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 | 2.56% | €6600 |
| GBP/USD | 2.20% | $6940 |
| GBP/AUD | 3.59% | AUD 10,960 |
Sterling Continues 2nd Day of Gains Against Euro
Sterling continued to make gains against the Euro yesterday hitting a high of 1.2715 before closing at 1.2690 ahead of the UK Producer Prices Index being released today at 09:30. The gains we have seen over the last couple of days have come as a result of the Bank of England Governor, Mervyn King, reducing the ever growing speculation that the BoE would cut interest rates.
This lent confidence to the pound but it has been contained as investors are still very wary of the UK’s exposure to the Eurozone crisis and although an interest rate cut has been played down, further quantitative easing cannot be written off. The Euro has been under pressure across the board as optimism given to the market by Mario Draghi’s comments that the ECB will do “whatever it takes” to resolve the crisis has started to dissipate.
Looking forward, I would expect GBP/EUR to spend some time consolidating the gains made over the last few months as it prepares for the next big move. Our main cause for concern for Euro buyers is if the UK continues to slide into a deeper recession. This would make it harder for the UK government to keep up with its tough fiscal targets and could see Britain loose its AAA credit rating and its safe haven flows which have been supporting the pound. Equally should the UK stay on track, keep its AAA credit rating and continue to be more appealing than the Euro, we could see GBP/EUR rates attack the 1.30 district.
With the future of GBP/EUR rates on a knife edge it may be prudent to take advantage of our stop loss/limit orders. These contract types will allow you to set a minimum and a target rate therefore minimising your exposure to losses while also allowing you to target a specific rate. To discuss how to utilise this contract type effectively, speak with your account manager today on 0800 328 5884. If you have not been allocated one, register via this link.
*Key Data Watch* 09:30 – UK PPI Core Output YoY – Key indicator of inflation
UK Economic Worries Help USD Gain on GBP
On Thursday GBP/USD rates dipped to a low of 1.5604 after investors bet that the BoE would continue its Quantitative Easing (QE) program that already stands at £375bn. Quantitative easing is seen as negative for GBP as the BoE pumps pounds into the markets, theoretically diluting the value of the currency.
This expectation of more QE was further fuelled by UK trade deficit data showing the trade gap widened to its worst level since records began in 1997. The reason for this big increase was mainly due to a drop in the UK export market which has struggled since our largest trading partner, Europe, continues to struggle. In contrast the US trade gap narrowed in June following a drop in oil prices that slashed the USA’s import bill which continued to benefit the USD.
Over the coming weeks I would expect GBP/USD to continue to trade within its recent range with 1.53 containing any losses and 1.59 containing any gains. With that in mind I would have to advocate a degree of patience for both USD sellers and buyers as there should be opportunities for both. Speak with Foreign Currency Direct plc on 01494 725 353 today to discuss when and how to take advantage of these buying or selling opportunities.
*Key Data Watch* 19:00 – Monthly Budget Statement
Chinese Data and its effects on Currencies
Early yesterday morning China released CPI data (Consumer Price Index) which showed the speed of price rises had dipped to its lowest levels in almost two and a half years! This release has given scope for The Peoples Bank of China policymakers to implement further monetary stimulus, something that has reassured investors’ risk appetite.
This increased confidence resulted in the USD and AUD both continuing their momentum against GBP with a 0.35% and 0.3% gain for the day respectively. Although I would expect this momentum to continue in the short term, we did also have Chinese Industrial Production figures released early yesterday morning that came out 0.6% lower than expected. This could be another signal that this rate of growth in China cannot continue which would certainly be negative for the commodity currencies like the AUD, ZAR and NZD.
Foreign Currency Direct plc trade over 30 currencies so speak to one of our brokers today on 01494 725 353 to be kept updated with any breaking news that could affect the cost of your transfer along with guidance into the best contract options available to make the most out of your money.
*Breaking News* – China’s import and export market slowed in July for a second straight month. Exports rose by 1% in July compared with 11.3% in June as imports rose by 4.7% compared with 6.3% in July. As a result the government is likely to start increasing its stimulus efforts and investors may start to shy away from commodity currencies such as the AUD.
