18-05-2009 : FCG Market Report 18th May 2009
Last week saw Sterling continue to edge higher against the Euro on the currency exchange markets as the week went on, with a high on Friday as Q1 GDP figures were published for the Eurozone, and individual member countries. This came in worse than expected for the majority of the major continental economies, with an average of -2.5% QoQ and -4.6% YoY compared to the predicted figures of -2.0% and -4.1% respectively.
Sterling had a very strong open to this week, looking to continue the recent rally, although we may see the pound encounter heavy selling pressure later on in a turbulent week. In terms of the upcoming data releases, we have UK CPI inflation data on Tuesday, minutes from the Bank of England monetary policy meeting on Wednesday, and a revised Q1 GDP reading on Friday for the UK. All of this would indicate that the pound is likely to suffer as the week goes on, however the estimated reading last month came back at -1.9%, much worse than the expected -1.5%, so we may see a slight improvement in the revision.
The minutes from the Bank of England meeting are likely to reveal more details about the central bank’s plan of quantitative easing in future months. Most of the original £75bn has been allocated, so the Bank of England announced a further £50bn to be injected into the economy this month. Hints of further cuts in the base rate, or an extended QE plan are likely to harm the pound, thus we may see some volatility following their release.
On the continent, it looks like a relatively quiet week in terms of data releases and speeches from key officials, thus we are likely to see the pound driving the Sterling/Euro exchange rate.
Clients buying Euros may wish to seek guidance through the unpredictable market from their FCG Account Manager, and make use of currency tools to maximise their buying power.
USD
Last week saw GBP/USD exchange rates finished trading on Friday just a cent or so off the year high despite the bleak outlook for the UK economy. That said there will be a variety of triggers for GBP/USD to breakdown this week, as inflation data and central bank-related news will cause great volatility within the market place. You may want to speak with your account manager here at FCG this week and tie up what foreign currency you require before these important pieces of data come out over the next couple of weeks.
When the market is as volatile as it is at the moment it is imperative that you try and maximise the most out of your currency transfer. As you can see from the graph there is a 12% increase from the high and the low point during the last 6 months. It is impossible to predict what the market may do but here at FCG we have a number of ways of safeguarding your requirement for one to try and take full advantage of the exchange rate
A Forward contract allows one to obtain a rate for up to 2 years in advance. With a small deposit, one can obtain this contract securing there rate and give you that peace of mind. One can put in a Limit/Stop Loss to capitalize on your buying power, and realise the gains in the market. Using a stop/loss in these volatile times can protect you from detrimental movements on the global market.
Clients buying US Dollars may wish to hedge their bets, and fix half their currency now, and take a gamble on the other half. This means that whichever way the market goes, you have some level of protection, as if the markets do move in your favour, you can still secure your other half at better rates. At the same time, if rates keep moving the wrong way for you, at least 50% has been secured at better levels.
AUD
Sterling traded below the AUD $1.98 level early last week, but later rose back above the psychologically important AUD $2 level as investors' optimism waned regarding the global economy. Investors' risk tolerance trends largely outweighed domestic influences. A sixth consecutive monthly rise in housing finance and an improvement in domestic business conditions had only a limited impact on the Australian Dollar.
The GBP/AUD rate closed at 2.025, up 2.25% from 1.98 a week earlier, benefiting those converting Pounds into Australian Dollars.
The Reserve Bank of Australia's (RBA) assessment of the economy will be in focus this week, with the minutes of the May policy meeting to be released on Tuesday and its monthly Bulletin to be released on Thursday. Some support for the Australian Dollar could be undermined if investors become more inclined to believe that the RBA will lower interest rates further in the coming months.
Key Data Releases This Week
We have a lot of important measures this week. The most significant is listed below, but the ones to keep a close eye on are the UK's CPI (a measure of price movements of a representative shopping basket of goods and services) and RPI (a statistical measure of a weighted average of prices of goods and services purchased by consumers) - these figures are due tomorrow, and give a good outline of inflation in the UK.
Friday also sees some important UK data - government spending, imports and exports, and personal consumption - this will give an idea how the UK is faring, and could cause rates to climb, or indeed to plummet - so watch out! For those that are risk averse, consider protecting yourself with Forwards, Stops and Limits. So, whereas last week's movements were caused by Sterling weakness, then reversed by Euro weakness, this weeks developments will likely be caused by focus on the pound.
Monday
EU - Trade Balance
US - Treasury Speech
US - Housing Market Index
Aus - RBA Speech
Tuesday
Aus - RBA Minutes
UK - Consumer Price Index
UK - Retail Price Index
Ger - ZEW Economic Survey
US - Building Permits
US - Housing Starts
US - Fed Speech
Jap - Gross Domestic Product
Wednesday
Aus - Consumer Confidence
Aus - Wage Price Index
Ger - Producer Price Index
UK - BoE Minutes
Swiss - ZEW Survey
Can - Consumer Price Index
US - FOMC Minutes
Thursday
Ger - Purchasing Managers Index
EU - Purchasing Managers Index
UK - Retail Sales
UK - Total Business Investment
US - Jobless Claims
US - Philly Fed Survey
Friday
Jap - BoJ Minutes
US - Fed Speech
UK - Government Spending
UK - GDP
For a detailed explanation of how these economic data releases can affect your currency requirement, contact one of our expert currency brokers today on 01442 892 060.