www.currencyline.co.uk

By Tom Higham

Talks regarding Greek debt levels are expected to resume this week as no resolution is yet to be reached. The uncertainty surrounding Greece’s debt repayment and therefore the unity of the Eurozone continues to hangover the head of euro exchange rates. In fact over the weekend credit ratings agency Fitch have downgraded several European economies including Spain and Italy which is further bad news for the debt laden single currency economy. While this story rumbles on it is likely we will see more exchange rate movement and so the recent 16 month high on Sterling Euro could be soon a distant memory!

Meanwhile in the US there was some good news as they announced that the economy had grown more than expected good news for both the US and the global economy. Should the US economy continue to move from strength to strength we could see not only Dollar strength but also some other currencies such as the Australian and New Zealand dollars strengthen as investors confidence in the global economy grow.

By Alex Ellis

The week ahead for the pound:

The week ahead has a number of interesting releases but the most important for the pound will be on Thursday it what could potentially be a busy day.

The first release of note is the NIESR GDP estimate which can potentially throw up a few surprises, especially as GDP is seen as a clear indicator of the health of an economy. Currently UK GDP is seen as weak and therefore if this release did show a positive figure you would expect the pound to strengthen as a result. However if the GDP estimate is shown to be negative then you would expect the pound to weaken as a result.

The second release to note is the Bank of England’s interest rate decision which is due at 12:00. The UK is currently experiencing a spate of stagflation which is where inflation and unemployment are both high; this is weighing heavily on the pound. So it is unlikely that the BoE will raise interest rates on Thursday.

However I would still highlight this release as important because if they were to raise the rate then the pound would strengthen massively as a result. This is because high interest rates see investors gain a much greater return and therefore are seen as positive for an economy causing exchange rates to strengthen.

In other currency news:

US Dollar:

The USD initially weakened following concerns of rising oil prices but has now strengthened as recent global concerns have seen a regurgitation of a “flight to safety”.

This is where investors will move their money into those economies which are seen as safer havens in order to protect their positions. There are a number of releases that may be important but the one I would specifically highlight is Friday’s Retail Sales figure at 13:30.

Euro:

The single currency has once again been bailed out following comments from Jean Claude Trichet that interest rates may rise sooner rather than later. Trichet’s comments will be echoed in the market as rates for the Euro will continue to be strong until data can prove that Trichet was in fact being slightly pre-mature.

By Alex Ellis

  Sterling gained yesterday as improved UK manufacturing sector activity showed an increase which boosted speculation that the Bank of England will indeed raise interest rates at some point over this year. Data showed that PMI (purchasing managers index) which was predicted to come out in 57.9 was actually released as 62 in January and this was the highest reading since the survey began in 1992.

 This places the Bank of England in a very interesting predicament as they are reluctant to raise rates due to the fragile nature of the economy and the risk of damaging the recovery once interest rates do rise. Obviously high levels of interest rates make the cost of borrowing more expensive but a lot of household have increased debts due to the recession and credit crunch and therefore are in much more debt than they would be usually.

 How is Egypt influencing exchange rates?

 Political turmoil in Egypt is causing a storm on the financial markets as the price of crude oil rises above $100 per barrel; these are the highest levels since 2008, over the last few days many stocks and bonds in the developing nations are being sold off. The market is due to remain especially volatile during this period as it will become harder and harder to predict how each individual release will impact exchange rates.

 John Claude Trichet is due to speak at 11:30 (GMT) on Friday and this could help to shape the short term future for exchange rates for the GBP/EUR exchange rates, in the majority of cases he has a fairly positive outlook for the future of the economy and I would not be surprised to see the same here.

 In US news we have the US non-farm payrolls tomorrow at 13:30 these measures the number of US workers employed but doesn’t include the agricultural sector. This is seen as a very important economic release for the US and therefore one I would highlight as having the potential to influence the market.

By Alex Ellis

GBP exchange rate forecast 2011

UK GDP showed a contraction this morning as the sterling rally looks set to be well and truly over. The UK is now beginning to look like it is entering into a stage of stagflation; this is where both inflation and unemployment remain persistently high. Inflation is currently at 3.7% and therefore is way above the Bank of England’s target of 2% and looks set to rise even further in the coming months.

This is the problem facing the Bank of England, if they raise interest rates then they risk damaging the economic growth however if they don’t then inflation could quite easily spiral out of control. The MPC are still split on what policy to undertake: Andrew Sentance has been in favour of hiking the interest rates for some time now whereas Andrew Posen has been of the opinion that the best way to stimulate the economy is to continue the QE programme.

I personally think that this predicament will continue for the majority of the year and we will not see and interest rate hike until most likely the latter part of the year as this is when the economy will be much more balanced.

Other releases this week that could affect the exchange rates are Wednesday’s Bank of England minutes from their most recent meeting, in the past this has caused movement if any of the members vote for an interest rate hike or if there is any indication of an extension to the BoE QE programme.

Current Euro Exchange Rates

The Euro has now benefited from the weak UK retail sales data and the huge contraction in the UK GDP figure shown earlier this morning. All it will take is for the UK to have one more negative quarter of GDP and technically we are back in a double dipped recession. Consumer confidence is released at 10:00  (GMT) for the Euro zone and I would expect this figure to be extremely important as the debt crisis in the euro zone seems to have gone quiet and if there is confidence in an economy then investors will move into the currency causing Euro strength.

US Dollar Exchange Rate forecast

In US news there is an interest rate decision due at 19:15 (GMT) although it is somewhat unlikely that the FED will raise interest rates so soon, we are able to offer contract options which will protect your position outside of UK trading hours.

By Alex Ellis

Sterling exchange rates are in for a tough year in 2011, there is over the course of the year ample opportunity for exchange rates to both peak and trough. Personally I feel that this year will be most testing owing to the fact that the coalition budget cuts are due to come into play – VAT has in fact risen to 20% today however the market is showing some positive strength for the pound.

Over the course of the year if any announcement is made which shows that the Euro zone debt crisis has become prominent again then we could see further weakness for the Euro, whilst also seeing the pound losing ground against those currencies historically seen as safer havens. This is due to the pound’s exposure to the banks within the Euro zone as any bailout will require some form of intervention from the UK as a member of the EU.

The US dollar has been one of the currencies that has benefited of late from a move towards those currencies seen as safer havens, further QE has been scheduled for this year and it will be interesting to see what affect this has on exchange rates. On Friday unemployment figures are due to be released and this will be the first significant economic release for the US in 2011.