This report focuses on data that may have affected foreign currency exchange rates and how data today may influence the cost of sending money overseas.
“The pound saw significant losses against most of the 16 major currencies last week. If the trend of further bad data releases hit the UK then sterling exchange rates could see continuous losses. Look out for the UK’s interest rate decision this Thursday”
Market Snapshot
The table below shows the spread between the high and low since last weeks bank holiday and how much more currency you could have achieved during that period on a £200K purchase which highlights how much sterling exchange rates have weakened by.
| Currency Pair | % Change | Difference on £200,000 |
|---|---|---|
| GBP USD | -1.73% | $5,300 |
| GBP EUR | -2.22% | €5,440 |
| GBP CAD | -1.0% | CAD 3,280 |
| GBP AUD | -2.1% | AUD 7,280 |
Sterling exchange rates weakened significantly over the course of last week against most major currencies with over a 2% decline against the Euro. With poor data out for most of last week for the UK, from the manufacturing and construction sector to house prices, what we have to ask ourselves if we have an up and coming currency transfer is the trend going to continue this week?
Now we have recently seen an upward revision in GDP for the UK economy. This is great news as it pulls us further away from being in recession but this had not prevented the pound from weakening.
Service Sector
In fact on Friday Double-dip recession fears were fuelled as the UK’s services sector measured by The Chartered Institute of Purchasing and Supply’s (CIPS) registered its slowest growth in more than a 
year during August. The slowdown in the services sector, which covers roles ranging from lawyers to hoteliers, accounts for about three quarters of the UK economy.
This data release was the main contributor to the pound weakening on Friday and it has dealt a significant blow to growth prospects. It seems that the UK recovery is coming under increasing pressure from the fiscal squeeze and with a VAT rate hike around the corner in the New Year we will learn the consequences of the rest of the spending cuts to be implemented next month from the budget. If we continue to see negative data to come out over the coming weeks then I believe that we could see levels against the EURO move back into the mid teens and the USD fall back down to the 1.40’s
There would be nothing worse than the pound weakening back to the levels stated above and for that reason we offer different contract options that may suit your requirements. You can attempt to safeguard your rate from forward contracts to utilising stop/loss and limit orders. These options would stop your currency exchange from becoming more expensive than you had budgeted for and would give you the peace of mind that you will be looking for when making a currency transfer. Call your account manager on 0800 328 5884 to find out more.
The Week Ahead
UK Interest Rate Decision
This week’s eagerly awaited Interest rate decision will take place on Thursday. I believe that the MPC will leave the base rate on hold at 0.5%. Surely with all the bad data that has recently come out now 
is not the right time to be raising rates. Anyone with a sterling requirement should be wary that recently the shadow MPC believes that the BoE should launch “QE2” by adding as much as £50 billion to the existing £200 billion. If the BoE do decide to go down this route we have seen in the past that the pound can weaken by 3 to 4% in a day or two.
Other data releases include industrial and production data on Wednesday and more importantly the trade balance which is expected to show a decline on Thursday.
EURO ZONE
We learnt last week that the Euro Zone economy grew by 1% between April and June. The initial estimate was published last month, showing stronger growth than expected, largely due to strong exports that were boosted by a weaker euro. The German economy, which grew by 2.2% over the three months, helped to drive the zone’s overall growth.
Tomorrow we have Factory orders out for Germany and on Wednesday industrial and production figures which is expected to show a gain for the month and year. If the figures do come out as expected then expect to see further Euro gains against a host of currencies including the pound.
US
Recent economic data has raised concerns about the strength of the US economic recovery. Second-quarter growth figures were revised down last week to an annualised rate of 1.6%, considerably less than many leading European economies.
The housing market has also slowed sharply in the past two months. Today is a bank holiday in the States and the next important data to note of is out on Thursday with jobless claims followed by the trade balance. Both are expected to have improved from the previous month which may weaken sterling exchange rates.
CAD
BoC policy makers will decide whether to raise interest rates for the third time since June on Wednesday. The expectation is that rates could rise to 1% and if this does happen expect to see the cost of buying Canadian Dollars increase.
If you have any questions on how these or any other data releases may affect your transfers, we are always just a free phone call away on 0800 328 5884 or if you would prefer you can email me directly on bma@currencies.co.uk
If you have any questions on how these or any other releases may affect your transfers, feel free to call me on FREEPHONE 0800 328 5884
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