11-05-2009 : FCG Market Report 11th May 2009
EUR
Last week saw the Bank of England keep their interest rates on hold at 0.5% and announced it will be pumping £50bn into the economy as part of its quantitative easing programme. The MPC kept the rates on hold as they wanted to wait and see how the market reacted to both the effects of March’s rate cut and the quantitative easing already adopted. The Bank has spent about £75bn so far and is on track to spend another £50bn by June.
After the meeting by the BoE, it gave a statement which read ‘the world economy remains in deep recession’. Immediately we saw Sterling exchange rates plummet by 1.5% against the Euro and a difference of almost £2700 on a purchase of £180,000 for the currency pair GBP/EUR between the high and low of the day
The ECB cut their interest rate by a quarter point to 1%. Typically if a country/zone cuts its interest rate, we see that the respective currency weaken, therefore many expected to see Sterling strengthen after this decision. Trichet then went on to speak about quantitative easing in the Eurozone, who are planning to pump €60bn into the economy.
Trichet also mentioned that more details will be unveiled when the ECB next meets on June 4th. This is why we saw Sterling drop so dramatically during his speech, as we did gain for a slight period and then began to weaken against the single currency. With such low interest rates in the UK and Eurozone, the central banks around the world are having to come up with new ideas and methods to support their economies.
With such Volatility within the market at present it is vital that you keep in touch with your Account Manager at all times. Here at FCG we have a number of ways to safeguard your currency requirement, eliminating the risk when transferring money.
One can obtain a Forward Contract for up to 2 years with a small deposit in advance securing your transfer against any pitfalls within the market.
USD
Last week saw volatile trading across the board and the GBP/USD cross was no exception. The Pound broke through $1.50 on Monday last week, and continued to hold above this level for much of the remainder of the week.
Existing measures of a 0-0.25% target interest rate range, aimed at reviving the US economy, were kept unchanged at the Federal Reserve's most recent policy meeting, although in statements made since the meeting, it has been suggested that the economic outlook has improved modestly since March. If correct, this improvement could spark a long-term recovery of risk appetite, which showed signs of beginning last week with Sterling gaining ground against lower yielding currencies, such as the USD and JPY, but faltering against typically higher yielding ones, such as the NZD and AUD.
Furthermore, the results of the US banks' stress tests to gauge potential bank losses under more adverse conditions were greeted favorably by markets. Alongside an overall improvement in investor sentiment and rallying global stockmarkets, overall defensive demand for the US Dollar eased during the week.
Friday's Non-Farm Payrolls report revealed that employers cut 539,000 jobs in April. Whilst economic conditions clearly remain weak, this was better than feared and marked the smallest monthly decline since October. The US Dollar continued to weaken late on Friday, with higher risk appetite enabling the GBP/USD rate to rise to its highest level since early January, welcome news for anyone buying U.S. Dollars.
All things considered, investors' risk tolerance levels are likely to remain important to the US Dollar's performance this week, although opinion on the domestic economic outlook will be further shaped by Wednesday's retail sales report and Friday's inflation data.
To ensure you get the very best exchange rate possible speak to your account manager about the benefits of Stop-Loss and Limit Orders.
AUD
The Reserve Bank of Australia left interest rates unchanged at 3%, noting further signs of stabilisation in the global economy. Whilst it also cautioned that confidence remains fragile, the latest data improved investors' moods with consumers and employers defying recession over March and April; March's retail sales were 6.3% higher than a year ago and employment unexpectedly rose by 27,300 in April, the biggest monthly gain in six months.
The GBP/AUD rate closed at 1.98, down 3% from 2.04 a week earlier, benefiting those converting Australian Dollars into Sterling.
Housing finance data and the Federal Budget (both Tuesday), as well as consumers' confidence (Wednesday) and inflation expectations (Thursday) should provide some influence to the Australian Dollar's performance this week, although global risk tolerance trends may take precedence over the domestic data.
Key Data Releases This Week
Below is a full rundown of what data is being released from all over the world this week. There are lots of different measures which will cause volatility in exchange rates.
The main ones to look for are: US Federal Bank Chairman’s Speech today - the press conference will show how the Fed observes the current US economy and the value of USD.
On Tuesday we have various Trade Balance Measures for the US and UK. It shows a balance between exports and imports of goods. A positive value shows trade surplus, while a negative value shows trade deficit. It is an event that generates some volatility for the GBP & USD.
Also on Tuesday we have the GDP Estimate released by the NIESR. It's an unofficial report of the UK GDP. This report that comes out a month before the official announce is highly reliable and can influence the UK monetary policy.
Also watch out for the UK unemployment data that will affect Sterling’s value, and of course the Bank of England Quarterly inflation report and Mervyn King’s Speech on Wednesday. This will be key to this week’s Sterling exchange rate movements. For more detailed information about this data and how it may affect the cost of your currency purchase, please get in touch.
Monday
UK - BRC Retail Sales
UK - RICS House Price Data
US - Fed Chairman Speech
Tuesday
Ger - Consumer Price Index
UK - DCLG House Prices
UK - Industrial Production
UK - Manufacturing Production
UK - Total Trade Balance
UK - GDP Estimate
US - Monthly Budget Statement
Wednesday
EU - Industrial Production
UK - Claimant Count
UK - Unemployment Rate
UK - Jobless Claims
UK - BoE Quarterly Inflation Report
UK - BoE Governor Speech
US - Import Price Index
US - Retail Sales
Thursday
EU - ECB Monthly Report
US - Jobless Claims
US - Producer Price Index
NZ - Retail Sales
Friday
Ger - Gross Domestic Product
EU - Consumer Price Index
EU - Gross Domestic Product
US - Consumer Price Index