20-04-2009 : FCG Market Report 20th Apr.200
EUR
Last week the Pound made headway against the Euro, particularly over the early stages of the week. However, Sterling was better able to sustain these gains against the Euro than it was against most other currencies. The GBP/EUR rate for buying Euros closed on Friday up 2% at 1.134, from 1.112 a week earlier, benefiting those converting Sterling into Euros.
Over the past six months, we have seen the Euro lose significant ground thanks to a string of rate cuts, the obvious recession and growing financial troubles. And yet, the currency is still considered among the strongest in the G10. With a significant yield differential above the US and UK, many Euro ‘bulls’ are hoping that a short-term, broad economic recovery will find the Euro ahead of the pack on interest rates. That said, sentiment towards the Euro waned after comments from European Central Bank’s (ECB) President Trichet commented that they must do everything possible to improve confidence. The ECB has often prepared the market for future interest rate moves and this was interpreted as a likely indication of a further cut on the 7th May. Faced with combating inflation, the ECB may have greater scope for this (with further less conventional measures remaining a possibility) after inflation eased to 1.5% in March.
Whether the Euro remains at its new position or attempts a bullish reversal may well be decided by fundamentals. Considering the releases that have driven the world’s second most frequently traded currency in the past weeks, the focus must be on a number of potential data releases for significant price action. Economic sentiment surveys in the Eurozone will be provided by the German ZEW index (Tuesday) and IFO indices (Friday). Leading indicators of activity will also receive attention with the Purchasing Managers Indices, assessing conditions in the manufacturing and service sectors (Thursday). Support for the Euro could be further undermined if the data is weaker than expected.
USD
Last week saw Sterling rise up above the 1.50 mark for the first time in 3 months as the British currency found continued support from investors, suggesting the possibility of the return of risk appetite among traders. The Dollar was also hit by lower than expected inflation, sparking fears of deflation in the US economy later in the year.
Looking to the week ahead, the direction of Cable is likely to be dominated by data releases from the UK, as we see data on inflation, retail sales, unemployment as well as the heavy influential Q1 GDP data, Bank of England minutes and the annual Budget. These all have the potential to weigh heavily on Sterling if they echo recent dovish sentiment, and speculation of bad news to come dragged the British currency down by 3 points on Monday morning. The budget from Chancellor Alistair Darling on Wednesday is likely to reveal the largest budget deficit since the Second World War as the government attempts to spend its way out of recession and stimulate the British economy back into growth. This deficit is likely to be in excess of 10% of the nation’s GDP, raising national borrowing to record levels.
From the other side of the Atlantic, Monday evening sees the release of the leading indicators index – a series of short term predictions for the economic fundamentals, although the figures are purely indicative so are unlikely to have a significant effect on the GBP/USD cross.
Given the potential for a further decline, those buying US Dollars may look to secure their currency as soon as possible, whilst sellers can seek guidance from their FCG Account Manager to ensure they buy at the optimal time.
AUD
The last time a Pound last bought fewer than two Australian Dollars was back in October 1996, and Sterling began last week perilously close to this psychologically important level. However, Sterling recovered modestly during the first half of the week, with renewed concerns over the outlook for the global economy weighing most heavily on those currencies such as the Australian Dollar which still offer relatively high interest rates. Australian business confidence improved in March, but remains at historically depressed levels. Traders also sent the GBP/AUD cross higher following news of worse-than-expected Chinese Gross Domestic Product results. Given Australia’s clear dependence on Chinese demand, any slowdown in China’s consumption growth could easily hurt domestic export industries.
The GBP/AUD closed on Friday at 2.047, up 0.5% from 2.038 a week earlier, benefiting those converting Sterling into Australian Dollars.
Minutes from the Reserve Bank of Australia's 7th April interest rate policy meeting will be released on Tuesday, with the latest consumer inflation figures to follow on Wednesday. Both will be watched closely for potential implications on the future path for Australian interest rates.
Key Data Releases This Week
This week is much busier in terms of data releases for the UK. The main ones to look for are the Bank of England minutes on Wednesday. The minutes of their recent decision to hold rates will give a full account of the policy discussion, including differences of view. They also record the votes of the individual members of the Committee. If the BoE is hawkish about the inflationary outlook for the economy, then the markets see a higher possibility of a rate increase, and that is positive for the GBP.
Also there are various inflationary measures for the UK released on Tuesday. Canada will announce their interest rate decision this week also.
A full list of the data is below, however please get in touch with us to discuss your particular requirements, and for detailed information on how these economic data releases could affect your currency purchase.
This week’s data
Monday
Aus - Producer Price Index
US - Leading Indicators (measures future trends of the overall economic activity)
Tuesday
Cad – Interest Rate Decision
Ger - Producer Price Index
Ger - ZEW Survey
UK - Consumer Price Index
UK - Retail Price Index
Wednesday
Aus - Consumer Price Index
UK - BoE Minutes
UK - Jobless Claims & Unemployment
US - House Prices
Thursday
Jap - BoJ Governor speech
EU - Purchasing Managers Index
EU - Industrial Orders
CAD - Retail Sales
US - Home Sales
Friday
US - Treasury Speech
UK - GDP
UK - Retail Sales
US - Home Sales