01-06-2009 : FCG Market Report 1st June 2009
Sterling made front page news last week as exchange rates hit year highs against the Euro and US Dollar. Those who stand to benefit most are clients looking to transfer larger or regular sums overseas.
In a relatively quiet week for data releases, Sterling gains can be largely attributed to improving confidence in stock markets and currencies. Both have been seen as risky during the economic crisis. On Friday, the Pound was given a boost gaining over 1% against the Dollar and holding relatively firm against the Euro following a Nationwide housing report that showed better than expected increases in house prices.
The current improvement in rates is not guaranteed to continue. Whenever we have seen a spike recently, we have seen the Pound fall away afterwards. This highlights the importance of getting in touch with your Account Manager here at FCG to discuss your options when currency rates spike.
One of our most favoured contracts at the moment is the Forward Contract where one can lock in to an exchange rate in for up to two years in advance with a 10% deposit which then safeguards your currency requirement until the final payment is due.
USD
Last week’s trading saw the GBP/USD cross break through the 1.60 barrier at interbank level. This has been largely due to Dollar weakness rather than Sterling strength. The data to watch for this week for potential impact on the Dollar is; the US factory orders due to be released on Wednesday and on Thursday the US Jobless claim followed by Friday’s non-farm payrolls data. Data released from the UK is not expected to be hugely positive, however any indication that the recession in the UK is at least stabilising will be received well.
With Monday’s announcement confirming the fate of US manufacturing Giant GM filing for bankruptcy, this has done little to boost confidence in the ailing American economy.
US Dollar – Still a safe Haven?
The USD has in recent years been seen as a “Safe Haven” for funds and investments; this has not been for sentimental reasons. The USA is the world largest economy with a GDP in excess of 14.26 trillion Dollars. The Federal Government has a proven track record of repaying its national debt as it becomes due, on a huge scale. The US government debt currently stands at over 11 trillion dollars, more than $37,000 per capita. The sheer scale of this super power’s economy has meant it is a “safe” bet.
Recent press has called into question this enviable status; this has been driven by the perception that the USA is unable to manage its recovery and its borrowing may become larger than it can afford to service. In reality with over 135m taxpayers, the US Government would have to go some way to make this position unrecoverable.
Analysts suggest that National debt may reach 100% of GDP by 2011 then slowly start to shrink. The US population already seems to be adopting more sustainable and cautious habits and for the first time in years statistics indicate that households are now saving more and slowly starting to spend less.
For and individual assessment of your currency requirements and an explanation of the tools at your disposal to purchase your currency, please contact your FCG Account Manager.
AUD
The Australian Dollar found strong buying support, particularly over the latter part of the week, as stronger commodity prices and improving confidence attracted investors to higher interest rate and commodity-based currencies. The domestic data, including a sharp drop in business investment, was generally weaker than expected but had only a muted impact on the currency. Although further interest rate cuts cannot be ruled out, this is likely to be more heavily dependent on whether the tentative signs of improving global economic conditions continue to emerge.
The GBP/AUD rate closed on Friday at 2.019, down 0.7% from 2.034 a week earlier, benefiting those converting Australian Dollars into Pounds.
Tuesday's interest rate announcement and the subsequent Gross Domestic Product (GDP) report on Wednesday are the highlights this week. Interest rates are widely expected to be held at 3%, whilst the Australian Dollar could gain further support if better than expected GDP data reinforce recovery expectations.
Key Data Releases This Week
We have various things to look out for this week. A full outline of the major data releases is below. To briefly summarise, for anyone buying or selling Euros then look out on Wednesday for various inflationary measures, and also the interest rate decisions for both the UK and EU on Thursday. It's unlikely the BoE will move rates from the current 0.5%, however the EU do have scope to cut rates in order to boost the economy.
These decisions may also come with further news for Quantitative Easing for both zones. It's likely that the Euro may well weaken towards the end of the week, giving better levels for Euro Buyers, but make things worse for those that need to convert funds back to Sterling.
For those clients looking at either buying or selling the US Dollar, then today we have Personal Consumption data and Personal Spending. Friday will also be a key day, as we have Earnings, Unemployment, Spending and most importantly, the Non-Farm Payrolls data. As this is so difficult to forecast, actual results are often way off predictions causing volatility in the value of the USD.
Monday
EU - Purchasing Managers Index
UK - Purchasing Managers Index
US - Personal Consumption
US - Personal Spending
Tuesday
Aus - Interest Rate Decision
UK - Consumer Credit
UK - Mortgage Approvals
EU - Unemployment
US - Home Sales
Wednesday
Aus - Gross Domestic Procuct
Ger - Purchasing Managers Index
UK - Purchasing Managers Index
EU - Purchasing Managers Index
US - Unemployment
Thursday
EU - Retail Sales
UK - Interest Rate Decision
EU - Interest Rate Decision
Can - Interest Rate Decision
US - Jobless Claims
Friday
UK - Producer Price Index
UK - Halifax House Prices
Cad - Unemployment
US - Unemployment
US - Non Farm Payrolls.