GBP/USD weekly overview

In this week’s GBPUSD report we will have a look at what events have dominated the cross and how they have affected the markets. Last week the single focus of cable was the run up to the Federal Reserve interest rate and Quantitative Easing meeting on Thursday.

  

Even as early as Monday the market was pricing in some sort of stimulus intervention as Cable reached a 4 month high. The trend of sterling strength against the dollar was maintained  on Tuesday as markets continued to price in movement coupled with a threat by ‘Moody’s Investors Service’ that the US was in danger of losing its triple A debt rating,  if next year’s budget talks do not result in lower debt to GDP ratio.

When the results finally came in late Thursday UK time the conclusion certainly didn’t disappoint those expecting some action. Ben Bernanke backed the purchase of $40 Billion of mortgage backed securities every single month until US growth as well as the US job market improves. In addition Fed Chairman Bernanke added to his commitment to get the US economy moving through spending by confirming that interest rates in the US would remain low and wouldn’t be raised until 2015 at the earliest.

This is probably the most decisive action that the market has seen from the US to deal with the financial crisis since its inception. At the very least it sends a clear signal to the rest of the world that the US are prepared to do everything necessary, including trying new strategies to navigate their way out of recession and into competitive growth.

Naturally following this announcement cable continued its upward trajectory as equities and perceived riskier currencies (including Sterling) made gains against the Greenback. With the Fed Chairman indicating that he would be prepared to pump $40 Billion into the economy every month until it has an effect, the market has the potential to continue the current trend of Dollar weakness. Essentially Mr Bernanke has embarked on an endless amount of quantitative easing and so it will be interesting to see how far the markets move off the back of this uncertainty.

Whilst this is undoubtedly a great time for dollar purchasers to be taking advantage of the recent gains, it would be wise to approach the market with some trepidation as the FX markets are notoriously volatile. Despite a clear shift in fundamentals there is no absolute guarantee that the technical levels will follow suit, and indeed there have been countless occasions throughout history where a sharp market movement has been followed by an equally sharp market retraction. To discuss the different type of currency contracts that are available click here to complete the contact form and take the next step to making the most of your currency exchange.

 

Weekly Economic Data that may affect exchange rates

Monday – The main data today is Trade Balance data from the Eurozone, showing imports and exports. Elsewhere we have UK House Prices. There are no significant releases from the USA today.

Tuesday – Some important UK data today including Inflation data, House Prices and Retail Sales, all of which are a barometer of overall economic health. In the Eurozone we have Economic sentiment surveys from Germany and the EU. In the USA we have a speech from the Federal Reserve, and some Housing data.

Wednesday – The Bank of England release their minutes today, which often causes volatility for Sterling. In the Eurozone we see the latest construction data output. In the USA there are Homes Sales data and another speech from the FED. Over in New Zealand we see the latest GDP figures at 11:45pm.

Thursday – UK Retail Sales are released today, showing full monthly and annual comparisons. In the Eurozone we have inflation data from Germany, Manufacturing data from Italy, Germany and France. We also see measures of EU Consumer confidence. Over in the USA we see the latest Jobless Claims, Manufacturing data, and yet another speech from the FED.

Friday – We end the week on a quiet note, with the only UK data of note Public Sector borrowing. There is nothing of note from the EU today. Over in the United States we have, you guessed it, another speech from the FED.

Weekly overview

The UK markets reopened after the bank holiday weekend and with no major data releases at the start of the week Sterling was driven by events from the States and Euro zone as everyone awaited Ben Bernanke’s speech on Friday.

Increased optimism around the Euro zone saw investors move from the safe-haven of the dollar as the Euro gained ground. We did have some good news out of the States as revisions showed that the economy had slowed less than previously estimated (1.7% up from 1.5%). The US is in much better shape than Europe and the UK but the next couple of weeks will determine in which way the rates will move and be affected.

 

If the Euro crisis continues as many expect; we could see more uncertainty as investors will instinctively move back into the safe haven of the dollar and we could see GBP/USD rates in the 1.54’s and EUR/USD rates back into the low 1.20’s. Sterling dropped against the dollar on Thursday as investors awaited the speech by Federal Reserve Chairman Ben Bernanke.

Bernanke spoke at Jackson Hole on Friday; his comments were to determine the value of the dollar and ultimately whether we were seeing a positive or negative trend for the US Economy. Bernanke stated that “the first two rounds of Fed asset purchases had raised US output by almost 3% and lifted employment by 2m jobs and thus wasn’t going to rule out further asset purchasing. The Fed chairman also urged Europe to press ahead with policy initiatives to resolve the ongoing crisis. Markets remained relatively unchanged as Bernanke said the “Fed would act as necessary to strengthen the struggling global economy, but there was no suggestion that action was imminent” halting speculation of more Quantitative Easing (QE).

September is notorious for being very volatile and no doubt this month will not disappoint, all eyes will be on the single currency and whether the ECB and German courts can wave through a realistic and convincing EU rescue plan, which could see EUR/USD rates back towards 1.30 and GBP/USD rates up near the 1.60 mark. With the Bank of England meeting due to take place next week all eyes will again be focused on Mervyn King and we will wait to see if there is any talk of another interest rate cut for the UK.

If you have an upcoming currency requirement now is the time toact, click here to complete the contact from for a free, no obligation quote to see how much you can save.

Sterling hits highest level in two weeks

Sterling reached its highest level in two weeks against the U.S dollar on Tuesday and for the first time since August the 23^rd cable broke through the $1.59 mark.

The pound shrugged off poor construction data released at the start of the day, UK construction Activity came in lower than forecast with PMI figures showing the sector had dropped from 50.9 in July to 49.0 in August. A figure under 50 shows the sector has contracted.

The reason behind cables rise this afternoon (Tuesday) was to the UK service Sector hitting its highest levels for 5 months. Official figures indicated a jump from 51 in July to 53.7 in August on the PMI index. This latest data could be seen as a sign the UK economy is improving and will have lowered expectations of a interest rate cut and further Quantitative Easing from the Bank of England when they meet on Thursday.

We could see further gains for the GBP/USD cross in the coming days if the European Central Bank announces a plan to reduce the borrowing costs of Italy and Spain when they meet later in the week. Any positive vibes from Mario Draghi could lend support to the single currency as investors leave the safe haven U.S dollar and return to the Euro.

If you are thinking of buying or selling dollars, the events in the next couple of days could mean a major swing in rates. If you want to know what contracts are available to protect you from adverse movements or take advantage of a sudden spike in the market click here to complete the contact form and take the next step in making the most of your currency transfer.