The currency blog

Forecasters working with some of the larger ratings agencies have surprised the market by suggesting that the pound may come under significant pressure before the end of the year. Whilst the Chancellor had been applauded for taking the plunge and cutting public spending, austerity measures in the UK will undoubtedly affect growth in the UK economy which puts the UK at a disadvantage when compared with the more robust US and European forecasts. Despite this thought the pound has moved higher against the euro over from Friday, with an opening bid of 1.2664 for Monday 23rd.

Britain’s retail sales figures released on Thursday do suggest that inflation rises have not deterred consumers, plus weakness in the pound has attracted improved tourist activities, however Britain is not nearly as flexible as her European competitors when it comes to extending visas to the newly mobile consumers arriving from the far east, and as the summer draws to an end it has been suggested that we will see a decline in like for like figures as UK residents tighten the purse strings.

August is a usually a quieter time, but one hopes that rates above 1.20 will tempt buyers to considering exchanging at this improved level. The temptation is always to speculate further, but hardly any of the fiscal or monetary policy measures that have been proposed to deal with credit or inflationary issues will have positive effects for the Brit buyers in the short term. Autumn will continue to prove and uncertain time for the UK and the pound.

Reports today suggest FX analysts are the most pessimistic on the Pound since May 2009, predicting the Chancellor’s cuts will eat into economic growth, the already soft economic recovery is forecast to slow causing Sterling to fall back against both the Dollar and Euro. Median estimates suggest the Pound will drop 8 per cent against the Euro by year end as the recent bullish UK data starts to deteriorate.
Read the rest of this entry »

Gilts opened lower and Sterling remained on the back foot on Thursday morning ahead of UK Public finances and UK retail sales. The market continues to be concerned about public sector debt so any poor data was expected to see the market react abruptly as investor’s fear the UK government will struggle to meet its target for narrowing the deficit this year.
Read the rest of this entry »

Such is the way in FX markets at the moment, no sooner had Sterling been given a boost, rising almost 1 cent against the Dollar yesterday on the back of the Bank of England minutes, than it gave up almost all the gains overnight in the Asian session. Déjà vu on Thursday, the pound is again up almost one cent after very strong retail sales and public sector net borrowing figures. Retail sales including auto fuel rose 1.1% month-on-month against a forecast of 0.3%, with the year–on-year number is now 1.3% against an estimate of 0.6%. The strong numbers were driven in particular by non store and other store retailing, producing year on year increases of 6.1% and 16.4% respectively. Public net sector borrowing data is also fuelling Sterling’s rise as figures released at the same time at retail sales show the Governments net borrow was lower than forecast, £3.17 bn versus a forecast of £4.8 bn. The tightest fiscal squeeze since World War Two looks to be taking hold, and the markets like what they see thus far.
Read the rest of this entry »

The Euro regained ground against the USD and Sterling yesterday as Ireland’s 2014 and 2020 bond auctions largely passed without incident. Spreads were already tightening ahead of the auction, and final bid-to-cover ratios of 5.4 and 2.4 respectively showed that demand remains firm. Spain also sold 5.5 billion euros of 12- and 18- month bills at lower yields than in previous auctions in July. We wait to see if ECB intervention was the main reason for the strong demand. The European data picture was less rosy, however, as the ZEW Economic Sentiment survey was much lower than expected at 14.0 (consensus. 20.0), though the current situation index was firm at 44.3 (cons. 24.0).
Read the rest of this entry »

Inflation figures just released shows CPI exactly as forecast, 3.1% year-on year and 0.2% month on month. Although the figure is slightly down from last month, the yearly rate still exceeds the Bank of England’s target of 2% plus or minus 1%, triggering another round of pencil sharpening and a letter from the Governor Mervyn King to the Chancellor explaining why inflation remains stubbornly above target.
Read the rest of this entry »