Monthly Archives: November 2011
Euro Rates Affected By Central Bank Liquidity Measures
After initial weakness this morning following a rise in European unemployment levels, the Euro made big strides after a surprise announcement of Central Bank cooperation to maintain liquidity in markets. The unexpected move saw the Euro gain nearly 3/4 of a cent against the pound before slipping back later, but just goes to highlight how short-lived some spikes can be as mentioned in Jonny “Dandelion” Watson’s post earlier.
The move also saw the pound and Euro shoot up against the Dollar as sterling 2.25 cents against the greenback and the single currency has enjoyed a nearly 3 cent range! This exchange rate volatility can be difficult to navigate but there are substantial profits to be made by taking advantage of the spikes. If you have a currency requirement then please feel free to call Colm on +44 1494 725 353 or e-mail cmg@currencies.co.uk and quote ERF
UK Budget Statement Boosts GBP Exchange Rates
Chancellor George Osborne released his latest plans for economic recovery in Parliament today and admitted borrowing costs would go up as growth forecasts were revised down. There were a number of measures included in the speech and I wont bore you with them all here but the impact was fairly positive on the pound as it was well received by the markets. sterling went back through 1.17 against the Euro and rose nearly 1.5 cents against the Dollar. In my view it is the sort of spike for the pound that should be taken advantage of as I don’t see too many positives on the horizon for the pound and it remains vulnerable to less favourable data releases just as winter is beginning to bite!
Further Pressure on Germany to save the Euro
Well it is the news story that just won’t go away.. the European Debt Crisis.. which is slowly becoming the global Debt Crisis.. The Organisation for Economic Cooperation and Development (OECD) yesterday warned of a Eurozone about to enter recession and also warned of the wider risks to the UK and the rest of the world from inaction in the Eurozone. The most important thing I felt from the OECD report was the recognition that responses to the crisis were ‘behind the curve’, i.e doing too little, too late. As the largest Euro member politically and economically, I would not be suprised to see further pressure on Germany and perhaps some kind of policy response to the ongoing pressures in the coming weeks.
This could quite easily lead to Euro strength as new policy announcements are made. It is very significant that the German bond auction of last week was majorly undersubscribed and this could be the wake up call the Germans need to get this moving. Eurozone leaders are also meeting today to discuss the expansion of the bailout fund so it can help Italy or Spain. I expect some Euro volatility, currently the Euro is down against the pound, but up against the dollar.
Amidst these political decisions there are also some economic indicators that could shape the rate today. If you are looking at making any trades today or in the coming weeks please feel free to contact me personally on jmw@currencies.co.uk or +44 (0) 1494 787 458. Rates move every two seconds so don’t get caught out hoping things will move in your favour.
GBPEUR – Most importantly we have Chancellor George Osborne’s Autumn statement at 12. We have already had Nationwide house Price data for the UK showing a small improvement in house prices in the UK for the last month, helping the pound to climb slightly against the Euro.
EURUSD – Despite the uncertainty today’s talks do offer some respite in the recent uncertainty and the dollar has weakened a touch as investors move to other assets, the ZAR, AUD and Kiwi being some of the main beneficiaries yesterday. EURUSD has improved a touch on the back of hopes some kind of solution will be achieved.
If you have any currency transactions to make, today could well throw up some volatility that could cause movements for or against you. To be kept up to date of all the events that will affect the rate of exchange you secure please feel free to contact me personally on jmw@currencies.co.uk or +44 (0) 1494 787 458.
As well as writing the blog I work for one of the UK’s leading foreign exchange brokerages and can help secure the very best rates of exchange. I have never had any trouble beating not only the banks but also other sources and moreover, our sepcialist service is designed to further enhance your rate of exchange by working with you to determine the best time to execute your transactions.
Once I know what you need to do and when we can start to look at the necessary strategies designed to maximise your rate of exchange. Please quote JMW and ERF.
I look forward to hearing from you.
Eurozone Talks To Dominate Exchange Rates
Talks between Germany, France, and Italy are likely to dominate exchange rates today as there is very little scheduled data releases. It will likely mean a fairly rangebound trading day for the majority of currencies however the difficulty is if any news does break it could happen at any time compared to the scheduled data releases at set times. Watch this space for any breaking news in the meantime as Tuesday looks a more likely day for larger movements on the back of scheduled economic releases.
And for everyone across the pond I trust you had an enjoyable Thanksgiving- it’s back to the grindstone for many following the market holiday yesterday. Anyone with an interest in USD exchange rates may keep an eye on the possible success of Black Friday- this is the mad house day of sales where retailers slash the price of goods to encourage a flurry of spending from US consumers. Usually success for companies here means better times for the US economy however will many Americans be tightening their belts this year? If so then the global economy may also suffer further.
Weakness in the global economy is particularly weighing on the Aussie and Kiwi Dollars which investors have been selling off due to a lack of confidence about demand around the world should things slow down further.
For any direct contact please feel free to ring +44 1494 725 353 ask for Colm quoting ERF, or simply e-mail cmg@currencies.co.uk
Debt Crisis to engulf Germany?
A bond auction this morning for Germany led to the Euro losing about half a cent against the pound. The bond auction was not fully subscribed which raised investors eyebrows. Germany has been seen as the rock in the sea of debt engulfing Eurozone countries. This makes clear to me that the crisis is only getting worse and spreading, the question for anyone buying or selling Euros is how does this affect me? And more importantly when will it affect me?
Other data out in the Eurozone today was PMI (Purchasing Managers Index) data giving a snapshot of Eurozone manufacturing and services. This showed small improvements in business confidence but with both markers still below 50, there is still pressure on the recovery in the Eurozone.
The Bank of England minutes passed off without event and attention will really turn to the GDP numbers tomorrow morning. If Germany is experiencing a slowdown this could really present some volatility, although it may be shortlived since UK GDP numbers follow shortly after (see this morning’s post for full details).
I wouldn’t personally be banking on major improvements before the end of the week but if we are going to see any spikes it will probably start tomorrow morning.
If you have any trades to make now or in the future and would like some free, no obligation, hassle free information about what is driving the rates please feel free to contact me quoting JMW and ERF on (+44) 01494 787 458 or email jmw@currencies.co.uk
GBPEUR – Important Data Today and this week – Euro crisis abates as attention returns to the UK
The GBPEUR rate has dipped by over two cents since the high of nearly 1.18 last week. this is because the immediate danger of the Euro crisis has abated as new Prime Ministers installed in Italy and Greece present the possibility of change, and because the ECB (European Central Bank) have been busy buying up the bonds of Italy which has calmed the markets. I do not think this is the start of a strong Euro rally but if you are selling Euros and have been holding off due to the uncertainty, I think now is a good time to pounce.
I learned a very interesting statistic last week in relation to Quantitative Easing (QE). QE has been used by the Bank of England (BoE) and the Federal Reserve Bank of America. The idea is that the central bank ‘buys’ some of the debt of other banks thereby providing liquidity to the banks, the hope and idea being that they lend more to each other and the public. It seeks to ‘grease the financial wheels’ of an economy and acts like a shot in the arm. Growth in Western economies, particuarly the UK and US has been stagnant and it was estimated that the £200 bn worth of QE employed by the BoE in 2009 added about 1-2% to growth in the UK. Well total QE employed by the UK represents 18% of GDP. In the US the total amount of QE represents about 16% of GDP. Now here is the interesting statistic. Whilst the ECB have not undertaken any kind of QE programme their bond buying programme of distressed member states is a form of QE. This has so far only represented 0.8% of eurozone GDP however. We should not therefore underestimate the ability of the ECB to provide massive amounts of further financial support to the weaker nations, to the extent that they could be ‘covered’ until they can pay back their debts. When and if they will do this is the question. But the very fact that they can will give investors confidence.
Whilst on the theme of debt attention has this week focused on the pound. With unemployment at its highest since 1996 and inflation still at 5% the economic recovery in the UK is clearly not moving along quite as swiftly as previously believed. Growth forecasts across the board have been slashed and it is looking likely we could see some further QE in the coming months.
Important Data this week
TODAY 09.30 Bank of England Minutes – After QE was launched last month there may have been further calls for QE this month. Or was a rate cut mooted? Economic policy at the BoE has changed in recent months in response to global events. This release at 09.30 will tell us if it is going to change further. Look for news on the site after the release or call 01494 787 458 or e-mail jmw@currencies.co.uk for specific information.
TOMORROW 06.00 German GDP – 08.30 UK GDP – Growth in the Eurozone and the UK is a real focus and these releases could easily move the Euro rate.
As you can see there is a lot to move the market before the weekend. If you have any currency transfers to make, even if way off in the future it may be of interest to speak to a specialist currency broker about what you need to do. Our specialist service is designed to not just get the best rates from the market but also provide information and analysis to make your trades at key moments when the rates are faovurable.
Call 01494 787 458 or e-mail jmw@currencies.co.uk for specific information.
Please quote JMW and ERF when making your enquiries
Recession On the Cards For Both The UK And Eurozone So Which Way For Sterling Euro Rates?
The recently elected head of the ECB Mario Draghi has hinted that Europe may experience a “mild recession for the end of the year”. The Eurozone grew by 0.2% in Q3 according to official figures, however the disparity between Germany and France on one hand (growing by 0.5% and 0.4% respectively) and Greece on the other (shrinking by 5.2%) couldn’t be more stark. In my view the debt crisis in Europe is likely to continue to run whilst many of the smaller economies fail to grow to finance their national debt- a situation I cannot see changing in the next year for the likes of Greece. An interest rate cut soon, despite ECB comments on price stability, also cannot be ruled out to help the PIIGS but this again highlights the problem of the “one-size fits all” Euro approach.
On the other hand UK unemployment is still on the rise, and many analysts have forecast a 50%-70% chance the UK will be back in recession by the end of 2012. Certainly Mervyn King’s comments yesterday seem to point to some form of contraction- he stated inflation will come down from 5.2% to under 2% by the end of next year, yet they are unlikely to increase interest rates. In other words prices are going to drop very sharply – in my mind this can only happen if oil, food and energy costs come down naturally, or if companies slash prices in an effort to stay afloat! It seems more likely the second option in my view.
So with the Eurozone struggling, and the UK in a parlous state, it looks as though sterling euro will remain fairly rangebound between 1.14 to 1.18 in the next few months so any buy north of 1.17 and any sell around 1.15 would be my picks for when to strike immediately. The key beneficiary in the sterling euro turmoil will likely be the USD as fears over Europe as a whole drive investors into the safety in the greenback.
One word of caution though is to watch out for some volatile swings in and around Christmas. Over the last couple of years this period has seen some of the biggest swings- two years ago we reached near parity! With many traders on holiday, and a lot of companies closed down for the silly season, much thinner trading volumes can cause bigger swings on the market so be warned!
If you have an upcoming currency purchase then please e-mail cmg@currencies.co.uk
Will the Euro continue to weaken?
With all the recent political events in Europe concerning new Prime Ministers for Greece and Italy it could well be that we are about to enter a new phase of Euro strength. Anyone buying Euros has spent the last few years waiting for a major burst of weakness to occur and whilst we have seem some fairly favourable movements, many clients are sitting perched waiting for the hallowed 1.20 and more.
So why despite current events in Europe is the rate still relatively speaking quite bad for buying Euros? Last summer when Greece first started to really hit the headlines we saw GBPEUR boost to 1.20 plus. We also briefly touched 1.20 earlier this year but aside from a spike in the last few weeks we have spent most of the year closer to 1.10 than 1.20… Will the Euro continue to weaken? Well personally I would have to say no…
Interest Rates – With the Eurozone interest rate at 0.75% higher than the UK’s 0.5%, the Euro as a currency is more attractive to investors as it offers better returns in the money markets. This ‘interest rate differential’ is a key driver of exchange rates in general. Interest rate differentials explain why the pound is so weak against many currencies. With UK interest rates at 0.5% (and set to remain there for some time) the pound is suffering.
The Eurozone Crisis – Whilst you may expect this to weaken the Euro and indeed it has, the effects of the Eurozone crisis are being felt on the pound. The UK relies on Europe for 40% of it’s trade so a weak Eurozone will hamper the UK’s efforts to restore growth. Also the UK banking sector is majorly exposed to the crisis so if Greece and other countries default on their debts it will weaken the UK’s banking sector and hence the economy.
The UK is suffering – Unemployment data out today showed Unemployment at it’s highest since 1996. Unemployment is massively detrimental to an economy. It leads to less retail spending, less tax generated for the government, increases in the benefits paid and a slowdown in the housing market. The list is quite extensive and underlines the problems faced by the UK.
So the rate, whilst much improved (trading levels in Q3 dipped to 1.10!) is unlikely to continue to climb much further at present. There are many obstacles and whilst I still believe the Euro crisis may move the market further, it may not be for some time yet. Current events outlined above look set to determine the short and medium term pace.
The GBPEUR and USDEUR rate is moving by as much as 2 cents a day. Other currency pairs like AUDEUR, ZAREUR are moving by even more as events shaping these currencies continue to present volatility. As specialist currency brokers we can not only secure commercial rates of exchange for private clients, we offer insight as to what may be happening and keep you updated on the movements and events that move the market. Feel free to get in touch on jmw@currencies.co.uk or (+44) 01494 787 458 for specific information relating to your exchanges. Please quote JMW and ERF. I would also be interested to hear any other points of view or take questions from anyone with questions about the above post.
Continued Volatility On Currency Rates Shows The Worth Of Limit Orders
The performance of GBP EUR rates over the last week, and today in particular, has shown once again the value of a well placed limit or stop loss order. Exchange rates for this currency pair have seen quite large swings in value continuously throughout the trading day as each fresh piece of news is released relating to the Eurozone crisis. The result has been a very unpredictable market. A limit order is where you place an order to buy at a particular rate (say 1.17 for example) even though the rates aren’t quite at that level. Should the market move in your favour, and 1.17 become available then it will be immediately secured for you at that level even if you aren’t available to confirm, or if the rates then fell back to 1.16 soon afterwards.
A stop loss is the reverse of this whereby if you wanted to gamble the rate will move in your favour (say 1.1750) but didn’t want to run the risk that it may drop below a particular budget rate (say for example 1.14) then you can place your stop at 1.14. Should the rate drop to that price for any reason then the order would be secured, making sure that you don’t end up having to buy below your budgeted level. Obviously there are benefits and drawbacks to trading with stop loss and limit orders but given how changeable the present market rate is many of our clients have been able to take advantage of them very successfully.
Tomorrow sees a lot of data released, most notably German and Eurozone GDP, and inflation data for the UK, all of which have the potential to move Euro exchange rates substantially depending on how the data comes out. Once again stop loss and limit orders could be the key to success- to find out how e-mail Colm at cmg@currencies.co.uk of call 01494 725 353 and quote Euro Rate Forecast
