Monthly Archives: October 2010
This week has seen the euro stumble against sterling, great news for those buying euros. GDP figures and talk of the Greek economy shrinking as well as problems passing Portugeuse austerity measures all pushed the GBPEUR rate back in sterling’s favour.
This may not remain for too long however, investors are very weary of the debt crisis which saw the euro tumble earlier in the year.
Hence the announcement of a permanent crisis fund to shadow the emergency loans fund setup earlier this year. This fund is designed to protect members of the eurozone that experience difficulty. But there is a bigger goal I believe and that is to protect the longer term stability of the currency.
Some commentators predicted the euro would crumble by the end of the summer. This has not been the case and with this new fund to be established we should see further euro strength, or at least the removal of the prospect of another debt crisis putting fear in investors minds.
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Good morning readers,
This morning Nationwide released their figures showing house prices have fallen by 0.8%. This report from the UK’s largest mortgage approver does not normally result in much movement on the markets however the report that followed has caused sterling weakness this morning as concerns increase.
The report went on to say that if prices continue to fall the overall figures for the housing market this year could come out with negative growth. The housing market is key to the UK and just shows how little is being approved by the banks. Another report showed that the average deposit needed for a house now stands at £37,000 or 2 times the average yearly wage. These high statistics show another dimension that all may not be as happy in the banking sector as they have been telling us and have introduced another dimension on sterling forecast going forward. Unfortunately for people selling the pound it has been negative and has pushed the pound euro rate back close to a seven month low.
Next week we have another key week with consumer confidence and interest rate decisions. Clients looking at making a transfer that are risk averse may like to move sooner rather than later.
Today we have the UK releasing the much anticipated Q3 GDP figures as mentioned in yesterday’s blog, and the forecast is mixed. The markets dropped again yesterday morning by as much as 0.5% however this morning these losses have been recovered. This could be down to a change in forecast by traders before the release scheduled at 9:30.
Clients looking at buying or selling should contact us today as this could be key to the forecast of most currencies including the USD, AUD, CAD, EUR, CHF. This is due to the concern QE could be extended again in the UK.
This afternoon is lead with US data releases including consumer confidence and house prices. Each of these are a key part of the outlook of the US and their own QE program. Speak to us today for more information as this could dramatically change the forecast of any house purchase or business invoice.
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The GBPEUR rate has again experienced weakness on the sterling side with nearly half a percent lost this morning, breaking the 1.12 barrier. A massive 11.5 cents since the high of June 30th at 1.235.
GDP figures for Q3 for the UK are due tomorrow and are predicted to show less growth than the previous quarter. A sign of Mervyn King’s ‘Sober Decade’? Considering the massive losses already seen, can you afford to hold on in the vague hope of a rebound? What would drive this?
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The Spending Review has outlined various measures which on paper are conducive to reducing our budget deficit, but will they impact on growth? Will they lead to severe job losses and further demand on the welfare state?
The answers to these questions will not be known for sometime and it will probably be years before we can really assess the impact.
We have seen much greater movement today as retail sales came out less than expected. I think that the budget cuts will now be a backdrop to all sterling data releases and make their impact seem worse. The economic climate is going to be weaker in the short term as it adjusts to the cuts and balance is redressed in the economy to gear up for a government with less spend on servicing it’s debt.
I expect sterling will contiunue to drop against the euro and that the rate will continue to hover around the 1.10 mark.
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On Friday it was announced that the US budget deficit had droppped to $1.3 trillion. This data helped give some strength to the dollar which pushed sterling below 1.60 and the euro below 1.40, two barriers that had recently been broken by the respective currencies.
Consequently we have seen investors look back to the dollar with much of these funds coming from the euro, consequesntly weakening the euro, giving rise to some small gains for the GBPEUR pair, which opened at 1.1443 today, nearly a cent and a half up on last weeks low.
This week will be key for the GBPEUR pairing as we have the announcement of the UK’s budget cuts. My head tells me that we will see further sterling weakness. Consdering the major losses for sterling on the back of QE discussion, it seems likely that further announcement of cuts can only bring about more sterling weakness as our economic prowess is a huge factor on our exchange rate.
I do have an inclination however that we will see some sterling strength. There is no doubt that there is an urgent need to get our finances under control and whilst potentially too severe, the coalition government’s determined committal to reduce the UK’s budget deficit did calm the markets in the summer, and long term is necessary.
These measures will be key to setting our economic pace for the next few years and the success or failure will impact exchange rates.
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Regular readers will know that a majority of the market movement over the last few weeks many believe is down to speculation on who will release more QE and by how much. Last night the FED in the US spoke loosely about their plans which did nothing to grown the speculation. Many are thinking this could be by as much as $100 billion, a vast amount. This has caused the dollar to weaken further and GBPUSD trades are now towards a 8 week high.
The forecast for both the GBPUSD and the euro forecast I think will continue to be based on the speculation of who first and by how much. Information is due next week that will put the spot light firmly back on the UK so for up to date information continue to keep reading.
For the rest of this week the US will continue to release information, today’s focus is the jobless count which can change the markets significantly.
If you would like a more detailed forecast about the outlook feel free to contact us using the information form.