The currency blog

Back in July I submitted copy for a well known expat magazine. This copy was for their September issue. In this article I suggested that euro buyers should watch out because between August and October 2009 the pound lost nearly 10 cent on the back of less than positive sentiment expressed by the BoE and the Treasury. Although circumstances are slightly different now what with the sovereign debt, credit and unemployment issues being significnalty worse, I feel somewaht vindicated.
Strerling has seen a loss of around 4 cent over the past week. The UK has had her growth forecasts for 2011 reassesed downwards, mortgage lending is at a significant low, youth unemployment is high, and after a very wet end to the summer it is no wonder that the cracks have begun to show and the Lib-Con’s coalition honeymoon is coming to an abrupt end. It would be wrong to say it is likely that the pound will continue to loose value in the short term because the PIGS still have serious issues with their public spending, austerity and borrowing capabilities, but the mood of the markets has changed ever so slightly, and we are loosing the momentum that carried through 1.20 and the summer season.

The week 13/09/10 - 17/09/10 saw positive moves for the euro against both the pound and the US dollar. Slight concerns about European sovereign debt had resurfaced in the press and on the wires, but no gains were on the cards for the pound because any negative sentiment was quickly countered by the EU President’s assurances that those fragile Euro economies exposed to sovereign debt liabilities were fairing better. Sterling proceeded to loose nearly a cent and a half by Friday’s close.
Germany’s bond dealers have suggested that the worst is over following their Governments fronting of the European bailout. European Stocks also rallied on the back of this positive sentiment which further compounded sterling losses, and has knocked sterling down to 1.19 for the start of the week.
UK retailers have warned that they may struggle to hit ambitious sales targets for the Christmas period. Although the weak pound has attracted foreign visitors to the United Kingdom, inconsistent oil pricing has seen volatile airfares deter would be consumers. If the euro remains strong against the dollar into the next quarter we could see the focus turn away from the British retail sector.
Fingers crossed the UK can hold its nose above water for the coming week. We would like to see a correction up to the 1.20 level. 1.20 is an ulikely level to attract private traders back into the market, especially with risk fractionally to the down side for the pound. Mortgage approvals are down, and the inflation report hearing later in the week might cap trading volumes going into next year because QE may rear it’s ugly head again.

Revising UK GDP figures up a fraction has made little impression on the overall range of the pound although it is encouraging to see the sterling euro rate holding at 1.215 at the close of trading 27/08/10. Perhaps worryingly, the improvement in the pound may now have an adverse affect on UK exports which were a factor in the improved figures. Importers have a little respite with this more attractive level. Germany’s industrial figures still give the UK cause for concern in the short term, and unemployment in the UK is playing on the government’s mind, but retail sales figures show that the consumer, although shrewder, is not daunted by the austerity measures that have animated political discussion of late.

July and August are traditionally slow months in the retail money markets; however this year has shown a 10% increase in interest in overseas buys. Although some would argue that the UK banking sector does not deserve a holiday, it would seem that financial earnings figures, and a the relative evaporation of risk aversion, will find the pound at a more or less stable level come Tuesday. Next week does see weighty information released from the United Kingdom, but as we have seen over the past four weeks, sterling buyers are still keeping the UK afloat and this may transalte into an attempt to breach the higher 1.22 resistance level if the datas prooves positive.

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.

Over the past 72 hours the sterling euro rate has moved painfully little. The average range over the latter half of this week for this usually animated currency pair has been a mere 85 points, meaning that traders have either been waiting to buy or sell based on unforeseen economic data, or other markets have attracted their attention. This other market/currency is the US dollar. USD has taken a beating against both the pound and the euro on the back of poor unemployment figures, and in anticipation of sluggish growth going forward.
Mervyn King wil be speaking later on next week, and hopefully this will ignite interest in European transactions. UK financial earnings have been positive overall, and this may have helped to hold the pound at around the 1.20 level, but the pound will no doubt come under pressure over the course of the next trading week, and the markets will wait with baited breath to see what sentiment Governor King chooses to express. He will make a point of mentioning the level of lending to SME’s and individuals, and with banks such as RBS widening their profit margins it seems that pressure regarding capital adequacy is coming to bear and affecting borrowing criterion.
The Germans seem to be emerging from something of a lull which suggests that next week could prove euro positive up to a point; at least we should see some movement after what has been a distinctly uninspiring five days.  Interest rate remain the same which is unsurprising at this point in the annual cycle, however, speculation of the timings of a rate increase has genuinly split opinion leading to inertial in short term trades.

With sterling and euro sticking within a predictable range, averaging about a cent oscillation over the last four UK and European sessions, it is clear that the summer lull is in full flow…

The pound closes up at 1.2028 by the end of trading on Friday. All eyes appear to be on the dollar which has been hit hard by gains against both the euro and the pound. US GDP did not reach the levels that were expected. When contrasted with the GDP figures released from the UK one can argue that sterling has had a bit of respite as attention had turned towards Ministers in Europe and US. Sterling may move decisively over the next week or so. Speculators anxious to push levels are likely to capitalize on negative Eurozone sentiment, so we may see the 1.21 level tested, and when one considers that the first week of this month will be rich in data, we should hold tight for a surprise shift to a more positive out look for the pound in the long run.