Monday, 20 February 2017

Will the Pound rise or fall this week?

What moves exchange rates? 

The four mains things are Economic data, political events, natural disasters and acts of war. Some of these are by their nature totally unpredictable, however economic data releases are known and forecast in advance.

While it's impossible to predict exchange rate movements, with a sound knowledge of what moves the rate and upcoming data releases, you can make an informed decision on what action to take in terms of when to fix a rate. Below I have listed the main economic releases for the week ahead that could affect exchange rates including Pound/Euro. Political events have been having a much bigger impact on the currency markets of late, so also watch for any Brexit developments or unexpected tweets by President Trump about his 'phenomenal' tax plans.

If you need to convert currency and would like a quote, or my views on which way rates may move in the coming weeks and months, then click here to get in touch. Simply provide the currency you wish to buy, the amount, and the timescales you're working to and I can respond with a live rate and our forecast on which way exchange rates may move.

This week's economic data releases:

Monday 20th February - Today is a US Market holiday so it's fairly quiet on the data front. We will see EU consumer confidence figures and a meeting of the EU's 27 finance ministers, so these could affect GBP/EUR rates today.

Tuesday 21st February - There are 2 things today that could affect the Pound. First we have Public Sector net borrowing figures at 09:30am. Of more importance will be a speech by the BoE Governor Mark Carney, during which he may give hints on future monetary policy. Of late his comments have caused the Pound to fall due to the dovish nature of his comments, and we could see that repeated today. Elsewhere we have inflation figures from the EU and the US.

Wednesday 22nd February - Today will be key for how the Pound moves against other currencies this week, as we have preliminary GDP readings that will show if the economy is still growing. The expected monthly gain is 0.6%. If it's lower than this then the Pound will fall in value. Elsewhere, EU inflation numbers could affect GBP/EUR, and Canadian Retail sales figures at 13:30pm could move GBP/CAD rates.

Thursday 23rd February - There's nothing much of note from the UK today, however Germany releases it's latest growth figures. As the largest economy in the EU, the numbers will be watched closely and could move GBP/EUR rates. We expect  monthly growth of 0.4%, slightly less than the UK. If the number differs from this, then expect movement in Sterling/Euro rates.

Friday 24th February - We end the week with a raft of data from the USA and Canada. Canadian inflation numbers could move GBP/CAD rates. US Homes sales could move GBP/USD.

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Friday, 17 February 2017

€ Up, $ Down, £ Flat….

Euro up 

Yesterday we saw GBP/EUR rates slip away around 1 cent to the €1.17 mark. The reason for the fall was the Euro gaining strength and becoming more expensive to purchase as it rose in value.

The catalyst for the Euros gains was the release of the minutes to last month’s European Central Bank (ECB) meeting, showing that there was little appetite for scaling back their stimulus measures.

It was thought that with inflation rising the ECB would be tapering its Quantitative Easing (QE) programme, however they kept the door open for even more stimulus this year, despite rising growth. This is probably due to the upcoming high stakes elections in the EU meaning policy makers want to maintain a ‘steady hand approach’ to provide stability and predictability in an environment still characterised by a very high level of uncertainty.

This means that in their March meeting, no changes are likely, and the next review is not until June. The minutes also said that negative risks have receded, and all of the above combined to strengthen the Euro and pull GBP/EUR rates lower.

Dollar down 

Despite hints of an interest rise soon, and a raft of better than expected data from the States yesterday, it didn’t help the greenback which weakened against its counterparts, the Pound included.

It’s partly due to concerns about the underlying strength of the US economy, but mainly due to the market being wary of buying into the USD at present due to uncertainty surrounding Trumps protectionist strategy of ‘America First’. Global markets are unable to interpret this policy, because nobody knows what it really means, and that probably includes Trump.

Consider that this is a man who, in the last week, tweeted ‘see you in court’, to an actual court, after just losing in said court, and followed that up this week by deciding to drop decades of US policy to a 2 state solution to the Israeli-Palestinian conflict, and you start to realise nobody has any idea what he will say or do next. Markets do not like uncertainty, and at the moment we have tremendous, phenomenal uncertainty, believe me.

Sterling flat 

For once, its other currencies driving the market and the Pound has been keeping a low profile, relatively flat against other currencies, with the reasons for moves in GBPEUR and GBPUSD outlined above. There haven’t been many surprises, the economy is still pushing along pretty well. There’s still a few weeks until Article 50 is invoked, and the market seems to be giving Sterling a breather until then. Once the talks start however the sheer complexity of the situation will likely become apparent and at that point Brexit will probably resume its position in the driving seat for Sterling pairs.

Today’s Data 

This morning we will see the latest Retail Sales figures released at 09:30am. Retail Sales are a good barometer of the overall health of the economy, and more so in the current climate where consumer spending is a major force driving the economy. Recently we saw a surprise decline in Retail Sales, and today’s figure is expected to show monthly growth of 0.9%. If the actual number is lower than this then expect Sterling to fall in value.

**** UPDATE ****
Retail Sales came in at -0.3% which is much lower than expected. GBP/EUR has plummeted to €1.1655 due to the fact this shows the economy is starting to slow. View live FX charts here. 

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Wednesday, 15 February 2017

US Dollar strengthens on interest rate rumours

Yesterday the FED chair Janet Yellen indicated that interest rates in the USA are likely to go up soon, but what does this mean for exchange rates? Interest rates are key to a currencies value, because if the US does raise rates, it means more return for investors. These investors then buy US Dollars causing it to rise in value. We saw that happen yesterday as the GBP/USD rate fell as the Dollar became more expensive to buy.

Euro weakens as Dollar strengthens 

It can also affect Pound/Euro rates too. Yesterday as the USD gained strength, the Euro weakened as investors sold the Euro to buy the Dollar, and that's why GBP/EUR rates rose to €1.18 yesterday. It was due to weakness in the single currency rather than any strength for Sterling.

Sterling moves lower on employment data

This morning we saw some minor jobs data from the UK. Those claiming unemployment dropped significantly, which was good news. However wage growth slowed to 2.6%. This is important as regular readers will be well aware of, due rising inflation. Inflation figures are around 1.8% at the moment, and forecast to rise. If wage growth slows to below that of inflation, then in effect consumers have less money and that will hurt the economy, possibly weakening Sterling further. Those that need to exchange currency should keep a close eye on inflation through the year as if it overtakes wage growth or gets close to it, the Pound will probably fall in value.

What next for the Pound?

The next major data release is on Friday in the form of the latest retail sales figures. We think that monthly sales will be up by 1% and that's what is already priced into the market. If it's lower, then it shows the economy is slowing and the Pound will fall. If the number is higher then expect exchange rates to go up.

Before that, we have another speech by Janet Yellen that is happening as I write this post, and for the reasons I have outlined above this could also move Pound/Euro rates if she gives further insight into when rates may move higher.

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Tuesday, 14 February 2017

Pound/Euro falls on low inflation figures

Sterling/Euro rates reach a high of €1.1825 this morning but true to form, the high level didn't last, and has dropped a cent to the low €1.17's. This is due to inflation coming in lower than analysts had expected, which reduces the chance the Bank of England will raise interest rates this year.
Go on-line and I'm sure that you will see the major news outlets shouting about inflation being at the highest level for several years, but for the currency markets what matters is how the figures come in compared to the forecast, and analysts had expected the number to be even higher. So while inflation is high, it's not as high as the market had expected and that's why the Pound has fallen.

Following the UK data however, we had a raft of negative EU growth figures which has weakened the Euro slightly, halting the decline in GBP/EUR rates. Rates to buy Euros have been flat hovering around the €1.17 mark for a week now, having risen from €1.13 last month, but with article 50 due to be triggered soon, there is the chance  the Pound may fall. Over the last 3 months we've seen this trend repeated several times, where we get to the levels we're at now before dropping away again.

Longer term, with political risks likely to weaken the Euro later this year I think we will see buying rates for the Euro get back to around €1.25 by the end of the year, but due to Brexit uncertainty things may get worse before they get better.

Fixing an exchange rate with a Forward Contract

If you need to buy Euros then you can fix the current rate and lock it in for up to 2 years, even if all your funds aren't available. You simply lodge 10% of the total that you want to exchange, with the remainder due when you want us to wire your currency to your chosen account. This protects you against rates dropping and allows you to budget effectively. It's very useful when purchasing property overseas, as normally you have several months before you need to pay the balance of the purchase during which time exchange rates could change drastically meaning you end up paying more for your property than necessary. (Click here for a free guide to buying property overseas).

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Monday, 13 February 2017

What economic data could move the Pound this week?

The Pound is holding on to the gains it made last week after a pretty quiet day on Friday. We open the week with Pound/Euro at €1.1757, and Pound/Dollar at $1.2511. (You can see live charts on all major Sterling pairs here.)

Below I've listed the main data releases for the coming week that could affect the Pound. If you need to exchange currency at the best exchange rates, click here to get a free quote.

This week's economic data releases

Monday 13th February - Today is very quiet with no data of note so markets will move on any political news.

Tuesday 14th February - We have inflation figures today from both the UK and Germany. As inflation impacts interest rate movements, we could see GBP/EUR move depending on the results. Elsewhere, the EU releases GDP figures, growth forecasts and Industrial production numbers. Lots today then that could affect Pound/Euro rates.

Wednesday 15th February - Nothing of note from the UK today, but GBP/EUR could still be affected by EU trade balance figures. Most data today however is from the USA: Retail Sales, Inflation, Industrial Production and a Speech by FED chair Janet Yellen.

Thursday 16th February - Quiet again in the UK, so GBP/EUR will be affected by any news about Brexit. The USA releases jobless claims and house building data. New Zealand releases Retail Sales numbers that could move GBP/NZD.

Friday 17th February - UK retail Sales are released today. This are a good barometer of the overall economy. The last reading showed a contraction, and today we expect a monthly rise of 1%. If the actual number is lower than this it will weaken the Pound.

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