Tag Archives: Eurozone

Currency Matters

The Pound has fallen today 23/03 following the release of minutes from the Bank of England showing that no further Monetary Policy Committee (MPC) members shifted to the rate hike camp at the March meeting of the MPC. Despite the higher than expected inflation reading released yesterday, there is still some uncertainty surrounding how quickly the Bank will increase interest rates from their historic lows. On the interbank market the Pound trades below 1.15 against the Euro and at 1.62 against the US Dollar.

In the UK Budget, as expected chancellor George Osborne announced that the Office for Budget Responsibility cut its growth forecast for 2011 from 2.1% to 1.7%. For 2012 the forecast was also cut from 2.6% to 2.5% with growth expected at 2.9% throughout 2013-2014 and at 2.8% in 2015. The Office for Budget Responsibility also acknowledged inflation would remain significantly above the 2% target, remaining between 4-5% this year before dropping to 2.5% next year and back to target in two years.

Regarding government borrowing; the forecast for this year is £146 billion, £2.5bn lower than the previous target. Borrowing is also forecasted to fall in 2012 to £122bn, then £101bn in 2012/13, £70bn in 2013/14, £46bn in 2014/15 and £29bn in 2015/16.

In other budget headlines, the chancellor announced an increase in the personal tax allowance of a further £630 to £8,015. The chancellor also suggested that the 50% top rate tax should be seen as a temporary measure and that the treasury would review how much the 50% rate raises. For businesses the chancellor announced that corporation tax would be cut by 2% in April but that the bank levy would be adjusted so that banks would not benefit from the reduction in corporation tax. Fuel duty is also to be cut by 1p per litre from 18:00 today whilst there are no changes to alcohol duty and tobacco duty will increase at 2% above inflation.

In Europe, the Portuguese government will this afternoon put its austerity measures to a parliamentary vote. The largest opposition party have already announced that they will present a draft resolution rejecting the austerity measures. Should the government loose the vote, it is likely the Prime Minister will resign triggering the dissolution of parliament and possibly international financial rescue and an EU bailout. The Euro is already under some downward pressure against the US Dollar and currently trades at 1.41.

Please do not hesitate to contact the dealing team on +44 (0)1695 581669 for a live quote or to discuss any of your foreign currency requirements for the coming months.

Sterling

This week we have seen the Pound fall further against the Euro as the probability of further Quantitative Easing (QE) from the Bank of England increased. Earlier in the week Mr Posen a member of the Bank’s Monetary Policy Committee (MPC) became the first member of the MPC to openly call for further QE since November. However, today his tone seems to have softened suggesting that the other MPC members may be able to convince him that his calls for further QE are premature.

Whilst further QE is by no means a foregone conclusion, the increased risk of further QE has weighed significantly on the Pound. Despite a raft of bad news from the Euro-zone; including the downgrading of Spain’s credit rating from AAA to AA1 and the mounting costs of  the Irish bailout of Anglo Irish bank, the Euro has appreciated strongly against the Pound, trading above 0.86p (GBPEUR 1.15).

Further falls in Sterling could be seen, particularly if support for further QE gains momentum. Many analysts are now predicting that GBPEUR could fall further, with 1.12 being noted as the next downside level.

Given the current uncertainty surrounding the Pound, you may deem it appropriate to hedge against any future falls in the Pound’s value. Currency Matters can suggest a number of products and strategies which can eliminate currency risk. Please do not hesitate to contact the dealing team to discuss any upcoming currency requirements.

The exchange rates mentioned in the above email are based on the current interbank rate. Please do not hesitate to contact the dealing team on +44 (0) 1695 581 669 for a live quote.

 

 

 

 

Currency Matters – Euro

The Euro was boosted last week by the successful bond auctions by a number of Eurozone states.  The demand was sufficient enough to ease concerns that Eurozone states would struggle to raise funds on the international markets.

As a result the Euro appreciated against the US Dollar pushing EURUSD through 1.30, and EURGBP through 0.84p. This morning EURGBP trades at interbank 0.8475, forcing the pound below 1.18.

Many analysts are now predicting that the Euro could continue to recover. However, the sustainability of the Euro’s rebound remains uncertain. The Euro will face a number of significant tests including the European bank stress test results which are due to be published on June 23rd.

Elsewhere the Federal Reserve minutes hit a rather dovish tone noting that the economic outlook had softened somewhat. Interest rates in the US are therefore expected to remain at their historic lows for some time. After hitting a high above 1.54, the pound has since settled around 1.52 on the interbank market.

Currency Update – Post Election

After Sterling’s initial bounce higher following the formation of a Conservative-Liberal Democrat coalition majority government the Pound has disappointed somewhat, particularly against the US Dollar which earlier slipped below 1.45. 

The sell off in Sterling started following the Bank of England’s Quarterly Inflation Report which implied that UK interest rates would remain very low for some time to come and are likely to rise only very modestly over the next two years. Furthermore, the Bank did not rule out the possibility of further Quantitative Easing. The combination of loose monetary policy and a tightening fiscal policy in the UK, suggests it is likely that the pound could be under pressure for some time.

Further falls for Sterling against the USD are now predicted by a number of analysts, with some pointing towards a break of 1.40. The ongoing debt crisis in the Eurozone is also expected to drag the Euro lower against the US Dollar; this will also be to the detriment of the Pound against the US Dollar.

Given the difficulties facing both the UK and the Eurozone, the outlook for the Pound against the Euro remains highly uncertain. However, given the significant structural problems of the Eurozone, I would suggest that the Pound will fair better against the Euro than against the other major currencies. GBPEUR currently trades at 1.16 on the interbank market.

Next week sees the release of several important pieces of economic data across the globe. In the UK we have the Consumer Price Index and Retail Price Index, Bank of England Minutes and Retail Sales. For a full economic calendar please visit: http://www.currencymatters.co.uk/market-data/economic-calendar/

 If you would like to discuss any upcoming foreign exchange requirements, please do not hesitate to contact the dealing team.  

Currency Update

The Pound has spiked higher against the Euro, earlier breaking through interbank 1.17. Financial markets continue to be concerned that the €110 Billion Greek bailout package won’t be enough to prevent the crisis spreading to other vulnerable Eurozone states namely Portugal, Spain and Italy.

In the UK, markets will await the outcome of the general election, with the prospect of a hung parliament still possible.

Currency Update – Sterling pressured

Sterling has started March under significant pressure. Monday morning saw a dramatic fall in the value of Sterling with the Pound falling as low as 1.0930 against the Euro and 1.4780 against the US Dollar. There are currently a number of factors contributing to Sterling’s sharp fall in value.

Firstly, the latest opinion polls are suggesting that following the UK general election, it is likely that we could see a hung parliament with no single party holding a workable majority. This political uncertainty has troubled investors as they are concerned that any new government may not be able to implement the measures needed to cut UK debt and revive the economy.

Secondly, the Bank of England has hinted recently that we could see further expansion of its asset purchase scheme known as quantitative easing (QE). Any increase in QE would likely depreciate Sterling further.

Finally, Prudential’s $35.5B bid for the Asian life insurance unit of AIG has caused large flows out of Sterling into the US Dollar.

Following Monday’s sharp falls, the pound has recovered some of its losses. This morning, the release of the latest Purchasing Manager Index (PMI) suggested that the UK service sector is recovering at a stronger rate than many analysts had expected. This has helped push Sterling back above the psychological level of 1.50 against the US Dollar and above1.10 against the Euro.

In the Eurozone, the Greek government has approved a fresh austerity package of tax rises and spending cuts worth €4.8B. This has gone a small way to help convince financial markets that Greece can pay off its massive debts. The Euro has risen against the US Dollar and currently trades above 1.36.

Elsewhere, The Reserve Bank of Australia has hiked their cash interest rate by 0.25% to 4%. The Bank of Canada left rates on hold at 0.25%. However, the Bank of Canada’s accompanying statement showed that the Bank was more upbeat on the economic outlook. This has forced Sterling to a low of 1.6491 against the Australian Dollar and 1.5387 against the Canadian Dollar.

Both the Bank of England and the European Central bank meet tomorrow at 12:00 and 12:45 respectively. The markets will eagerly await any announcement from the Bank of England regarding QE and the European Central Bank’s latest economic forecasts.

With all the uncertainty regarding the general election, the Bank of England’s QE programme and the UK’s ability to tackle the deficit, it is likely that Sterling will remain under pressure for some time.

If you have any upcoming foreign exchange requirements, please do not hesitate to contact the dealing team to discuss how best to manage your currency requirements and eliminate currency risk.

Currency News

Last week the currency markets were firmly focused on the Euro with the fiscal problems of Greece and also Spain and Portugal taking the headlines. Speculation built throughout the week that the other European Monetary Union states, led by Germany, would come to Greece’s aid. However, markets were clearly disappointed that whilst a rescue package was agreed in principle, European leaders failed to set out a comprehensive package.

The Euro was also pressured following the release of disappointing Eurozone GDP data. Total Eurozone 4th quarter 2009 GDP expanded by a mere 0.1%, the market had been expecting growth of 0.3%. Noticeably, German GDP (the largest European economy) failed to expand at all, whilst Italian GDP slipped back into contraction. Spain, hit by a housing market collapse and official unemployment greater than 20% remained in recession.

As a result, the single currency fell to a low of 1.3531 against the US Dollar, its lowest level since May 2009. The US Dollar, viewed as a safe haven, appreciated across the board as investors took flight from risk as stocks and gold prices tumbled. The Pound fell to 1.5534 against the US Dollar but rose past 1.15 against the Euro.

 In the UK the Bank of England released its Quarterly Inflation Report. The report was markedly pessimistic about the UK economy, revising its growth forecasts down. UK Interest rates are expected to stay low for a protracted period of time as growth remains weak and inflation is expected to fall back below the 2% target after initially spiking higher to 3%. Moreover, the Bank of England failed to rule out the possibility of extending its asset purchase scheme know as Quantitative Easing. Consequently, the Pound is expected to stay weak for some time. However, some gains could be made against the Euro, depending on how the Greek bailout develops. Sterling’s 25% depreciation should eventually help the UK economy grow as our exports become more competitive.

 Elsewhere, the Australian Dollar rallied following better than expected employment data with GBPAUD falling to 1.76. In China concerns over potential asset bubbles, led officials to order banks to increase their levels of reserves in a bid to cool the amount of lending.