. 

If you would like more information on this report call 0800 328 5884 or 01494 725 353 or e-mail cmg@currencies.co.uk