Monthly Archives: August 2010
Regular traders will know that markets do not follow a pattern and there are no guarantees in where markets will move. The dollar is perhaps the most unpredictable as it is seen as an indicator of the health of the world’s finances. So, in some cases when we see positive data for the US the dollar weakens as the global markets are seen to be improving and money is moved away from the “safe haven” of the dollar into riskier currencies.
This has happened today and there have been very large swings with the euro gaining over 1% against the pound and 1/3 percent against the dollar. This, the largest movement seen in over 6 weeks should be seen as a great opportunity for clients looking to sell Euros at the moment. So all people selling in the euro zone, I would recommend reviewing your options.
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Further positive UK GDP figures released at 9.30 am today have not had a major affect on the market, largely I feel due to being priced into the rate already. Sterling has been trading very strongly recently and this could mark the spell of a flat period.
Throughout the year we have seen sterling chip into the euro, only to lose a small amount back following the gains. The general trend has definitely been up with close to 10% gained by sterling since the start of the year.
I would expect the trend to continue based on the same themes and topics being present in the market. That of the european debt crisis and the UK’s precarious recovery.
Interbank levels have waned ever so slightly this morning. We could now be in for a spell of euro strength as global recovery fears persist and the european debt situation is no longer seen as such a weight around the euro’s neck.
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Nicholas Sarkozy yesterday called for ways to limit exchange rate fluctuations among G20 members. He is right to point out that exchange rate fluctuations can create serious imbalances but I think his calls stem more from a fear of the effect on France of a weaker euro than a true wider concern.
A strong euro has harmed UK businesses importing from the eurozone but at the same time aided British exporters. Exchange rate volatility can therefore be both a harm and a good but is it right to try to control them as some of the Asian currencies are? Exchange rates reflect the economic, political and social wellbeing of one currency region against another, but currency speculators put pressure on these rates which can undermine a governments economic goals.
The eurozone too has benefitted from a stronger currency inversely to the UK example above and this shows that there is also a european benefit. The fear I believe is that if the euro continues to weaken this will harm european imports, the eurozone being a major importer of US and UK goods and services, and hence harm their recovery.
One of the founding principles of the European Union and the Single Market was the ‘free movement of capital’. Perhaps if this was looking like continuing to work in France’s favour, Sarkozy would be more inclined to support it.
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Standard & Poor’s have today announced the downgrading of the Irish Republic’s credit rating. One of the findings is that Ireland’s net government debt will rise to 120% of GDP for next year.
Considering all the other european economic problems, this is not encouraging. Ireland have unemployment at approximately 13% and the question is where will the growth come from?
Whilst Germany is performing well, it has to be seen in the light of all the other countries within the euro. Right now the outlook is not good and we are continuing to see the economic chasm opening that could potentially be the downfall of the single currency.
The euro is trading rather strongly this morning in the mid 1.21′s, the gains from yesterday still present.
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German GDP figures released today have shown the country is performing very well. Figures were up 1.7% for Q2 vs Q1 and 2% vs last year.
Sucn sentiment gave the market some confidence and the euro gained roughly half a cent versus the pound in early morning trading.
This has since been reversed however as uncertainty over the global recovery continues and there is a real focus on the european countries. Major structural problems persist in reshaping the eurozone’s outlook and this is present in many investors minds.
We are consequently seeing some very strong trading levels for those buying euros and the long term outlook is this will continue. We do have UK GDP figures due out Friday however. If this continues to show the UK is performing well expect the currency to strengthen. If however they come in weaker the UK’s recovery will be questioned and as such it could result in major sterling weakness.
The global economic recovery is as precarious as ever with global stocks down and confidence low. If you do need to send money overseas or need to buy currency for electronic transfer, please contact us to find out about the best deals on euros against the pound.
The UK’s economic recovery has taken another step forward today with strong Public Sector Net Borrowing figures. The figures came in lower at £3.17 bn versus the predicted £5.1 bn that was expected.
Reducing debt is a key factor of the coalition government’s budget deficit reduction programme, and as if to underline the credibility of the plans, retail spending figures showed an increase too. This is good news for the pound as it shows the recovery is still underway.
The excellent trading levels seen today may not remain for long however. News out today that Germany has revised up it’s growth forecast’s to record levels could spell the start of a euro rally, especially with GDP figures due out Monday.
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The continued uncertainty in the global economic recovery is hampering a euro boost. The eurozone is still a question mark to investors and recent positive eurozone economic news in the form of record high inflation has done little to dent this.
Japanese GDP figures released this week showed a further decline in the countries economic outlook. This is bad because as a major exporter, poor GDP figures show that there is less demand for their products and hence reflects less global demand.
With the UK’s inflation falling again the UK can also be seen to be suffering from this global slowdown. However the pound is being seen as attractive due to measures that have been taken to tackle the deficit and perhaps the uncertain future for the euro and dollar.
The euro had benefited in the short term following the stress tests last month, but we have seen that it has not suppressed the underlying market fears.
I expect this situation to continue for the short to medium term and we may see further stability above the 1.21 mark following German PPI inflation data due out tomorrow, expected to show a fall from 0.6% to 0.2%. If this falls more than expected I would expect up to a cent to be gained by sterling.
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Eurozone GDP figures have come out stronger than expected at 1% for the QoQ figures (up from 0.2% in Q1 and 0.3% above the expectation of 0.7%) and 1.7% for YoY figures (up from 0.6% and 0.3% above expectations of 1.4%) giving the eurozone economy a big confidence boost.
We haven’t yet seen any major market movements following this however, possibly for the reasons in today’s earlier post. There are still question marks over the weaker southern states ability to repay debts. The stress tests have proved that when subject to a jolt the european financial system will not be shaken too much. But the tests were not too severe and there is still uncertainty over the future for the euro.
By contrast sterling has confidence as investors have moved away from the dollar and the euro following global stock market falls this week, which were a result of double dip fears. For the US this was due to a slowing economy. For the eurozone it is the fundamental problem of a single monetary policy for a multitude of economies, all at varying stages of recovery.
Sterling is trading strongly against the euro today, so for the best deals on euros against the pound, please get in touch. If you need to sell euros still get in touch. As specialist currency brokers we can get you much closer to the market rate than a bank would typically be able to. Get in touch to find out what you could be saving!
Over the last 2 weeks the GBPUSD rates have changed and moved dramatically and there have been some surprises. Two weeks ago the dollar was weakening due to continued bad data releases and many were very concerned that the US was going to re enter a recession. However this week the FED have released plans for “lite QE,” referring to a slow and probably continual release of funds in a new way of Quantitative Easing (QE.) This was a surprise to the markets and has been seen as a positive sign with the dollar gaining against the pound by nearly 5 cents.
Some will think this odd as when the UK released Quantitative Easing the pound weakened by close to 4 cents rather than gained like the US dollar has experienced. I believe this is probably down to the US being the largest economy on the planet, so any proactive releases are seen as a positive.
Over the coming few days we will however see whether these prices in the market will stick and in my option it is likely that we could see further pound strength against the dollar, especially today. We have both US inflation and Retail sales figures released later today, both of which I believe will provide buyers of the dollar with an opportunity. Perhaps even at a 6 month high to buy the greenback.
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German growth was announced this morning as rising at record levels from 0.2% to 2.2%. This should be seen in the light of the past poor growth but it is still a sharp rise, and shows the eurozones biggest engine is running again!
The markets have not been bowled over by the positive news this morning with the euro rate still comfortably above the 1.20 level.
At 10 am today European Monetary Union GDP figures are due out so investors and the markets may be waiting for this before investing too much in just Germany. Greek GDP was down 1.5% and those looking to invest in the euro are not just looking at Germany. There are the other euro members to look at, and based on past data there is quite a gap between those at the top and those at the bottom.
There could be a deep chasm that is opening between economies in the eurozone that would threaten its very stability. This is because traditional economic measures that would be used to manage the different economic situations cannot be effectively applied with one single monetary policy.
The real figures to watch out for therefore will be the European Monetary Union GDP figures due at 10 am.
We will keep you updated!
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Yesterday the Bank of England released their latest inflation figures, and there were a few surprises. This included a revised growth forecast for the UK this year to a smaller figure but still well above the targets set by the Government. This will be great news for clients with a UK mortgage as Interest rates are set to stay low until at least Q1/Q2 of 2011, however this also points towards future weakness in the pound.
I am now becoming more convinced that towards the end of the year the pound will start to weaken against most currencies. This is backed up by the forecasted rise in unemployment and fall in consumer confidence. It makes the current buying levels, a 6 month high against the dollar and a 7 week high against the euro very attractive.
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