Thuesday, 30 June 2009
Sterling to Euro
With the Interbank breaking through the 1.18 barrier for the first time this year, June has been a testing time for the Euro. The overall trend is upwards and is predicted to remain that way, however the Currency Markets are some of the most volatile in the world, so be sure to discuss Limits andStops.
The Current Euro performance can be mainly attributed to the overall weakness of the Eurozone Economy. Each week key data is released that shows how the Eurozone or key Economies within are performing. Clearly good news can strengthen the Euro and conversely poor data will see the current trend continuing.
Upcoming data releases we will be watching this week include the German Unemployment Statistics on Tuesday followed on Wednesday by the German retail sales figures. Thursday sees the release of the Euro Unemployment figures and the European Central Banks interest rate decision. Any of these releases can affect investor confidence in the Euro. To ensure you know how they may affect you, contact us today.
US Dollar
Last week saw a relatively quiet calendar for Cable, and this was reflected in a narrow trading range throughout the week of 1.62-1.65 at interbank level, closing the week out at roughly the same mark where it had begun.
Both Sterling and the US Dollar are under heavy pressure at the moment for different reasons.
Many analysts speculate that the Dollar has been dramatically overbought due to the current global financial crisis, and is therefore overvalued. Sterling on the other hand is still seen as extremely weak, with one Bloomberg analyst comparing the UK economy to that of Zimbabwe.
Serious doubts have been cast of the Brown government’s ability to see the country out of the troubles which have sunk several major banks, and sent unemployment to record levels in recent history.
Looking to the week ahead, we have a much busier calendar, with a final Q1 GDP reading for the UK on Tuesday, followed by Manufacturing, Unemployment and Vehicle Sales releases from the USA later in the week. This could suggest the Dollar weakening, as we are likely to see further rises in unemployment, and a continued decline in Vehicle Sales.
Despite a return to the 1.60s from a 2009-low of 1.35, clients buying US Dollars should not expect these gains to continue back up to the 2.00 mark as we saw last summer.
Continued Sterling strength and Dollar weakness are far from guaranteed, as many analysts believe the levels of early 2008 were artificially inflated by the interest-rate cutting cycle. Therefore, clients who need US Dollars may wish to consider a Forward contract whilst these levels are available.
This Week’s Data
As a whole, the week ahead looks relatively quiet in terms of important data releases. Of course the main event that will effect those buying or selling Euros will be Thursdays European Central Bank (ECB) Interest rate decision.
Of course, interest rate decisions impact heavily upon exchange rates as large scale investors such as national treasuries and investment banks will naturally prefer to hold currencies with higher interest rates and thus returns. The more one particular currency is bought, the weaker it becomes relative to another currency. Therefore should we see an interest rate cut on Thursday, it would be realistic to expect the Euro weaken against the pound; meaning a better exchange rate if you are buying Euros.