15-06-2009 : FCG Market Report 15th June 2009
The Euro again fell to a 2009 low against Sterling, as a combination of internal member state stresses, banking sector fears and concerns that the Eurozone might lag the UK in recovery weighed on the single currency.
The latest economic data also suggested that the Eurozone recession could be more protracted than previously envisaged; industrial production plunged a record 21.6% in April from the same month a year earlier, in stark contrast with other economies where there have been encouraging signs that the worst of the recession might have passed.
The GBP/EUR rate closed on Friday 3.5% up at 1.183, from 1.1437 a week earlier, benefiting those converting Sterling into Euros.
The German ZEW think-tank's survey of German economic conditions and Eurozone inflation data, both due to be released on Tuesday, will be the focus of attention this week. The Euro could lose further support if the inflation data suggests greater scope to lower Eurozone interest rates.
Paul Krugman the winner of the 2008 Nobel Prize for Economics has stated, “The UK’s economy is the best in Europe at the moment”. This news had capped off a week where Sterling has risen to its highest value this year. Professor Krugman went on to say, “If the government can hold off having an election until next year, Labour may well be able to run with; 'we're the people who brought Britain out of the slump'. This supportive announcement may help strengthen Sterling as it covers two key points of the currency spectrum, the economy and politics (the other being terrorism and acts of god).
If you have an upcoming Currency requirement it may be worth getting in touch with your Account Manager today to see how much you can save on the exchange rates and also ways in which to safeguard your requirement.
USD
Last week saw the GBP-USD rate hit lows of 1.5801 before climbing back above 1.66 briefly towards the end of the week. We have since had US consumer confidence rise for a fourth straight month and have also heard comments from finance ministers in Russia and Japan which have supported the Dollar’s status as the worlds top reserve currency. Russia’s finance minister, Kudrin, said that he has confidence in the US Dollar and that it is too early for an alternative to the USD as the global reserve currency. Both of these facts supported the Dollar and forced the rate back down to 1.625 today.
The Pound still looks to have the ability to advance further against the Dollar with signs that the UK economy is recovering from the recession earlier than expected, and there are some expectations that we could see growth in 2010. House price figures released last week from the RICS showed that only 44.1% of their surveyors reported a further drop in prices in their area last month, better than the expected 52%, which is another indication that the UK housing market may have bottomed out. We also saw UK industry and manufacturing figures grow for the first time in over a year.
This week we should see both UK & US CPI increase slightly and the BoE minutes from their last meeting are released on Wednesday. Both of these will probably come out as expected and therefore we don’t expect to see quite as much volatility as last week and will most likely see Cable remain range bound between 1.6150 & 1.66.
AUD
The Australian Dollar initially fell against the Pound last week, as lower investor optimism about global recovery prospects dampened demand for higher-interest rate currencies. The Australian Dollar recovered slightly over the remainder of the week, once again supported by encouraging domestic data. The labour market's resilience was displayed by a much lower than expected fall in employment in May, whilst consumer confidence jumped by the most in 22 years in June as the economy avoided recession.
The GBP/AUD rate closed on Friday at 2.023, up 0.5% from 2.013 a week earlier, benefiting those converting Pounds into Australian Dollars.
The minutes from the Reserve Bank of Australia's interest rate policy meeting earlier this month, having left interest rates unchanged for a second successive month, will be released on Tuesday. The Australian Dollar could gain further support if the minutes support expectations that the level of its interest rate advantage will continue in the coming months.
This Week’s Data
Lots of data from the EU, US and UK this week. The most significant data is listed below, but the main events to watch for are:
UK There is a string of headline data releases from the UK this week, with both inflation measures being shown on Tuesday and the retail sales figures following on Thursday. These could underpin a wave of Sterling positive optimism amid reports that the UK may be the first of the major economies to break free of recession.
EZ Inflation figures out on the same day as the UK counterpart figures will give an insight to the ongoing issues in Euro Land. Problems in the French banking sector have been blamed for recent shifts in the GBP/EUR cross.
US On what is a busy day for inflationary data releases, the US follows suit with releases of MoM and YoY figures for May, as well, crucially, as the new Housing Starts for May. Look to these for further signs of the ‘green shoots of recovery.’
Jun 15
European Monetary Union Employment
United States NY Empire State Manufacturing Index (Jun)
United States Treasury's Geithner Speech
Jun 16
United Kingdom Consumer Price Index (MoM) (May)
United Kingdom Consumer Price Index (YoY) (May)
United Kingdom Core Consumer Price Index (YoY) (May)
United Kingdom Retail Price Index (MoM) (May)
United Kingdom Retail Price Index (YoY) (May)
European Monetary Union Consumer Price Index - Core (YoY) (May)
European Monetary Union Consumer Price Index (MoM) (May)
European Monetary Union Consumer Price Index (YoY) (May)
United States Housing Starts (YoY) (May)
United States Producer Price Index (MoM) (May)
United States Producer Price Index ex Food & Energy (MoM) (May)
United States Producer Price Index ex Food & Energy (YoY) (May)
Jun 17
United States Consumer Price Index (MoM) (May)
United States Consumer Price Index (YoY) (May)
United States Fed's Bernanke Speech
Jun 18
United Kingdom Retail Sales (MoM) (May)
United Kingdom Retail Sales (YoY) (May)
United States Leading Indicators (MoM) (May)
United States Philadelphia Fed Manufacturing Survey (Jun)