The Pound has started the week sharply lower as markets react to UK Prime Minister Theresa May’s announcement that the UK will trigger Article 50 of the Lisbon Treaty (the formal Brexit negotiation process) by the end of March 2017 putting the UK on course to leave the EU by the summer of 2019. The government is expected to make immigration controls a red line which makes it less likely that the UK will retain free access to the European Single Market. The possible imposition of tariffs on UK exports into Europe and the potential loss of UK financial services European passporting would likely have a negative impact on UK economic growth.
This morning the Pound has fallen to a low of 1.1435 (0.8745) against the Euro, its lowest level since July 2013 and to a low of 1.2845 against the US Dollar, its lowest level since July 2016.
The Japanese Yen dropped overnight as the Bank of Japan kept its main policy rate at -0.1% but revamped its stimulus program and left its options open for further monetary easing in the future before returning to earlier levels. USD/JPY currently trades at 101.58, CHF/JPY at 103.99, EUR/JPY at 113.22 and GBP/JPY at 132.00.
In the USA the Federal Reserve meets this evening (19:00 UK) and is likely to keep rates on hold at their current 0.25-0.50% range. However, market participants will be looking for any comments which confirm the likelihood of a rate hike(s) before year end.
EUR/USD currently trades at 1.1147, GBP/USD at 1.30 and USD/CHF at 0.9770.
Elsewhere, EUR/GBP trades at 0.8575 (GBP/EUR 1.1662).
The US Dollar dropped sharply yesterday in response to much weaker than expected US economic data significantly reducing the likelihood of a Federal Reserve interest rate rise in September with now only a 50% chance of a rate hike by December. GBP/USD pushed north to a high of 1.3444 and continues to trade above 1.34 this morning on the interbank market. EUR/USD also traded high hitting a high of 1.1263, EUR/USD continues to trade near these highs this morning.
The Pound also had a strong day against the Euro with GBP/EUR hitting a high of 1.1997, although the rate has receded to 1.1920 this morning.
Today sees a number of economic data releases/speeches which could move the market (summarised below):
- 08:30 UK Halifax House Prices data
- 09:30 UK Manufacturing Production data
- 12:00 USA MBA Mortgage Applications data
- 14:15 Bank of England MPC members speech
- 14:50 Bank of England bond buying results
- 15:00 Bank of Canada Rate decision (rate anticipated to be held at 0.50%)
- 15:00 UK NIESR GDP Estimate data
- 19:00 Federal Reserve Beige Book
Recent UK economic data including yesterday’s Markit/CIPS UK PMI Services survey reinforced expectations that the Bank of England will cut its main interest rate today at 12:00 from 0.50% to 0.25%. Yesterday’s UK PMI Services survey found that Services output and new business both fell at the fastest rates since March 2009.
Chris Williamson, Chief Economist at Markit, which compiles the survey reported that:
“The marked service sector downturn follows news from sister PMI surveys showing construction activity suffering its steepest decline since mid-2009 and manufacturing output contracting at the fastest rate since late-2012. At these levels, the PMI data are collectively signalling a 0.4% quarterly rate of decline of GDP.
It’s too early to say if the surveys will remain in such weak territory in coming months, leaving substantial uncertainty over the extent of any potential downturn. However, the unprecedented month-on-month drop in the all-sector index has undoubtedly increased the chances of the UK sliding into at least a mild recession.
Services providers are certainly bracing themselves for worse to come, with a record drop in business confidence about the year ahead leaving optimism at its lowest ebb since February 2009.
However, the extent of any downturn clearly depends to some degree on the policy response. The PMI is already deep into territory which would normally spur the Bank of England into taking action to stimulate the economy. A quarter-point cut in interest rates therefore seems to be a foregone conclusion at tomorrow’s Monetary Policy Committee meeting, though the extent and nature of other non-standard stimulus measures remains a far greater source of uncertainty and the subject of intense speculation.”
Cuts in Central bank interest rates weaken the home currency as investors sell the associated currency to buy higher yielding currencies known as a carry trade.
Currency Matters can offer a number of products which can eliminate currency risk. Please do not hesitate to contact the dealing desk on telephone +44 (0) 1695 581 669 to discuss your upcoming currency requirements.
The US Dollar (USD) weakened overnight as the Federal Open Market Committee (FOMC) left its key interest rate unchanged at 0.50% and pared the outlook for more rate hikes this year. The market expectation is now that there will likely only be two 0.25% rate hikes this year, down from December’s prediction of four.
Whilst the Federal Reserve acknowledged that the US economy was expanding at a moderate pace, economic projections were downgraded with Real GDP forecast at 2.2% this year down from earlier predictions of 2.4%. The Federal Reserve acknowledged the growing risks of a weakening global economic outlook.
Today the market will focus on interest rate decisions from the Swiss National Bank (SNB) at 08:30, Norges Bank (Central Bank of Norway) at 09:00 and the Bank of England (BoE) at 12:00.
Opinions on what the SNB will do today are divided. There are some expectations that in response to the European Central Bank’s (ECB) easing the SNB might cut the range of its 3 month LIBOR rate to -0.50% and -1.50% from the current -0.25% and -1.25% range. However, as EUR/CHF is held well inside recent range and the ECB have ruled out more rate cuts, the pressure on the SNB to deliver lower rates today is limited so the SNB might opt to hold rates at current levels. Nonetheless, the SNB could have a dovish tone in the accompanying statement. EUR/CHF currently trades @ 1.0990, USD/CHF @ 0.9745 and GBP/CHF @ 1.3920.
The Norges Bank today is forecast to cut its key rate by 0.25% to 0.50% and the rate outlook is also likely to be revised down. EUR/NOK currently trades @ 9.46, USD/NOK @ 8.39 and GBP/NOK @ 11.99.
The Bank of England is expected to hold rates at 0.50% and its asset purchase facility at £375bn. It is unlikely the Bank of England will tighten its monetary policy in advance of the UK referendum on whether Britain should remain in the European Union due June 23rd. The prospect of a possible BREXIT means that the Pound is likely to remain under pressure and prevent any significant gains in the Pound. GBP/USD currently trades @ 1.4273, GBP/EUR @ 1.2660 (0.79p) and GBP/JPY @ 159.32.
The Pound (GBP) has fallen again today breaking below 1.40 against the US Dollar (USD) for the first time since March 2009 with the current low at 1.3880. Against the Euro the Pound has also fallen hitting a low so far of 1.2646(0.7908) on the interbank market.
29 out of 34 economists surveyed by Bloomberg anticipate the GBP/USD rate to fall to 1.35 (low 2009) or below in the event of a BREXIT. The last time GBP/USD traded below 1.35 was in 1985.
Please do not hesitate to contact the dealing team on telephone 01695 581 669 or by email firstname.lastname@example.org for further information or for a live quote.
Do you have any currency requirements in 2016?
The outlook in the currency markets is highly uncertain. The sharp fall in oil prices, high levels of volatility in global financial markets and concerns about a slowing global economy, particularly in China are fuelling currency volatility.
The US Dollar has appreciated sharply as the US economy continues to perform relatively well and the Federal Reserve became the first major central bank to start increasing interest rates. The US Dollar is also the main beneficiary of falling oil prices and investors seeking to avoid risk.
On the other hand the European Central Bank continues to ease its monetary policy as the European economies continue to face significant challenges. In the UK it seems increasingly unlikely that the Bank of England will increase interest rates until late 2016 earliest due to recent poor UK economic data and concerns about the wider global economy. This has caused the Pound to lose most of the gains it made in 2015. The prospect of a referendum on the UK’s continued membership of the European Union is also beginning to weigh on the Pound (as with the Scottish independence referendum and the prospect of a hung parliament at the last two general elections the market doesn’t react well to political uncertainty and the Pound usually weakens in the short term at least).
The current consensus for Sterling’s (GBP) outlook is negative or neutral at best. Currency Matters can offer a number of products which help eliminate currency risk. If you need to budget with confidence, you can fix the exchange rate in advance of the transaction by using a Forward Contract.
Please do not hesitate to contact the dealing team on telephone +44 (0) 1695 581 669 or by email to discuss your currency requirements or for a live quote.
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Yesterday the Euro surged across the board after the European Central Bank (ECB) disappointed market expectations of significant monetary easing, keeping the main interest rate at 0.05% and only tweaking the deposit rate from -0.20% to -0.30%. The ECB also extended their €60 billion a year Quantitative Easing asset purchase program for an additional six months, to March 2017. Given the struggling Eurozone economy, the markets had expected a substantial increase to the asset purchase program or significant reductions to other ECB interest rates. The lack of any substantial moves by the ECB surprised the markets and the Euro responded with sharp gains against the US Dollar, Pound and other major currencies. EURUSD appreciated from 1.0506 to 1.0981; EURGBP appreciated from 0.7023 to 0.7251 (GBPEUR 1.4239 to 1.3791). The Pound followed the Euro higher against the US Dollar although not to the same extent with GBPUSD moving from a low of 1.4902 to 1.5158.
Yesterday 05/11 the Pound tumbled in value following the Bank of England’s latest report which downgraded both the UK growth and inflation forecast and subsequently pushed out market expectations of a Bank of England interest rate rise. The Pound fell over 1% against all major currencies with GBP/EUR falling from 1.4199 to 1.3966 and GBP/USD falling from 1.5401 to 1.5203.
This afternoon 06/11 the US Dollar has appreciated strongly, more than 1%, following overwhelmingly strong US employment data. The US Dollar appreciated strongly against the Euro forcing EUR/USD down from an earlier high of 1.0892 to a low of 1.0707. The US Dollar also appreciated against the Pound with GBP/USD falling from 1.5219 to 1.5030. The US Dollar also appreciated against the Swiss Franc with USD/CHF appreciating from 0.9946, through parity to 1.0065. With the US Dollar appreciating more against the Euro than the Pound, GBP/EUR recovered from 1.3896 to 1.4065.
There is lots of global economic data due for release next week and we also have speeches from Bank of England Governor Mark Carney and ECB President Mario Draghi on Wednesday 11/11 which both have the potential to move the market.
Please do not hesitate to contact the dealing team on +44 (0) 1695 581 669 for further information or for a live
The Pound has fallen sharply today following weak UK inflation data. The headline Consumer Price Index (CPI) reading was -0.1% year on year in September; much worse than market expectations of +0.2%.
The Pound fell more than 1% against the US Dollar and Euro hitting a low of 1.5201 and 1.3347 before recovering approx ¼ cent towards the end of the day.
Currency Matters can offer a number of products which can help you eliminate currency risk. Please do not hesitate to contact the dealing team on +44 (0) 1695 581 669 for further information or for a live quote.
Forward Contract (Fixed Date): A Forward Contract is one which is agreed for settlement at some fixed point in the future, after two working days. The Forward price is based on the current Spot price and adjusted for the interest rate differential between the currencies being bought and sold. This Forward rate may be more or less than the current Spot price. A Forward Contract guarantees the exchange rate you will receive on your future requirement. A small deposit is required to secure a Forward Contract.
Forward Contract (Variable Date): Similar to the description of the Forward Contract above, but settlement is agreed to occur between two dates, at the client’s discretion, rather than on a fixed date. This is particularly useful when you don’t know precisely when you would need to settle with your counterparty.
Market Orders: Currency Matters offer the facility to place market orders – either on a “limit” basis or on a “stop” basis. For example, you can place a limit order to buy your currency at a predetermined price, above the current rate. Alternatively you can place a stop order to buy your currency at a predetermined rate, below the current rate. We can also work orders on a “one cancels other” basis, so if you have both a limit and a stop order in place, and one is executed, the remaining order is automatically cancelled.