Sterling dollar update and forecast

Good afternoon everyone,

Today saw a slight recovery for sterling against the dollar following the revised GDP figures released this morning. Official figures showed that the UK economy grew more that originally thought as The Office for National Statistics (ONS) changed its growth forecast for 2012 from no growth to 0.2%. There was no sudden spike but the exchange rates gradually climbed over the course of the day to reach a high of $1.5217.

 
 











However, the figure for the quarter of 2012 remained with the UK economy showing a contraction of -0.3%, leaving the door open for the UK to head into a triple dip recession when the initial GDP figures for quarter one are released in April. 

So what is GDP?

GDP stands for Gross Domestic Product and is probably the most important of all economic statistics and can have a huge impact on exchange rates.GDP figures attempt to capture how the UK economy is performing in one number, if the figures are positive for the previous three months, the economy is growing. if it is negative it is contracting. If the UK economy has two consecutive three-month periods of contraction it means we are in recession.

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What effect would recession have on exchange rates?

Unfortunately not a great one as we could see sterling lose even more ground against the dollar. It may lead The Bank of England to at look at more Quantitative Easing to to help stimulate growth which in turn will devalue the pound meaning dollars would become more expensive to buy. It will also put pay to the BoE talking up sterling in the near future as they will do all they can to keep exchange rates low to help boost exports from the UK, especially if troubles from the euro-zone start to resurface. Although this is bad news for anyone buying dollars the dramatic decline we have seen is great news for anyone looking convert dollars back into sterling.


Where do I see rates going?

As I have mentioned in previous posts we have seen a 7% drop in exchange rates so far this year and at present cannot see exchange rates recovering (at least not in the short term). Some of the forecasts I have access to are showing that GBP/USD rates could recover back towards $1.56 in the next 3 months but with uncertainty in the euro-zone still bubbling away potential for safe-haven flows into the dollar could also cause exchange rates to fall so in my opinion I think it is unlikely to see that kind of gain.


What should you do

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Pound dollar rates fall again.

Good afternoon,

It has once again been a difficult day for sterling as markets reacted to news the UK has lost its AAA credit rating. On Saturday the credit rating agency Moody's lowered the UK credit score to AA1 which prompted yet another drop in exchange rates and at its lowest point cable fell to $1.5088. It now means we have seen 7.2% drop in rates since January and at this moment in time is difficult to see where a recovery will come from.

Over the last couple of weeks I have mentioned a few times that the UK is under increasing pressure. Like many, I did not expect the downgrade to happen as quickly as it has, I was expecting to see the GDP figures released for quarter 1 this year before any action was taken. 

So where does this leave cable now?

Moody's has been the first credit rating agency to act and they may not be the last, there are two other major credit rating agencies (S&P and Fitch) and if they follow suit we could potentially see further losses. Later this week we will see a revised figure for Q4 GDP,depending on the result you may see a slight swing either way. 

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I think the next couple of weeks could be key for Sterling's future, at the start of March the Bank of England will meet to discuss interest rates and quantitative easing, following the minutes released last week there is an increased chance policymakers could look to add to the £375 billion they have already pumped into the UK economy to try and stimulate growth. If this happens we could see the pound devalue which in turn would see sterling loss more ground against the greenback. 

We are also getting ever closer to the finding out if the UK is back in recession, although figures will not be released until April, speculation will grow (especially if the BoE look at more stimulus) and could have severe consequences for the UK as a whole.

So to summarise, the next couple of months will see the uncertainty and volatility continue, I think there is more scope for rates to fall than increase and based on what we have seen recently I would not be surprised if rates dropped back into the $1.40's in the next couple of weeks.

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Sterling dollar exchange rate summary

Over the past five days we have seen a huge shift for cable as the greenback continued its march against the pound, this has led to exchange rates falling to their lowest since July 2010.

As you can see from the graph above we opened the week just over the 1.55 mark and have steadily declined throughout the week, with the exception of Wednesday where we saw a sudden a sharp decline of just over a percent in a matter of minutes. Below we will look at what caused this and what the markets have in store for cable over the coming weeks.

Since the New Year, rates have headed one way for the pound/dollar cross, seeing a decline of over 10 cents in dollars favour. With the fiscal cliff still looming large over the U.S many are expecting the dollar to weaken. In fact, we could actually see the opposite.

Why would the dollar strengthen when the economy is struggling and the government are implementing tax increases and budget cuts?

The answer is simple. As a safe haven currency, tax increases and spending cuts in the U.S is seen by many investors as a positive for the currency causing an increase in dollar demand resulting in it becoming more expensive to buy the greenback and we see rates drop.

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Recent dollar strength coupled with the UK’s under performing economy has seen nearly a 6.5% drop in rates, with the UK’s triple A credit rating still under fire a lot will depend on whether the UK economy enters back into a recession before we can expect to see any loses retraced. A recession occurs when an economy contracts for two consecutive quarters. We have already seen the UK economy contracted in the final quarter of 2012 with a GDP reading of -0.3%. Many analysts are expecting the UK to contract further in the first quarter of 2013. If this happens, we could see the UK lose its triple A rating and exchange rates to drop even further.

So what happens if we avoid a triple dip recession?

Should the UK exceed expectations and narrowly avoid a recession we could see some of sterling’s loses regained. However, the UK avoiding a recession does not guarantee our prestigious credit rating will be safe and should the U.S implement something of value regarding the impending Fiscal Cliff we could see rates either remain where they are or drop lower.

So what do I do?

With so much uncertainty surrounding the pound at present the best way to protect yourself and maximise your currency is to complete the contact form for a free no obligation consultation. With markets so volatile it is a almost impossible to predict which way rates will move, by completing the contact form I can talk you through the different processes and tools to ensure you make the very most from your currency transfer.

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GBP/USD exchange rates fall to lowest levels since 2010

Good afternoon, 

Sterling's decline against the dollar continued today with little sign of a recovery. This morning saw cable fall to its lowest levels since July 2010 hitting a low of $1.5284 and now means we have lost over 10 points since the start of January. In today's post I will take a closer look at what caused a 1% drop in exchange rates within a matter of hours.

Ever since the turn of the year the UK economy has been in the spotlight and has come under increasing pressure since figures revealed that the UK economy contracted in the final quarter of 2012. The main driving force behind today's losses were down to the release of the Bank of England minutes from their meeting at the start of the month, the minutes showed that policymakers voted 6-3 (compared to 8-1 the previous month) in favour of keeping Quantitative Easing (QE) at it current level of £375 billion.

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What was interesting is that the Governor of the BoE Sir Mervyn King voted in favour of further stimulus but was outvoted by his colleagues, but only just. The recent minutes show that opinion is changing and more negative data this month could prompt further stimulus in the next couple of months.

The BoE may look at further stimulus as early as March in a last ditch attempt to prevent the UK falling into a triple dip recession. Although QE may have a negative impact on the pound short term, if it can prevent the UK from falling into recession it may have a long term benefit if it means the UK can hold onto its AAA credit rating. 

One thing is certain and that is the volatility surrounding the currency markets is sure to continue. Lets not forget that the U.S still need to put a permanent solution in place regarding the 'Fiscal Cliff' by the 1st of March, but with the U.S dollar seen as a safe-haven currency, tax increases and spending cuts in the states could actually see the greenback strengthen. 

If you have a need to buy or sell dollars in the coming weeks click on the link below for a free, no obligation consultation to discuss rates and the tools available which will help you make the most from your currency transfer.

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Pound dollar mid-week update and forecasts

Good afternoon, it has been another choppy start to the week for cable and the swings we saw in exchange rates last week have continued. Since the start 2013 sterling has been in free fall against and the current trend shows no signs of improvement.

Positive 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 Decemeber 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 the close of business yesterday 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 started to surface again. The temporary package put together President Obama on the 1st of January is due to expire on the 1st March which has led to the President approaching congress to put together another short term package to avoid larger cuts next month. The proposal was quickly rejeceted and the longer it drags on the more likley we are to see the dollar come under pressure, lasts weeks poor GDP figures for Q4 were put down to the 'Fiscal Cliff' and if a solution there is chance rates could start to push higher.

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Tomorrow is quite a big day in terms of data releases in the UK which could give us an indication of things to come. The Bank of England are holding their monthly meeting and if they opt for another round of quantitative easing it is possible we could see rates fall even further. If they don’t we might see some support for the pound which could see rates start to creep back up again. The UK economy seems to be the centre of attention at the moment and in my opinion I think it is unlikely we will see rates push back towards the $1.60 mark any time soon. In fact one of the forecasts we received from our brokers recently indicated that rates could fall back towards $1.53 within the next 12 months

With so much volatility surrounding the currency markets at the moment the use of Stop Loss and Limit Orders has increased massivly, they can protect you against a falling market but also help target a rate that might not be currently available. Below is a link that will give you some more information regarding the different types of contract I can offer.  

Types of currency contract 

However, one thing I would recommend is not to get caught trying chase your losses; it can be a very dangerous game especially if you are looking to move large volumes of currency. What I have tried to explain to clients over the last few weeks is that if your purchase is in budget then look at fixing your rate of exchange, even if you don’t need the money straight away. 

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So if you are looking at buying or selling dollars, for personal or business use in the coming months don't leave it to chance, the way the currency markets have been moving for the last few weeks could end up costing you thousands. If you haven't done so already click here for a free, no obligation consultation.
  

 

Pound dollar exchange rates continue to fall

A lack of data in the UK last week meant that sterling was at the mercy of events elsewhere. So far this year we have seen the pound fall by nearly 4% against the dollar, so what has happened to cable over the last 7 days, and will the trend continue? In this week’s report we will take a closer look at the key factors which impacted the GBP/USD cross.

The start of last week saw the trend continue as rates fell by nearly 0.8%. But in a turn of events in the latter part of the week cable recovered and climbed 1.3% to reach a high of $1.5876. However, the gains were short lived as Friday saw sterling lose nearly a point due to poor UK manufacturing data and solid non-farm payroll data from the states, which came in only 3000 under what had been forecast.

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The main reason for the sudden mid-week gain was the surprise announcement that the U.S economy had shrunk in the final quarter of 2012. Initial estimates indicated that the world’s largest economy contracted by 0.1% when analysts had been expecting 1.1% growth. It will be a bitter blow if the figures are confirmed and will add to pressure on the U.S Federal Reserve (FED) to do more to help boost the U.S economy. More quantitative easing could now be on the cards and if the FED opts to go down that road again it could potentially mean the dollar weakening against a basket of currencies.

Quarter four in the states was dominated by talk of the Fiscal Cliff and although avoided by a last minute deal put together by President Obama the fear created by the prospect of huge spending cuts and tax increases seem to have had a knock on effect for businesses and consumer confidence.

Part of the fiscal package included an increase in tax payments for the highest earners in the states and the expiry of a payroll tax holiday for all U.S employees. Economists believe this could hinder the U.S economy for quarter one of 2013 and if figures released in April show a contraction it will mean the U.S has entered into recession for the first time since 2009.

  

If the U.S were to head back into recession we could see some major swings in the currency markets over the next couple of months, With the UK teetering on the edge of a triple dip recession along with the threat of losing its prized AAA credited rating the volatility we have seen over recent weeks shows no sign of letting up.

 The swings we have seen in trading over the last week once again show just how important it is to stay in touch To put last week’s movements into monetary terms a £200,000 trade into dollars would have seen you receive nearly $4000 less had you brought on Tuesday rather than Friday. As a currency broker I have a range of currency contracts to help you make the most of your currency transfer, so if you haven’t done so already click here for a free, no obligation consultation.