Euro Inflation Revised Down But Euro Unaffected For Now

Despite inflation figures for Europe being revised down slightly yesterday, the Euro is still trading at excellent levels against both the pound and the Dollar, so the question is will these exchange rates last?  Growth forecasts in Europe have been revised up but for me they still lag a long way behind UK and US forecasts, and it seems highly unlikely that even if no other pitfalls for the single currency appear, that the ECB will be in any position to raise interest rates for the next couple of years.

If you contrast this with the UK, where a rate hike is expected in early 2015, and the US, which is expected to follow towards the end of that year, then purely based on interest returns the Euro could become increasingly isolated.

This is assuming that the situation in Europe keeps improving, whereas there is a risk the ECB have been overoptimistic in their forecasts to maintain confidence in the Euro.  Unemployment figures for Greece actually showed an increase to 27.5% when published last week, and whilst Portugal and Ireland have clearly made massive headway in dealing with debt issues, I think Greece and Italy still face mountains.  We have German economic sentiment figures due out this morning so they may help reinforce the Euro improvement in the short term, but longer term I think the Euro will creak again.

Is There Anything That Will Affect GBP In The Next Few Days?

Mark Carney is due to speak this afternoon which may support sterling if he is cautiously optimistic as he has been of late, and then we have UK unemployment figures and the Bank of England Minutes at 9.30 on Wednesday morning.  If the jobs rate has improved dramatically, or if one member of the BoE has surprisingly voted for a rate hike, then sterling could rebound very quickly.  Whilst I am not expecting this outcome as soon as Wednesday, it is only a matter of time before someone in the MPC breaks ranks and votes to hike, so again if you are selling Euro then you may want to take advantage of this temporary weakness in the pound.

The recent flooding may have put the brakes on the pound’s surge up in the last 6 months, but it certainly hasn’t reversed it.  If anything I think the resulting repair and construction work could provide another boost to GDP longer term.

Why Is The US Dollar So Weak?

The Federal Reserve also release their latest Minutes on Wednesday night.  The Dollar is still very weak against the Euro and the pound due to the very sluggish recovery rates that the US is seeing.  Whilst I still feel the Dollar will rebound sharply against the Euro in particular, the longer it takes for things to get back on track, the harder it is going to be for the greenback to make up this lost ground quickly. To this end any clues about the pace of tapering in the US changing could see the Dollar move significantly so be ready to move whichever currency pair you are looking at. To view live interbank exchange rates of where the market is click here and see how quickly they can move.

Will The Aussie Dollar Weaken Again?

Many clients have seen the Aussie Dollar weaken dramatically over the last year, only to gain a bit of traction in the last couple of months, so is this a temporary revival or a sea-change in AUD GBP rates?  In their meeting minutes published last night the RBA have once again been very clear in their assessment that current interest rates are appropriate so there are unlikely to be any further cuts in the near future- this had been one of the main drivers in the free-fall of the Aussie.  The other main concern being the US taper seems to have been factored in already at such a slow pace that signs of global recovery and subsequent demand for the AUD seem to be offsetting it.

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