Tag Archives: GDP

European Sovereign Debt Crisis

The European sovereign debt crisis continues to pose a significant threat to the recovery of the Euro-zone and to the wider global economy. The €109bn bail-out agreed in July for Greece may have averted an immediate significant Greek default and contagion spreading to Ireland, Italy, Portugal, and Spain but the Euro-zone continues to face significant challenges. In fact, despite Greece’s significant austerity measures, figures released by the Greek government over the weekend project that the 2011 deficit will be at 8.5% of GDP, well short of the 7.6% target agreed to secure the first bailout. Greece needs to secure the next tranche from the bailout fund of €8bn or it will run out of cash this month. Therefore for the time being Greece will remain firmly in the spotlight.

The ongoing uncertainty over the economic recovery in the UK and Euro-zone has caused some uncertainty in the outlook in the Pound -Euro (GBPEUR) exchange rate. So far the Euro has shown a surprising amount of resilience to the European sovereign debt crisis. Against the Pound the Euro appreciated to a EURGBP high of 0.9083 (GBPEUR 1.1010) at the start of July before falling back to 0.8705 (GBPEUR 1.1488) in the middle of July and settling around 0.8750 (GBPEUR 1.1429) in early August. Throughout September the EURGBP exchange rate traded between 0.8527 (GBPEUR 1.1727) and 0.8795 (GBPEUR 1.1370). The threat of further Quantitative Easing from the Bank of England temporarily weighing on Sterling before Greece once again took the spotlight. Today 3rd October the rate trades in the region of 0.8585 (GBPEUR 1.1645).

In Europe despite the debt crisis, the European Central Bank has increased interest rates to 1.50% compared to the Bank of England’s 0.50%. The full 1% interest rate differential advantage the Euro holds compared to Sterling, coupled with the threat of further Quantitative Easing from the Bank of England has so far prevented the Pound from appreciating significantly against the Euro. Currently we are hopeful that the Pound will eventually make some further progress against the Euro towards 1.18-1.20. However, the fragility of the UK economic recovery and the threat of further Quantitative Easing does pose a threat to this view. We expect to continue to see increased levels of volatility in the foreign exchange markets.

Please do not hesitate to contact Currency Matters on telephone 01695 581 669 to discuss how you can save money and eliminate risk when conducting your foreign currency exchange.

UK GDP DISAPPOINTS

The Pound has reacted negatively this morning to the revised UK GDP figures. Many analysts were hopeful that the disappointing UK GDP data numbers released at the end of January would be revised higher. However, the new data showed that the UK economy contracted by -0.6% in the final quarter of 2010 compared to the previous estimate of -0.5%.

Despite recent signs that the Bank of England Monetary policy Committee were shifting towards a hike in interest rates the highly disappointing data may mean a rise in interest rates may not come as soon as previously thought.

Currently the Pound trades in the region of 1.60 against the US Dollar and at 1.16 against the Euro.

Currency Update – UK GDP

Sterling has tumbled this morning following the release of UK GDP figures which were much worse than analysts had expected. The shock numbers showed that the UK economy shrank by 0.5% over the last 3 months of 2010.  The severe weather seen in December dramatically hit GDP, particularly in the construction and service sectors. However, according to The Office for National Statistics, even if the impact of the poor weather was excluded, economic activity would have been ‘flattish’.

The governor of the Bank of England is due to make a speech tonight, whilst the minutes from the previous Bank of England Monetary Policy Committee (MPC) meeting will be released tomorrow at 09:30. Recent calls by some economists and in particular MPC member Andrew Sentance to increase interest rates in the face of above target inflation will now be weakened.

Currently the Pound trades in the region of 1.57 against the US Dollar and at 1.15 against the Euro.

Given current market volatility, please do not hesitate to contact Currency Matters to discuss any foreign currency exchange requirement. Currency Matters can provide a number of products including Forward Contracts and Stop Loss/Limit Orders which can help you manage your foreign currency exchange risk.

The exchange rates mentioned in the above blog 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 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.

Currency Update

The currency markets have started the week in a relatively tight range, however it is possible we could see some volatility as any moves in the market could be exaggerated due to thin market conditions. Levels of trading will likely decrease further as we near Christmas.

Major data this week includes UK and US GDP tomorrow, Bank of England minutes on Wednesday and US jobless claims on Thursday.

 EURUSD is currently trading at 1.4359, GBPUSD @ 1.6130 and GBPEUR @ 1.1228.

 Wishing you a Merry Christmas and a happy New Year!

Currency Update

The US Dollar remains under pressure as gold soars past $1,130 an ounce. EURUSD climbed as high as 1.4993 and has now settled around 1.4970. The Pound has also had a good day against the US Dollar hitting an interbank high of 1.6780 so far. The markets will now be eyeing Fed Chairman Ben Bernanke’s speech due later today at 17:15.

Over the weekend GDP figures released from Japan smashed market expectations posting third quarter growth at 4.8%. Of course this can largely be attributed to the massive government stimulus package so it is unlikely that these levels of growth will be sustainable.

Sterling will face a number of tests this week as the Bank of England’s Quantitative Easing Programme will take the limelight again. UK inflation data is due tomorrow (17/11) morning at 09:30 whilst the Bank of England Minutes from November’s Monetary Policy Committee (MPC) meeting will be released at 09:30 on Wednesday 18th November.

Currency Update

Risk appetite has returned to the market today as the latest GDP figures from the US suggest that the US is out of recession. The US GDP figures released earlier today beat market expectations with an annualised rate of 3.5% vs 3.2% expected. Whilst these figures are positive it remains to be seen how sustainable these levels of growth are, especially after the massive government stimulus has finished working itself through the economy.

The following improvement in confidence has led to safe haven currencies such as the USD and JPY coming under downward pressure.

Sterling has advanced through Interbank GBPUSD 1.65 and through Interbank GBPEUR 1.1100.

Expect plenty of volatility as we enter November as sentiment remains fickle. Both the Bank of England and the European Central Bank meet on November 5th. Analysts will be especially keen to see if the Bank of England extends its Quantitative Easing program and if so by how much. Some economists suggest that we could see an extension by as much as £50B but the consensus seems to suggest an extension of £25B is the most likely outcome.

Currency Matters can offer a number of products and strategies which help you manage your currency risk. Please contact the dealing team for more information.