Tag Archives: Portugal

Currency Matters

Stock markets across Europe and America have fallen as shares in one of Portugal’s largest banks were suspended after falling more than 17% after reports that their parent company missed some short term debt repayments, a reminder that the European banking crisis may not be over.

With US interest rates set to stay near zero this year and the market looking for safe havens the Japanese Yen appreciated sharply, forcing USD/JPY from a high of 101.66 to 101.07 before recovering slightly to 101.18, still down 0.42%. The Euro has fallen but has remained surprisingly resilient, falling against the USD from 1.3649 and currently trading at 1.3597 but could be susceptible to further falls should confidence in the Portuguese banking system and the wider Eurozone continue to deteriorate.

In the UK, the Pound is relatively steady after the Bank of England voted to maintain the Bank Rate at 0.50% and maintain its asset purchases at £375bn. GBP/USD has traded between 1.7106 and 1.7122. GBP/EUR has appreciated from 1.2551 this morning currently at a high of 1.2595.

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.

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.