Sterling sell off abated as Pound Strengthens against Euro

Sterling Sell off abated as Pound Strengthens against Euro

Sterling vs. Euro;

This week’s report will focus on the erratic swings in GBP/EUR rates, the news and data that caused the fluctuations, and potential moves in the coming weeks.  The story dominating FX headlines recently has been sterling’s rapid decline.  The pound has been subject to an aggressive sell-off as fears mounted that the UK may enter a triple-dip recession, which could result in the loss of our Triple-A credit rating; and the now looming prospect of an in/out referendum on Europe for 2015, has created greater uncertainty.  Last week, however, we saw the first significant retracement of this pressure and, once again, ECB President Mario Draghi was at the centre of the move.

The single currency began last week on the back foot as news broke of corruption and scandal in the Southern European States.  Spain and Italy were both back in the headlines with surprising allegations of undeclared payments from a secret slush fund being received by Spain’s ruling conservative party. 

This news was coupled with the announcement that Banca Monte dei Paschi di Siena, the World’s oldest surviving bank, was involved in a derivatives scandal . 

So why has this affected euro rates?  Essentially this calls on the old cliché “Markets hate uncertainty”. 

Though this caused a rise in GBP/EUR rates the largest swing in prices can be credited to the words of Mark Carney and Mario Draghi.  The incoming Governor of the Bank of England sat before the Treasury select committee on Thursday, and in his testimony to MP’s, he outlined his thoughts and intentions for the UK economy moving forward.  Mervyn King has suggested before that Quantitative easing has a diminishing rate of return, with regard to effectiveness, though Carney outlined that the BoE could expand the range of assets it purchases, whilst supporting the pound from further weakening, all without effecting the UK’s inflation target.  Sterling began strengthening both before and during Mr Carney’s words.

Mario Draghi once again serenaded the currency markets with his announcement last Thursday; speaking on the euros current bull-run.  He discussed the significance of the rate, with regard to growth and price stability, highlighting the dangers of a continual strengthening.  His comments on inflation hinted that a cut to interest rates may not be entirely off the table; the last time such a measure was taken, we saw GBP/EUR rates surge to four year highs.  His words came as a surprise to many, most expected him to touch upon the euros recent appreciation, though the announcement appeared more of a concerted effort to talk the single currency down.

Much of the recent coverage of GBP/EUR rates appears to show the UK, seemingly, in perpetual decline and the euro storming the markets.  Yet the most recent NIESR GDP estimate for the UK came in at 0.0%; better than expected, however, sterling/euro is at a pivotal point.  The UK certainly is not out of the woods, despite the recent flurry of positive data, the last official GDP figures have been below forecast.  If this were to happen again the false hope could be doubly damaging for the pound.  Not only this, but the euros recent appreciation has largely been built on rhetoric rather than any concrete data.  Although Greece’s Finance Minister has suggested that they could begin the road to recovery by the end of the year, this remains to be seen, and if there was a cut to interest rates to stimulate the European economies, or more negative press, we could see the euro weaken again. 

Sterling vs. US Dollar;

It was another choppy week for cable and the swings we saw in exchange rates last week could well continue. Since the start 2013 sterling has been in free fall against the US Dollar, and the current trend shows no signs of improvement.

Positive UK retail sales data released on Tuesday did see a brief spike in rates; figures showed that sales increased for January by 1.9% compared to January 2012 which is the largest year on year rise since December 2011. The news saw the GBP/USD cross jump to a high of $1.5792 but sterling could not hold its value over the course of the day and rates quickly started to fall. By midweek the pound actually fell by 1% against the dollar to reach a low of $1.5634.

Over in the states talk of spending cuts and tax increases have resurfaced. The temporary fiscal cliff avoidance package put together by President Obama on New Year’s day is due to expire on the 1st March, leading the President  to approach congress to put another short term package together to avoid larger cuts next month. The proposal was quickly rejected and the longer it drags on the more likely we are to see the dollar come under pressure. Indeed last week’s poor US Q4 GDP figure was largely put down to fiscal cliff  pressures and if a permanent solution cannot be put in place, there is chance rates could start to push higher.

Thursday was a potentially positive day for the UK last week with the Bank of England holding their monthly meeting. However the expected hold on interest rates and no further QE only gave the pound a brief boost. Even when combined with the zero growth (but no decline) estimate of Januarys’ GDP the pound could not buck the general trend of decline against the Dollar. The UK economy seems to be the centre of attention and in the absence of growth the pound simply cannot keep pace with the Dollar at the moment.

With so much volatility surrounding the currency markets the use of Stop Loss and Limit Orders has increased in popularity; they can protect you against a falling market but also help target a rate that might not be currently available. For more information you can read our finance pages here or contact us at info@goldacreestates.com : http://goldacreestates.com/Finance 

 

Eurozone Gaining Confidence

Eurozone Gaining Confidence as Spanish Banks Ease Dependancy

Is there confusion again over Spain's banks? If so its not really new.   On one hand, the Bank of Spain said in mid-January that non-performing loans were on the increase and that more than one in nine would probably not be repaid.  On the other, the central bank said at the same time that Spanish banks were less dependent on emergency funding from the European Central Bank.  In December they borrowed €357bn, appreciably less than the €411bn they took last August. Prime Minister Mariano Rajoy is relaxed.  He is "absolutely convinced that Spanish financial institutions will not require any more funds than they were given already" because they have been subject to a "complete striptease" laying bare their financial circumstances.

The prime minister's optimism is shared, though perhaps with more caution, by investors. Since the beginning of the year they have been buying bank shares, lifting the value of Bankinter by a third and Banco Popular Espanol by a quarter. Investors are also much readier to hold Spanish bonds. Six months ago they were demanding a return of over 7% on their five-year loans to the government. Today they are content with less than 4%.

The change is symptomatic of a warmer attitude among investors towards the euro. A month ago it looked as if 2013 would turn out to be a better year for the single currency and halfway through January that is proving to be true.

Since the turn of the year the euro has strengthened by about five and a half  cents against the pound and by about four  cents against the US dollar. It has done so mostly as a result of improved sentiment.  Strange to think it was about twelve months ago when  most of the world were questioning the very survival of the single currency  with a full complement of member states. Today it feels reasonable to expect that singleness to continue, as a result of the determination of EU leaders and central bankers to do "whatever it takes" to save the euro.

Okay  so what else is happening?  

Interestingly instead, it is the pound that must face the tough questions. Even though the UK economy appears to be in better shape than Euroland, investors are not satisfied. They fear a third dip into recession. They fear the downgrade of Britain's AAA credit rating that might follow that dip. They fear the anti-Europe rhetoric in Westminster and the media. And because of those fears their appetite for sterling has faded.  Add to this the fear of further job losses in the Financial Services sector and the high street disappearing unemployment may still have  a further negative impact upon the  UK's timetable for recovery

So half the euro's performance against sterling this year is down to improved demand for the single currency; the other half is the result of investors' disenchantment with the pound. Both attitudes could change. It would be unusual if there were not some new panic in Euroland before too many months have gone by. The UK economy might pick up speed once the cold weather has passed and people are allowed to go back to work and school.

Stateside the new holiday destination of " The Fiscal Cliff" seems to have disappeared and the republicans have provided Mr Obama a little bit longer to sort out the economy and the debt ceiling which is standing around $17trillion.  Not sure how many zeros a in a trillion but its a lot. What the bet it could hit £20 trillion.  In fairness however housing, manufacturing and employment opportunities are all moving in the right way for the citizens of the USA.

The big decision if you are transferring money is timing so if you want to make more of your money and take expert guidance talk to our preferred  currency specialists. If you want to guard against rate fluctuations and get the best deal for your Sterling contact us and read our financial pages here: http://goldacreestates.com/Finance .

Sterling vs Euro Latest Update on Currency Exchange

Sterling vs. Euro Currency Rates can be an important consideration for buyers of property in Fuerteventura and Spain as well as those looking to repatriate after having sold their properties with Goldacre Estates. Here is the latest weekly update on what the rates are doing:

Last week saw an interesting week on Sterling/Euro with Rallies in both directions, creating decent opportunities for both buying and selling the single currency. The early part of the week saw the pound in general decline, with Mario Draghi’s Euro positive rhetoric ringing in many traders’ ears. It was then his counterpart Mervyn Kings turn to move the markets later in the week.

At Wednesdays Bank of Englands quarterly inflation report, King poured cold water on the widespread rumours that a UK base rate cut was imminent. His read on the situation is that a cut would further hamper financial institutions’ ability to lend and would in fact be counterproductive to economic growth in the UK.

With the already low interest rates unlikely to be cut investors rallied to the Pound, safer in the knowledge that their yield would not be reduced and thus the exchange rate moved up.

It appears then that the UK with its expectation of zero growth and no apparent movement on rates or quantitative easing, is now unlikely to be the main driver on the GBP/EUR cross in the short term. The storm clouds that still hang over the Eurozone seem a much more likely cause of market movement.

Although this week has seen no real negative news from the single currency area; the effect has realistically seen a sideways drift rather than any real strength. The fact that King saying there will be no rate cut can move the market a whole cent in one afternoon session is testament to how weak the Euro is.

The weakening in UK economy will probably keep the rate in check and potentially prevent enormous rallies back to pre-2008 levels but in the here and now, a near 4 year high should still be seen as attractive if you need to purchase this year; fixing a forward rate in the mid 1.20’s would suit most budgets when compared with last year when rates were as low as 1.13. 

Weekly Economic Data that may affect exchange rates

Monday – It’s a relatively quiet start to the week. The only UK data of note is the latest House Prices from the Royal Institute of Chartered Surveyors showing the health of this sector. In the Eurozone there are some minor Wholesale Prices. Elsewhere there are some Retail Sales numbers from New Zealand.

Tuesday – Lots of data today compared to yesterday. In the UK we have: Inflation Numbers (CPI and PPI), Retail Prices, House Prices, and the BoE Inflation letter by Mervyn King. In the Eurozone we have: French Inflation data, French GDP, German GDP, Spanish Inflation Data, Portuguese GDP, EU wide GDP, Industrial Production and surveys on Economic Sentiment. So much that could affect GBP/EUR rates. Stateside we have the latest inflation numbers, Retail Sales, and a measure of Economic optimism.

Wednesday – Again a very busy day, but this time all from the UK and US. Starting in the UK we have the all important Bank of England minutes. This is followed by a speech by BoE governor Mervyn King. In addition we will see various jobless measures including the Claimant Count & Unemployment Rate. Over in the states we have another round of inflation numbers, Mortgage Applications, Industrial Production and numbers on the Housing Market.

Thursday – Today we will see the latest UK Retail Sales, which are an overall barometer of economic activity. In the Eurozone there are some inflation numbers which could dictate interest rates. Stateside we have Building permits, Jobless Claims, and the Philadelphia Manufacturing Survey. We end the day with more inflation numbers from New Zealand.

Friday – There are no UK releases today. In Europe we see the most recent Trade Balance numbers and some German inflation data. We will also see the latest Canadian Inflation numbers. Over in the states we have the latest measure of consumer sentiment.

If you are looking to make an exchange contact Goldacre Estates Sl http://goldacreestates.com or call 0034-928535044 for more information about how we can help save you money when buying and selling propery abroad.

2009/2010 Currency Round-Up from Currencies Direct

Watching the price action between Sterling/Euro over the past few months has been like trying to push a dinosaur uphill - slow and frustrating! However, as we end the year it looks like Sterling has moved away from the threat of parity and should mover higher in 2010 with the potential for a 15 % appreciation against the Euro.

The recent bout of Sterling weakness was partly fuelled by comments from the Bank of England(BoE), underling the fact that a weak currency was crucial if the UK was to not only export its way out of the global economic slump, but it would also make the UK a much more attractive proposition for overseas investors.

A clear sign then from the BoE that a weak pound was of no real concern and something they would not look to prevent. With the UK enjoying extremely flexible labour laws and a fairly resistant consumer, the BoE is looking for the pound to take the “bad medicine “ahead of the Euro and bounce back in 2010.


The data coming out of the euro zone has been patchy to say the least, with the strong data out of Germany and France overshadowing the weak data from the rest of the member states,and following the problems in Greece growth in the euro zone in 2010 could lag behind that of the USA and Japan again a problem weighing on the single currency The ratification of the Lisbon treaty by the Irish has gone mainly unnoticed by the currency markets, as it was seen as a forgone conclusion. Going into 2010 what will be of most interest, is how the different member states handle their economies. It was very easy for the European Central Bank (ECB) to slash rates along with the rest of the world. However, as the global economy starts to gather pace, not all member sates will relish higher interest rates. Ireland, Greece, Portugal and Spain will not welcome higher rates and the Germans, with their huge budget surplus, have stated they will not be prepared to subsidise other member states. It could prove a real test of the “European dream”.

In the current climate, currency markets overreact and that is why a move to parity still cannot be ruled out. However, if the UK economy starts to grow and the ever increasing fiscal debt can continue to be sold into the world markets, then a strong move higher in 2010 will happen . With the threat of a double dip recession upon us, and unemployment continuing to rise in the UK and the Euro Zone, it could be the flexibility and agility of the UK economy against the one size fits all policy of the Euro Zone that sparks this move higher.

2010 will prove to be a real test for Europe as the weaker member states who have mishandled their economies during the good times find the currency markets will be very unforgiving in the bad times.

Source- Keith Spitalnick, Currency Direct