Sterling outlook gloomy

The Pound continued its poor start to the week yesterday with exchange rates continuing to slide across the board. These losses can be attributed to a number of factors but especially the run up to this weeks Bank of England interest rate announcement on Thursday. The likelihood of any interest rate rise is minimal but the rumours of a second phase of Quantitative Easing measures being announced are getting louder and louder.

Quantitative Easing

What is the reason for and impact of Q.E.?
The idea behind Q.E. is simply to increase the amount of money in the UK economy in the hope of, amongst other things, it filtering through the system and reigniting the housing market, increasing retail sales and in turn reducing unemployment. The problem so far has been UK banks reluctance to lend out this extra money with the aim of improving their own financial position and balance sheets, hence why further measures may be necessary.

The impact of Q.E is fairly serious, with this huge volume of extra money available in the system people, in time, will have more money to spend. The theory of supply and demand tells us that the more people have the more they want things, the more people that want things the more expensive they become............inflation!!!

The principal way of controlling inflation is to increase interest rates and with such a huge volume of extra money in the system, inflation could climb rapidly meaning that interest have to climb equally steeply!!!

Australian Dollar continuing to strengthen

Overnight the Reserve Bank of Australia increased the national interest rate to 4%, the fourth time they have increased the cost of borrowing in 6 months. This will undoubtedly give the Australian Dollar further strength.

Over the past 12 months GBPAUD exchange rates have dropped by in excess of 60 cents from 2.25 to its current level of 1.65, that s a difference of AUD 120,000 on a conversion of £200,000!!!

The strength of the Australian economy is mainly as a result of it virtually avoiding recession and therefore being used as a flight to safety for those with concerns about the security of their savings. Since then more and more investors will be putting funds into the Australian economy as a result of them having higher interest rates and therefore greater yields.

It really does appear that the early bird really is catching the worm, over and over again!!

Uk recession over but the Pound still struggles

Revised GDP figures out on Friday reconfirmed the UK's economy had scraped it's way out of recession in the last quarter, growing by an upwardly revised 0.3%, more than had been previously forecast.

This, I thought, would have given Sterling some well needed strength after a pretty poor week, but it didn't. The Pound continued to lose ground throughout the day, ending the week 2.64% below the week high agains the Euro (when moving £200,000 into Euroland this equates to over €6000!!) and 2.68% against the US Dollar.

UK recession set to continue?

Tomorrow at 9:30am the latest official revised figures for UK GDP will be announced. As most of you will be aware the UK exited recession in the 4th quarter of 2009 with a weak 0.1% growth and analysts are optimistic of an upward revision of this figure to 0.2% growth. One of the major threats to the value of Sterling at present is the possibility of a ‘W shaped’ or ‘double-dipped’ recession where the economy is at risk of falling back into recession before sustaining a full recovery. Germany are already at risk of this as their revised GDP figures released yesterday morning saw a drop from positive growth of 0.7% down to zero growth and I personally fear that the UK may find itself with a similar struggle.

In my opinion the importance of tomorrow’s release means that the markets are ready to react one way or another and I believe that should we see expectations of 0.2% growth or better then we could see a Sterling spike offering some better buying exchange rates across the board. However I believe that a result of 0.1% or worse could be catastrophic for Sterling…

Exchange rates this week

Yesterday was a relatively quiet day for the market but we do have plenty of data coming up this week that could affect your currency transfer whether buying currency with sterling or bringing funds back into the UK. For anybody with a GBP/EUR or GBP/ USD requirement this is particularly the case. In my opinion the biggest data set for GBP/EUR this week will be German GDP figures due for release on Thursday, this thought is echoed by other industry specialists:

“The German GDP figure out tomorrow at 09:30 could be the key factor as to how Sterling Euro fares this week, with it being the largest economy in the Euro zone and following the problems in Greece a lower than expected figure could provide excellent buying opportunities.” Tom Higham, Director at Foreign Currency Direct

With Germany being the largest economy within the Euro zone its GDP figures will be closely scrutinised and I would expect GBP/EUR volatility following this release.

For those interested in GBP/USD US Non-farm payroll unemployment data released on Friday is viewed as a very important release for anyone following cable. USD exchange rates have been performing well recently against a number of major currencies including Sterling and the Euro and should these unemployment figures be better than expected we may see this trend continue, possibly worth holding on should you have dollars to sell.

Is Brown a bully?

The Labour party have taken a very offensive stance after an anti-bullying charity announced at the weekend that staff from Gordon Brown's offices had contacted them.

Downing Street says the reports are "malicious allegations" and "without foundation" while the PM's secretary has immediately asked for evidence from the charity that the questions have really come from staff at No.10.

Gordon Brown has previously been warned about his behaviour towards staff by civil service head Sir Gus O'Donnell.

The problem the Government now face have is whether or not the allegations prove to be true, Gordon Brown has been labelled a bully in most newspapers in the run up to a General Election!!

Political instability is very much one of the key factors that affect the value of Sterling against other currencies and I'm sure that this will not be the last incident of mud throwing or scandal during the upcoming weeks so the Pound could be in for a really rocky ride!!

If you want to have a chat about market conditions and forecasts give me a call on 01494 787457 or email me at sah@currencies.co.uk

Currency News

With the Greece situation smouldering in the background whilst it gets on top of its troublesome deficit there are lot of economic releases to make for an interesting day. We have already seen the Bank of Japan hold interest rates steady this morning. Later sees UK public sector net borrowing for January released at 09:30. With the already very large UK deficit this is one release that should be keenly watched and is likely to shape the sterling markets today.

Forecast is actually for an improvement in the figures with a reduction of £2.5 billion. However seeing the deficit expanded the previous month by £15.7 billion then this forecast from my view is a little on the optimistic side and we could see a reversal of the good gains the pound saw yesterday.

At the same time M4 money supply data is also released measuring all the money in circulation in the UK. The Bank of England will be hoping to see some growth in the figures and most are expecting a small increase of about 0.5%. However, with a growing belief that QE isn’t having the desired effect and the fact that the money supply actually shrunk by more than 1% last month then we could be in for a nasty surprise.

With two very important releases this morning, for anyone with any currency requirements it would be beneficial to be in close contact with your account manager should the market move substantially.

It is worth being aware that there are European consumer confidence figures released at 10:00. With a more fragile looking Euro with the problems surrounding Greece at the moment it has the potential to put a dampener on the euro.

Across the pond focus will be on Canada with a number of releases including Consumer Price Index (CPI) for January at 12.00. For the US it is Producer Price data and the Philadeplhia Fed Survey later this afternoon.

US data out today

Like its UK equivalent, the US Federal open Market Committee minutes are sure to cause ripples for the world’s largest economy. They may give an insight as to if or when the US is able to start raising interest rates which is likely to impact on the price of the Dollar. Since many commodities are priced in the greenback this has huge significance for various market sectors and may affect a currency pair you had not considered. With gold being priced in Dollars, and South Africa being the world’s largest single producer of gold, as the Dollar rate changes, so does the amount of gold investors can afford, and therefore the ZAR strengthens or weakens as a result. As you can see the impact of the US information out this afternoon doesn’t only affect clients looking at buying or selling Dollars directly but also those clients looking at a range of other currencies

Banks for sale!!!

Taxpayers may have to wait until 2015 before they start getting back the £40bn used to prop up failing banks. UK Financial Investments (UKFI) believes it may take that long before it can sell most publicly owned shares in RBS, Lloyds and Northern Rock. The government body had been hoping to offload them sooner, but there are fears this could result in huge losses.

The question I find myself asking is what will fill the £40bn hole in the meantime? And I keep coming up with the same 2 answers, increases in taxes and cuts in public spending – neither of which I think will have a positive effect on Sterling exchange rates.

We at FCD are always looking for our client’s thoughts and opinions on what they think will happen to the market and where they see exchange rates going? So why not let me know your predictions. Where do you see EUR and USD exchange rates 3 months from now? Email me at sah@currencies.co.uk and I will publish the findings in my next blog.

What will be the effect of a hung parliament

The Liberal Democrats yesterday denied that it had ruled out joining a coalition government if no single party won a parliamentary majority at this year's election.

The possibility of Britain's first "hung parliament" since 1974 has unsettled financial markets but Liberal Democrat deputy leader Vince Cable said it could be in the national interest "because it will force parties to work together in a way that single-party government won't."

He told BBC radio: "We will be very constructive in our approach to it, but we are not engaging in fancy games of working out who does what."

The Conservatives are favourites to win the election, expected in May, and so end 13 years of Labour rule.
But a series of polls has shown the Conservatives falling short of the support needed for a majority. The Liberal Democrats, who have 63 seats in the current 646-member parliament, could become kingmakers in that scenario.

Investors fear a minority or coalition government would not act decisively to bring down Britain's gaping public sector deficit, forecast to reach 178 billion pounds this year or more than 12 percent of Gross Domestic Product.

In my opinion the overriding factor that is going to cripple any short term economic recovery in the UK is the national debt, it is already at levels which are spiralling out of control and without a single party steering us (or at least attempting to) then we really could be left out to see without a paddle.

If you, like me, have grave concerns about Sterling’s strength against all world currencies coming into a new political cycle then speak to us soon. We have contracts that allow you to secure today’s exchange rates for up to two years ahead allowing you the comfort of knowing to the penny how much your overseas transfers are going to cost you.

UK unemployement figure going up?

The UK economy is facing more redundancies, with substantial cuts expected in the public sector, a report said yesterday. Almost one in three public sector employers plan to shed jobs this quarter, the Chartered Institute of Personnel and Development stated.

Its latest quarterly survey found that the jobs outlook had worsened despite the UK emerging from recession, another strong indicator that the UK may be entering the second phase of a double dip or W-shaped recovery – bad news for the Pound!
The latest unemployment number (which currently stands at 2.46 million) is released tomorrow. A significant increase is likely to have a pretty negative effect on the value of the Pound as fears continue to mount over the long term financial health of Britain.

If you want to be among the first to know the number, literally only a few minutes after its release, email me today at sah@currencies.co.uk and I’ll personally make sure you are emailed the data and how it has affected exchange rates tomorrow morning.

If, however, you are getting tired on the insecurity of the UK economy and need to buy currency in 2010 call us free today on 0800 328 5884 and find out about the contract types we have available that can be tailored to your specific needs.

Greek tragedy

It was announced last week that there will be some form of bailout plan for Greece and rather than the responsibility falling onto a few nations, the responsibility will be passed onto the European Union.

This of course includes the United Kingdom and therefore even with our own debt mounting we may be forced to spend further in order to help Greece, with rumours that Spain are in a very similar position as well as possibly Ireland and Portugal, the prospect of the U.K. following suit cannot be ignored.

If this were to happen it would be disastrous for the pound and for those looking to buy Euros either now or in the future should consider forward contrcats in order to protect themsleves from the rocky road ahead.

USD rates suffering

Most of the east coast of the USA has been hit by snow and many people are asking whether it is affecting their economy.

It meant that their Retail Sales figure release has been delayed till later today but some are also thinking it has helped to show their jobless figures in a better light. The jobless figures were released yesterday afternoon and came in better than expected as the snow may have caused an administrative backlog. Due to this the pound strengthened against the dollar through yesterday’s afternoon trading.

With this in mind if you are interested in enquiring about our currency rates to send money abroad get in contact today on 0800 328 5884 and talk to your independent currency broker.

Sterling forecast against the euro

The CBI yesterday announced that retail sales in January fell at their fastest annual rate, I think this coming so soon after the UK scraped it's way out of recession paints a pretty bleak short to mid term future for Sterling.

The fall can be partly attributed to both the rise in VAT as well as the big freeze the country suffered during the month which both affect peoples willingness and opportunity to spend.

This adds further fuel to the fire that the UK could be heading for a W-shaped or double dip recession - a situation where the economy could fall again, further, than it did a year ago - and who knows where exchange rates could fall to ....... below parity against the Euro? 1.20's against the Greenback? Not good!!

There is no reason why people shouldnt at least be considering the benefits of buying currency, or at least securing exchange rates using a forward contract at these recent highs.

To talk through your specific circumstances or to see what contract types we have available that suit you requirements email me at sah@currencies.co.uk or call me free on 01494 787457

Sterling forecast

Sterling has had a rocky 7 days on the markets and it looks set to continue with a number of interesting maybe more news based releases due to come out over the week.

Obviously the key one of the week is the U.K officially coming out of a recession yesterday, however we just crept out of one so good news on paper but in general there is still plenty to be done.

The Iraq inquiry is also set to be a very interesting time for the Pound as there will be some extremely heavy questioning, especially for Tony Blair, and with the U.K still having a Labour Government still in power this may lead to political uncertainty which in turn could bring Sterling weakness.

Canadian Dollar exchange rates

Yesterday we saw the announcement of the first Canadian interest rate decision of 2010 which was, unsurprisingly, left on hold at 0.25%. The central bank reiterated that the currency's continued strength was a real hindrance to economic recovery.

On the back of this announcement Sterling gained some significant ground, a welcome change for those looking to buy the Loonie.

In other news German ZEW investor confidence slid more than expected, denting the Euro, while UK inflation figures came out at 2.9% the biggest increase since records began.

This all led to a pretty good day for the Pound which ended up three quaters of one percent up against the single European Currency by the day close

Positive UK house price data

Rising buyer interest and low levels of supply pushed property asking prices in England and Wales up an annual 4.1 percent in January, according to property website Rightmove.

On a non-seasonally adjusted month-on-month basis, prices rose 0.4 percent, reversing part of December's 2.2 percent decline.

Search activity on Rightmove's website hit a record high in the first full week of the year with 157.4 million pages viewed, 26 percent higher on the same period a year ago.

Rightmove also warned that Government spending cutbacks and the potential of rising interest rates later in the year could hamper the upward momentum.

We have seen positive moves for Sterling against a basket of major currencies this morning on the back of this data release, sending Sterling Euro to a 3-month high and Sterling Dollar to it's highest level this year.

Australian Dollar update

Employment figures from Down Under yesterday came in slightly better than forecast and it will come as no surprise to anyone who regularly follows the Aussie Dollar to know that the currency is still going from strength to strength.

The figures showed that the number of those in work increased by 35,000 against an expected figure of 10,000 - significantly increasing the likelihood of an interest rate increase at their February meeting.

The Aussie Dollar gained 0.7% against Sterling by close of business yesterday and is up another 0.55% already today.

A currency who's countries interest rates look like they are about to increase will generally strengthen against economies who's interest rates are stable or falling so over the next few weeks we could continue to see gains for the Australian Dollar over Sterling, to make sure you are in a position to take advantage of this opportunity take 5 minutes to open a free no obligation trading account with Foreign Currency Direct plc by clicking here

Best exchange rates?

Sterling exchange rates rallied yesterday following positive results from both the industrial and manufacturing sectors. The good feeling was further assisted when Andrew Sentence, a member of the MPC (Monetary Policy Committee), hinted that UK interest rates might rise above the record 0..5% low before the end of 2010.

Further, a leading think tank the NIESR seemed to bring closer the prospect of the UK coming out of recession as they announced that their figures (although not official) indicated that the UK economy grew 0.3% in the 3 months to December 2009.

This all led to a real shot in the arm for the Pound, a trend which has carried on against most currencies this morning. For those needing to secure currency in the first part of 2010 this could be the window of opportunity you have been looking for. Call me free on 0800 328 5884 to get up to the second prices and find out what we can do to help you negotiate the market during these volatile times.

US unemployment still high

The US had a busy day on Friday with both unemployment and Non-Farm roll figures released. It proved to be a very volatile day for the GBPUSD pairing as Unemployment remained unchanged at 10% and Non-Farm payroll very different from predicted. Since the recession began in 2007, 7.2 million jobs have been lost in the US. In 2009 alone, the economy lost 4.2 million jobs. This brought back fears of a double dip recession which could hugely affect future exchange rates.

Timing a transfer of £100,000 buying USD could have made you an additional $2,000 at the peak of the day. This in another example that keeping in close contact with your dedicated account manager here at FCD can provide a real benefit and create a real saving on your transfer.

If you do not have an account with us to take advantage of this spike simply click here to open a trading facility for either personal or business use. It carries no obligation or cost and gives you access to all the tools available to maximise any future currency exchange.

Positive economic news out of the UK rallies the Pound

Friday morning saw the first positive reports for the UK in 2010 with Product Price Index results coming in higher than expected. The price of goods leaving the UK rose 0.5% last month and took the annual rate of output to 3.5% which is the highest since January 2009.

These results published by the Office of National Statistics made a welcome change as the pound strengthened against a basket of major currencies in
morning trading, which for some pairings was the first time in 2010.

Quantiative easing set to increase

The is a distinct possibility that the MPC could increase the QE programme designed to reignite the flagging UK economy following their February meeting. In the past announcements of further funds being made available have caused Sterling to weaken significantly.

A spokesman for BNP Paribas SA said that Sterling could fall by as much as 12% against the USD this year as deteriorating public finances, concern the nation's credit rating may be cut and political discord deter foreign investment.

Political Instability

Yesterday saw Sterling take a tumble once again as Gordon Brown's leadership was put into question when two ex-cabinet ministers Patricia Hewitt and Geoff Hoon called for a secret ballot regarding party leadership only months before a General Election has to be held.

With two such high profile members of the Labour Party coming out in public like this it is a clear sign that the party is clearly divided.

Political stability (or lack of) is one of the 4 factors of the currency compass, the 4 driving factors behind exchange rate movements and direction.