www.currencyline.co.uk

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

Unemployment figures released yesterday caused sterling to shift from its recent highs, as the rates moved around 1% between the high and low and possibly showing the end of the recent spike seen for the pound. 

UK Retail sales are due to be released at 09:30 (GMT) tomorrow morning and these could be the make or break point for future sterling exchange rates. December’s retail sales are considered the most important of the year and predictions are that the figures will come out worse than expected. This owing to the adverse weather conditions seen in the month and the weather would have affected both the online and retail outlets. It is worth noting that this severe weather was nationwide with almost every county being affected so figures could come out much worse than expected.

If this were to happen I would expect that sterling exchange rates would suffer as a result and we may see the mid-market level move around the 1.17 mark compared to the recent highs this would be significantly lower. In any event by using a currency broker you can ensure that you are well informed before exchanging currency and can also tailor contract options to suit your individual needs, both minimising your exposure and reducing your risk.

By Alex Ellis

Sterling lost strength today as unemployment in the UK rose by 49,000 to total 2.5 Million people now unemployed across the country, currently 1 in 5 16-24 year olds is out of work. Only recently the Insitute of Public Policy Research stated that they believe there will be a double dip of job losses as job cuts take their toll in the coming months. We are beginning to see the primary effects of the budget cuts as economic growth is starting to slow and job losses are increasing, this will surely only get worse as the cuts become more prominent.

Eurozone debt focus has now fallen on Belgium – previously not considered one of the Pigs of Europe, the economy has now become in the spotlight owing to growing debt concerns. Currently their debt equals a whole years worth of GDP and their banking sector is weak (they required a bailout in 2008/9) and are heavily weighed down by other countries debt, most notably Greece, Portugal and Ireland.

If this becomes important in the news over the coming weeks then I would expect that Euro exchange rates would weaken as a result and the pound would gain, however UK retail sales are due out on Friday and I would predict that this will cause weakness for the pound.

By Alex Ellis

There are two releases this morning which could add to the speculation of an interest rate hike this morning both of which are released at 09:30 (AM).  The first, Consumer Price Index also known as the cost of living index, measures the change in price of a fixed set of products and services. This includes housing, electricty, food and transportation and is considered one of the main inflationary measures. Sterling has benefited recently from speculation of an upcoming interest rate hike owing to the rising inflation and therefore if inflation is shown to have risen following this release then I would expect specualtion to either increase or decrease.

The second release is the Retail Price Index, this measures the change in price of a fixed basket of goods from a typical supermarket shop and includes dairy products and the like. This again is seen as a good measure of inflation and therefore the two releases together could help to drive the market if seen as encouraging an interest rate hike.

Every week there are a number of economic data releases that can drive exchange rates and therefore if you do have an upcoming currency exchange then by employing the services of a currency broker we can ensure that you are well informed before committing to any exchange rate.

By Jonathan Watson

Sterling reached an 8 week high against the dollar yesterday. Why is this? Well the US dollar benefits from being a ‘safe haven’ currency. That means that in times of fear and uncertainty investors look to the US dollar as a secure option. Recently we have seen funds move away from the US dollar as global economic conditions improve. We saw that as soon as the ECB started buying up european debt bonds confidence in the euro was restored and previously safe haven funds were moved away from the dollar into the euro and other currencies too.

Couple these global developments with a strong pound which is making gains against most majors and you can see why the GBPUSD rate is quite attractive right now. With further discssisons in Europe over the euro crisis, this may yet improve further.

To find out how currency specialists can save you money on your currency transfers just fill in the contact form and speak to one of our experienced currency traders today.