Category Archives: Currency Updates

Euro Zone Inflates as Does the Euro

Today is a day of inflation figures as UK, Euro Zone and US Consumer Price Index data is set to be released. So far today we have seen figures released confirming that UK inflation remains above the Bank of England’s target of 2%, with UK Consumer Price Index figures remaining unchanged at 2.8%. Euro Zone inflation has increased marginally to 1.5%, up from 1.4% in February. Following these releases, the Euro has strengthened across the board as the likelihood of an ECB rate cut has now decreased on the back of the higher Euro Zone inflation figures.

This morning’s inflation figures have had the greatest impact upon the markets thus far today, as despite German Economic Sentiment Survey data falling sharply to 36.3 this month, the Euro has still strengthened against both the Pound and the Dollar. EUR/USD has reached a high of 1.5312 so far this morning, whilst GBP/EUR fell to 1.1699 following the inflation figures release. Attention will now turn to the US this afternoon where inflation figures and housing data are set to be released. Market participants will be keen to see whether the recent poor data coming out of the US continues.
Please find a summary of this week’s economic calendar below:

ECB President Mario Draghi Speech
09:30 UK Consumer Price Index
10:00 Euro Zone Consumer Price Index
10:00 Euro Zone Economic Sentiment Survey
10:00 German Economic Sentiment Survey
13:30 US Consumer Price Index
13:30 US Housing Starts

09:30 UK BoE minutes
09:30 UK Claimant Count Change
09:30 UK Unemployment Rate
09:30 UK Average Earnings
15:00 Canadian BoC Interest Rate Decision
19:00 US Fed’s Beige Book

G20 Finance Minister and Central Bank Governors Meeting
09:30 UK Retail Sales
13:30 US Initial Jobless Claims
15:00 US Philadelphia Fed Manufacturing Survey

G20 Finance Minister and Central Bank Governors Meeting
07:00 German Producer Price Index
13:30 Canadian Consumer Price Index
17:00 US FOMC Member Stein Speech

Currency Matters

Yesterday saw substantial volatility within the markets courtesy of mixed PMI figures released in Europe and a tacit message from Mario Draghi suggesting that the European recovery will take longer than expected. Whilst the BOE’s decision to maintain interest rates and quantitative easing levels at their current level had little impact upon the markets, German and Euro Zone PMI figures falling short of expectations and Mario Draghi’s negative assessment of Europe’s recovery caused a substantial move in the euro throughout the day whilst GBP/EUR eventually closed flat at 1.1777. The dollar experienced similar levels of volatility yesterday following higher than expected US Initial Jobless Claims as GBP/USD closed near a six week high of 1.5225 and EUR/USD also closed up at 1.2926.

Despite the relatively high levels of volatility that were witnessed on both sides of the pond yesterday, the largest market movements were attributed to economic news coming out of Asia. In the early hours of yesterday morning the Bank of Japan committed to a substantial bond buying program worth over half a trillion dollars per year – the size of which took markets by surprise. Unsurprisingly however this lead to the most considerable Yen sell off that we have seen for quite some time with the Yen closing down across the board. The Yen touched a near three and a half year low yesterday against the Dollar and has now pushed above this level with USD/JPY reaching 97.15 so far this morning, whilst GBP/JPY has hit 146.67.
This morning we have seen relatively minor movements in the markets following the release of Euro Zone Retail Sales and German Factory Orders, both of which came out above expectations. Market participants are likely regrouping following yesterday’s volatile trading environment and preparing themselves for the release of the US Nonfarm Payrolls later today. Following the weaker than expected US data yesterday, another subpar performance today for the US jobs market could cause the Greenback to drop off even further, with GBP/USD potentially reach 1.53+.

Cyprus Bailout

Not so much ‘good news and bad news’ for Cyprus this morning, rather ‘bad news and worse news’. Whilst on the face of it the 10 billion euro bailout, agreed by the Troika late last night to help save the fledging Cypriot economy, has helped reduce uncertainty within the Euro Zone as evidenced by market reaction earlier this morning in Asia and also across Europe today, it has come at a cost, a very high cost which will undoubtedly throw Cyprus into the inevitable recession that it already faced.

The lesser of two evils was essentially what was agreed last night as the dreaded levy that depositors of Cypriot banks had feared, was enforced upon the agreement and will form a crucial part of the bailout. Depositors with over €100,000.00 will now face a mandatory ‘tax’ of around 30% on their holdings, something that will likely do very little to halt a run on the countries banks this week. However, when the only other alternative is to leave the Euro Zone, there appeared to be no other option, especially when a potential return to the Cypriot Pound would likely result in over a 30% decrease in the value of any funds currently held within Cyprus.

Despite the bailout, the outlook remains very bleak for Cyprus who will now inevitably face a prolonged recession. As a result of the bailout it would also seem inevitable that anyone still holding funds in Cyprus will remove them and any future depositors will now be non-existent – effectively killing Cyprus’s role as somewhat of an off shore financial centre. Similarly, despite the positive reaction in Europe this morning there will now be concerns regarding deposits held within other European countries at risk of requiring future bailouts i.e. Spain and Italy.

The Pound closed up against the Euro at 1.1809 and down against the US Dollar at 1.5170. The Euro is down against the US Dollar at 1.2850.

Mark Webster

Pound Punished by PMI

The wait goes on. The wait for positive data concerning the UK economy that is. Whilst it is to be expected that data releases concerning a country’s economic performance will naturally vary from week to week, and month to month, it is far from the ordinary for a country, and in this case the UK, to record consistently negative data for several months. Just as these data releases are out of the ordinary, correspondingly so are the rates.

As we have been reporting for the past few months, since the turn of the year Sterling has weakened at an alarming rate. After having appeared to level off against both the Euro and the Dollar in recent days, hopes had emerged that the Pound may well recover some of its losses. However these hopes were quashed this morning following the release of PMI data across Europe. The UK was expected to record a figure of 51.0 and consequently markets reacted negatively when the UK’s actual figure of 47.9 was released. With positive PMI figures released for the majority of the other European countries this morning, this led to a significant sell off in the Pound. Sterling hit daily lows of 1.1514 and 1.5014 against the Euro and the Dollar respectively immediately following the release, before levelling off.

This afternoon we will see a number data releases from the US including PMI, Mortgage Approvals, Personal Income, and Personal Consumption figures. These figures could stoke further movement in the Dollar which forced Cable to a new eighteen month low earlier today.

Mark Webster

Sterling on Life Support

Having dropped over 6% since the turn of the year against the Euro and the Dollar, Sterling has finally began to level off, at least for the time being, and has been trading relatively sideways for the past few days. After what had seemed to be an unrestricted collapse since January, Silvio Berlusconi came to the Pounds rescue. As stalemate lingers over government elections in Italy, the heightened uncertainty regarding the country’s future leadership, and the nightmare scenario of a return to power for Berlusconi, the Euros advance has correspondingly stalled. Similarly, the Pounds decline against the Greenback has petered out this week following talks of US sequester budget cuts and a speech made yesterday by Ben Bernanke dispelling rumours that there could be a sudden easing in QE.

This morning we saw figures released in Europe that showed Germany’s Unemployment Rate rose marginally to 6.9% and the Euro Zone Consumer Price Index fell to 1.3%. This led to a drop in the Euro as GBP/EUR reached a daily high of 1.1580. Sterling is also up against the Dollar this morning, currently trading at 1.5180 and targeting a retest of the daily high of 1.5202. We may well see further movement in the rates this afternoon as German Consumer Price Index figures are due to be released at 13:00 and US GDP figures at 13:30.

Looking forward to tomorrow we will see PMI figures released from China in the morning, then Europe and finally the US in the afternoon. Market participants will be eager to see whether China’s recent return to comprehensive growth has continued, and whether the UK’s long run of poor economic data persists. Given the Pounds recent bottoming out against the Euro, positive UK data tomorrow could well initiate a rebound in Sterling.

Sterling falls as the UK loses AAA credit rating

The Pound has fallen further this morning as the financial markets react to the loss of the UK’s AAA credit rating. Moody’s cut the UK’s credit rating from AAA to AA1 citing ‘challenges that subdued medium-term growth prospects pose to the government’s fiscal consolidation programme, which will now extend well into the next parliament’. This is the first such credit rating downgrade since 1978. The Pound is now trading at its lowest level against the Euro since October 2011 and the lowest level against the US Dollar since July 2010. The Pound has depreciated 6% this year and further falls in Sterling are possible.

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Punch Bag Sterling

Unemployment figures released this morning showed that the UK ILO Unemployment Rate rose marginally to 7.8% from 7.7%, whilst the UK Claimant Count Change improved to -12.5K for the third month in a row. However, this slight glimmer of hope that the UK economy may actually be starting to show signs of recovery, offered little help to the Pound this morning which has taken somewhat of a battering following the release of the BoE minutes.

Sterling plummeted at 9:30 GMT against both the Euro and the Dollar, following the release of BoE minutes which confirmed that three of the nine MPC members favoured an increase in stimulus at this month’s policy meeting. Paul Fisher, David Miles and BoE Governor, Sir Mervyn King were the members who were voted down, though this does suggests that the committee is potentially warming to the idea of additional stimulus in order to help revive the economy. This is something we may well see in the coming months which, whilst potentially helping the economy, certainly wouldn’t do the Pound any favours.

GBP/EUR dropped over a cent in the space of twenty minutes after the BoE minutes were released, before levelling out to its current trading level of 1.1430. Cable faired similarly, as the pair dropped from 1.5439 to a daily low of 1.5294 in less than an hour, and is currently trading at 1.5308. The GBP/EUR charts aren’t looking too favourable for the Pound either and the general outlook is rather bearish for Sterling at the moment. However, the Euro Zone has by no means ‘recovered’ and with elections in Italy coming up and rumblings from a number of European leaders that the Euro is far too high at present (potential for EU interest rate cuts), it would appear that there remains significant scope for GBP/EUR to recover at some point, the question is when.

European Sentiment Continues to Rise

Sterling is having a relatively volatile morning today as Cable is currently trading at 1.5485, after having tested 1.55 earlier, and going on to reach a daily high of 1.5504 before dropping back down. Similarly Sterling has had a wide trading range against the Euro this morning, having dropped to 1.1583 following the release of positive EU economic data, however the pair then rebounded up to a high of 1.1626 before falling back.

German and EU ZEW Survey – Economic Sentiment figures both rose this month, reaching 48.2 and 42.4 respectively. This initially led to a Sterling sell off before the Pound recovered sharply against the Euro, however with these figures having now risen for the past three months we could see sentiment towards GBP/EUR turn back to the downside this afternoon.

Please find a summary of this week’s economic calendar below:
10:00 EU ZEW Survey – Economic Sentiment
10:00 EU ZEW Survey – Economic Sentiment

07:00 German Consumer Price Index
07:00 Producer Price Index
09:30 UK BoE Minutes
09:30 UK Claimant Count Rate
09:30 UK ILO Unemployment Rate
13:30 US Building Permits
13:30 US Producer Price Index
19:00 US FOMC Minutes

07:58 French Markit Manufacturing PMI
07:58 French Markit Services PMI
08:28 German Markit Manufacturing PMI
08:28 German Markit Services PMI
08:58 EU Markit Manufacturing PMI
08:58 EU Markit Services PMI
09:30 UK Public Sector Net Borrowing
13:30 US Consumer Price Index
13:30 US Initial Jobless Claims
13:58 US Markit Manufacturing PMI

07:00 German GDP
09:00 German IFO – Business Climate
09:00 German IFO – Current Assessment
09:00 German IFO – Expectations
10:00 European Commission Releases Economic Growth Forecast

On Your Marks, Get Set, Manipulate

The G20 followed a similar line over the weekend to the one that was adopted by the G7 earlier last week, as finance ministers of the world’s largest economies commented in a joint statement: “We will refrain from competitive devaluation. We will not target our exchange rates for competitive purposes”. The fact that the statement was of a rather generic nature, and importantly didn’t specifically refer to Japan, has effectively given Japan the green light to continue its unofficial policy of Yen depreciation, and has potentially opened the door for other countries to follow suit. This lead to the Yen dropping against the Dollar yet again this morning as USD/JPY hit 94.21, nearing the low it reached on February 11th of 94.46, its lowest level in over two and half years.

Some ministers have begun to comment on the potential for ‘currency wars’ in recent weeks as countries actively pursue a weaker currency. However, Japan has reaffirmed today that its monetary easing policies are specifically targeted at ending deflation rather than purposefully trying to devalue the Yen in order to improve the countries global competitiveness, though currency devaluation coincidentally will be an inevitable side effect of such policies. However leading economist, and Nobel Prize winner, Paul Krugman, notes that the currency war issue is “a misconception and it would be a very bad thing if policy makers take it seriously”, and that “the stuff that’s now being called “currency wars” is almost surely a net plus for the world economy”.

Sterling is not fairing any better this morning following the G20 meeting as GBP/EUR is currently trading at 1.1585, having slightly rebounded from a daily low of 1.1562. Similarly Cable has also rebounded from a seven month low of 1.5437 this morning and is currently trading at 1.5470. Whilst the Pounds decline has made imports more expensive over the last month, BoE Monetary Policy Committee member Martin Weale commented last week that the weakening Pound would help improve Britain’s export prospects.

It is Presidents day in the US today, a Public holiday which means trading volumes will be lower and the economic calendar if rather light. However, this afternoon ECB president Mario Draghi will be making a speech. Market participants will be keen to see whether Mr Draghi will make any reference to a potential future interest rate cut. Such a move, which could well happen within the next few months as looser monetary policies have now seemingly been tacitly warranted by the G20, would help Sterling recover some of its recent losses against the common currency.

Mark Webster

Who are EU, Who are EU

Sterling has recovered some of its losses against the Euro this morning following weak GDP data released across Europe. After initially trading flat, GBP/EUR began its ascent following the release of German GDP DATA at 7:00 GMT which confirmed the German economy had contracted by -0.6%. The pair spiked to 1.1590 immediately following the release, before continuing its climb to a daily high of 1.1646. This now puts the pair within sight of a potential target level of 1.1722, a price range where there is substantial resistance.

EU GDP figures were not any prettier either this morning, as the Eurozone recorded a GDP contraction of -0.6% also. This data also helped add further impetus to the Pounds advance against the common currency. The European GDP data hurt the Euro right across the board this morning, with EUR/USD having dropped over a cent in the space of three hours, falling to a daily low of 1.3318.
Attention is now likely to turn to the US session this afternoon where we will see the release of US jobless claims figures. Whilst EUR/USD has been trading consistently downwards this morning, contrastingly we have seen sporadic movements in cable as the pair has been pulled following the economic data from Europe. That said, sentiment towards the pair still remains bearish with 1.5268 remaining a key target level, which should it be tested, could signal a significant downtrend.

Looking ahead to tomorrow, UK Retail Sales figures are due out at 9:30 GMT and are expected to improve from the previous month, potentially aiding the Pound in recouping some of its recent losses. However, make no mistake that the focus tomorrow will well and truly be placed on the G20 meeting, which is set to be a rather contentious affair. The threat of global foreign exchange war is likely to be top of the agenda, with Japans monetary policies likely to feature heavily also. Due to this, Japan may have actually welcomed the data today that showed it remained stuck in recession last quarter, adding to Japanese officials arsenals further ahead of the G20 showdown tomorrow.

Mark Webster