The latest figures from the Bank for International Settlements (BIS) the umbrella body for the world’s central banks; showed that Ireland owes EU banks a massive €433bn, €113bn of this to ones in the UK. Ireland are however in quite a powerful position as the first member state to get to this position, by that I mean that the EU cannot let them fail as it sets a president for the remaining “at risk” members. Contagion was talked about over the months and this will be the topic over the coming days and weeks until there is a clear, realistic re financing of debt. Investors will know this I would image but speculation will continue on the currency markets between sterling, euro and the dollar (as a safe haven,) until this is confirmed.
This morning we have confirmation that Ireland will be asking for more support, and a larger support package than expected. Most of the major banks are asking for double what the market have asked for. News will be coming out through the course of the day on this story but expect volatility. History shows us that the UK normally fairs worse with Ireland in trouble due to their trading partnership and close links but this larger than expected requirement could also hurt European stocks and therefore investors confidence in the euro.
The total amount asked for is a shocking £21 billion. The total bill has now reached €70bn – equal to €17,000 for each citizen. Ireland’s banks have been crippled in my option due to their housing market which climbed at a record pace before bursting when the crises hit, since then their output has shrunk for three years in a row. Michael Noonan the Irish finance minister said that the country had been left with an ‘appalling legacy’ as a result of the banking crisis. This has probably put more pressure on Portugal that is in a similar situation compared to Ireland when they needed their first support package. They now face two bond redemptions, one on the 15th April (€4.3bn) and one on 15th June (€4.9bn). If these where to show another lack of confidence it makes it a lot more likely they will putting their hand out and would therefore change currencies including both the euro and sterling.
The real question is whether sterling or the euro will gain on the news?
Over the next 36 hours we have key unemployment figures being released from both Europe and the US. This morning we have already had the German release. As the strongest economy across the Euro-zone, German data is watched closely, seen as a key indicator to the area as a whole. European figures are released tomorrow at 10:00 with US data following at 13:30 (both unemplyment and non-farm figures.) German figures showed a marked improvement to 7.1% from 7.3% last month. The consensus was expecting 7.2% so we are currently experiencing a spike in the market.
I would not be surprised to see the Euro continue to gain today against both the Pound and the Dollar as the UK makes their monthly payments to the EU. I would expect a 6 month high against sterling and perhapes a new high against the dollar. For more information on how to take advanatage before the speculated interest rate rise next week contact your broker today.
I personally believe once of the biggest drivers for exchange rate movement this year has been the race between the UK, US and the Euro zone as to who will raise interest rates first. At the beginning of the year the UK looked the strongest with economic figures showing a marked improvement however recently inflation has climbed along with unemployment changing the growth forecast in the UK and therefore weakening the likelihood of a rate increase.
The Euro zone has recently become the clear favourite and many are expecting a rise as soon as next week which in turn has strengthened the euro to the strongest rate against sterling for nearly 6 months. This has been down to continue growth in the largest countries and rising inflation as prices worldwide continue to climb. Next week could see rates improve further for the euro so anyone with a GBPEUR or USDEUR may wish to avoid the risk of further losses.
On the other side of the coin you have Portugal as mentioned in Jonny’s blog below that could raise risks across the Euro zone and could push back a rise for yet another year. Either way I cannot stress the importance of using a broker over the bank on all money transfers. They can normally provide savings of up to 4% and can help you time the exchange you need to maximise the exchange rate.
Later today the Euro zone releases the two largest key reports of the week, namely the Industry New Orders and Consumer Confidence. These are both expected to be weaker than last months so Euro weakness is widely expected. Over the last month the inflation figures have been growing across the globe due to food and oil costs but also growth forecasts across Europe have contracted, all this results in many people being concerned about future tax and cost increases. This is a large part of why expectations are for falls today.
The Euro is currently trading close to a 6 month high against Sterling and the Dollar, so it may be prudent to look at trades before the releases with your chosen broker. However also keep an eye on the UK today as they release Bank of England minutes and their 2011 Budget through today. The US also has an important release today which is US new home sales due at 2 pm GMT.
This morning the UK released the first of many reports due over the next 36 hours, the UK Retail Figures. These came out surprisingly better than people had expected and is already changing forecasts for sterling this week. The figures showed an improvement to 5.5%, the highest rate for 20 years.
With the UK Budget and Bank of England minutes due tomorrow this week has the potential to be very busy with huge swings in exchange rates and therefore effecting the cost of money transfers. The UK Budget starts just after the release of the most recent interest rate decision by the Bank of England earlier this year. Many are expecting rates to rise this year but the split of the vote between the 9 members will be key in forecasting when this may take. I personally think it is likely we will see a small rise in the next 2 months with larger increases towards the end of the year. This is on the bases of seeing a 6-3 split to hold rates steady, if they were to come out with a 5-4 split you would expect sterling to gain and Euros to be worth less.
The budget is another matter and really needs to show a clear path to growth in the UK, ideally with more investment in job creation and industries across the country. Many are expecting a fuel cut of some such with a promise of making fuel cheaper by 1 p I don’t think it is something to start jumping about. Plus of course with UK borrowing figures so high we also have to calculate the costs of the new “war” in North Africa.
Tomorrow could be one of the most volatile days for sterling this year for the pound if both the budget and the bank of England minutes combined do not provide a clear or pretty picture for sterling.
Yesterday the euro gained happily against both the dollar and sterling following better than expected unemployment figures. These were released mid morning and showed an improvement from 10% to 9.9% which does not sound much of an improvement but does show that the euro zone is starting to recover. Later this week tomorrow they release their own Interest Rate decision along with GDP figures.
Speculation has continued to build in Europe as one of the ECB’s governing council members, Mario Draghi, said recently that “inflation is forcing policy makers to focus more on the timing of future interest-rate increases.” They have now kept interest rates on hold since May 2009 at 1%.
GDP figures are also widely expected to remain on hold but with increased productivity recently from Europe there may be a surprising result. If these figures are different from the forecast expect early volatility.
Earlier today the Bank of England released their meeting minutes from 2 weeks ago. It confirmed the speculation that more members had voted for an interest rate hike in a cry to curbe inflation which is sitting twice as high as the government target. The concern stands that as commodaty prices raise along with fuel and food costs inflation will continue to climb.
The markest reacted possativly and the pound reached close to a 6 week where clients ready to trade securied their exchange. Now however the rates have falled back down as it was confirmed Andrew Sentence, one of the standing members that has been pushing for a raise, will be leaving the Monetry Policy Commette in the next few months. It affected the concesses of when the UK could raise rates.
If you are in a position ready to send money abroad and want to catch the peak, make sure you complete a comparision to make sure you achive the best price from the industry.
This morning UK figure showed a larger than expected surplus on Public Sector Net Borrowing. The figures have been seen as positive for sterling as it is in line with their fiscal targets. In early trading sterling gaining over 0.5% against the euro making a difference of over €1,000 on a £200,000 transfer. The only concern is that the National Statistic mentioned that due to strong January figures Februarys may be lower than normal. So the figures in 4 weeks will give a better “real” outlook of the recovery of the UK with how much revenue it is collecting through tax’s.
The focus on the market still lies with speculation on tomorrows Bank of England minutes and the middle east turmoil effecting commodity prices. I would expect sterling to gain further this afternoon up to the event but be wary as this speculation also happened with the inflation figures last week which was wrongly placed. When the inflation figures were less positive and the markets fell back. This could happen tomorrow so todays rate, close to a 6 week high may be lost.
If you would like more information feel free to contact us and either myself, Jonny or Dan will get in contact.
As you may be aware there has been a serious 6.3 magnitude earthquake in New Zealand. This has resulted in the NZD weakened by nearly 2% so far this morning, resulting in an additional NZD $8,350 being achieved on a £200,000 transfer. I would expect this story to develop as news and reaction is released. For up to date information please contact us directly should you have any requirements to send New Zealand dollars.
Our thoughts go to anyone involved or relatives effected.
Many will be watching the news at the moment about the uprising across northern Africa and other states but many will be unaware about the effect on the currency markets. At the moment it has been a positive thing for the euro that has gained against a majority of currencies. This was due to its lower exposure to the commodities that are being effected. Oil has been the largest hit as speculation continues about supply problems which has weakened the largest user, the USD.
Other large events will be Wednesday Bank of England minutes that are due for release at noon GMT. The question here is whether the 9 members of the MPC that vote on interest rate changes would have changed from previous months. If more have voted for a rise, which is the speculation at the moment I would expect sterling gains. On the other hand as this has already started to be priced in, if this is not seen we could see considerable sterling weakness.
Also this week we have US housing figures, this is one of the key factors that started the most recent global financial crises and one that has seen very little growth in the last 2 years. Again these figures could be seen either way, for example if positive it could weaken the dollar as it shows the US foundations are improving. On the other hand it also shows that the global markets are improving so the dollar could weaken as risk appetite changes.
The euro also has its own news out this week industry order, and industry confidence. These are released on Tuesday and Wednesday and are expected to strengthen the euro.
Feel free to contact www.eurorateforecast.com for m0re information.
As speculation continues to mount about when the UK will raise interest rates it is worth thinking about what will be the reaction in the currency market.
Generally in the past charts show that when an interest rate is made that country benefits from more investment and that the respective currency normally gains, but these examples are all 2-3 years old before the recent financial crises. The truth is that no one knows what the currency markets will do, hence the saying “more is lost through indecision than a poor decision.” So we have to ask ourselves whether we think that an interest rate hike will actually have a positive benefit to the currency and consequently whether it is worth waiting for a raise. (That is if they do and if they do in the UK before other.)
The facts stand that the UK has double the target level of inflation, new taxes that are yet to be felt by the consumer and that retail figures are key to growth. So it is clear that for the UK to continue to recover money needs to flow and households need to continue to spend. However the average UK household has enjoyed low mortgage payments for a number of years that have helped spending. So I think it is fair to say if mortage repayments go up there will be actually less spending and therefore less growth. You can see the difficulty felt my the market in forecasting whether GBPEUR, GBPUSD and rest will go up if a raise is announced?
It does seem clear though that as speculation continues rates will rise so it may be prudent to take these opportunites if you have a exchange to make.