GBP Exchange Rate Forecast

This is a brief summary of todays report. Click here to read the full report on our main website

Unemployment set to rise further?

Unemployment will peak at 2.8 million in 2010, according to the latest forecast from the Chartered Institute of Personnel and Development.

The business group said unemployment would continue to rise for the first six months of the New Year, despite the recovery in the UK economy. The forecast is more optimistic than previous predictions which suggested the number could reach 3.2 million. The total number unemployed in the UK currently stands at 2.49 million - or 7.9% of the population - following hundreds of thousands of job losses in 2009.

This revised figure could have been seen as positive news for Sterling but the markets didn’t show it with Sterling losing ground against most currencies, including the Euro during yesterday’s trading. I think it is more likely that we will see the Pound benefit from employment data once the numbers start to decrease – most likely in the third or fourth quarter of 2010.

British home owners mindset changing?

Britons put nearly 5 billion pounds of equity into their homes in the third quarter of the year as record low interest rates encouraged homeowners to pay down debt. Bank of England figures yesterday showed that Britons injected 4.91 billion pounds of housing equity between July and September, the equivalent of 2% of post-tax income.

That compares with an injection of 6.92 billion pounds in the second quarter and more than 7 billion pounds in each of the previous two quarters.Britons have injected equity into their homes for the past six quarters, reversing the trend of home equity withdrawal to fund other spending that has dominated the past decade. This bodes well for future security as overspending and over borrowing are two of the main factors behind the recent credit crisis but in the short term this “cautiousness” could be hampering the Pounds recovery as the Government really do need people to start spending in order to kick-start the struggling UK economy. If this trend continues I would expect to see Sterling suffer further losses going into 2010, especially against currencies like the AUD, NZD and EUR whose central banks have already announced themselves out of recession.

US new homes sales tumble

Sales of new homes in the US plunged in November, casting fresh doubts on the recovery in the housing market. The Commerce Department said sales fell by 11.3% to a seasonally-adjusted annual rate of 355,000 homes, down from a revised 400,000 in October.
It is probably as a result of this release that Sterling made small gains against the Greenback yesterday morning, one of only a couple of currencies the Pound fared well against during the first session after the Xmas break (this was reversed following the opening of the US markets, during mid afternoon in the UK.)

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GBP Exchange Rates steady before Bank of England Minutes

This is a brief summary of todays report. Click here to read the full report on our main website

The key information to keep an eye out for today is the Bank of England (BoE) minutes. Currency speculators and investors who can have a significant effect on market movement will be looking to see if the BoE will be extending the Quantitative Easing program further. In the past this has had a dramatic effect on the market, so whether you are buying or selling foreign currency, stay in close contact with your account manager so that you can take advantage of any potential spikes. The minutes are released at 9.30am.

GDP figures are bad news for sterling exchange rates

GDP figures for the UK came out yesterday worse than expected at -0.2%. The CBI had forecast that the UK would come out of recession so the negative 0.2% went against these expectations and caused sterling exchange rates to fall. Against the Euro the pound lost 0.30% and against the dollar sterling was down 0.42%. Against the antipodean currencies the pound help firm.

USD gains on sterling The US economy grew by less than originally estimated between July and September this year. Figures released by the US Bureau of Economic Analysis show that the economy grew at an annual pace of 2.2%, down from the previous estimate of 2.8%. Although this is in theory negative news for the US, because the economy is still out of recession USD exchange rates gained against the pound.

It has been the first quarter in which the US economy returned to growth, after four quarters of decline. Another reason the dollar gained ground could be due to new home sales rising
7.4% in November, spurred on by government incentives in the US. Speak to your account manager today to see what US releases could affect the cost of your transaction before Christmas.

Data Releases that could affect your Currency Purchase

09:30 UK – Bank of England Minutes
13:30 US - Core Personal Consumption expenditure
13:30 Canada – GDP Figures
15:00 US – New Home Sales
15:00 US - Reuters/Michigan Consumer Sentiment Index
23:50 Japan – Bank of Japan Minutes

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Sterling Rallies on Euro Zone Banking Worries

This is a brief summary of today's report. Click here to read the full report on our main website

Sterling was down against the USD yesterday but was to breach month highs against the single currency on concerns over Oesterreichische Volksbanken, Austria's top co-operative bank.

Worries over Austrian banks pushed the euro to its lowest in more than two months against the dollar and lowest against the pound since Nov. 19.

Yesterday Data; House Prices, Inflation & Consumer Price all positive

Yesterday there were three pieces of key information released for the UK. The Royal institute of Charted Surveys (RICS) released figures showing the average house price in the UK has risen for the fourth month in a row. This was put down to a shortage of houses up for sale and this pushed up the price of the average UK home to £198,450. UK Consumer Price Index showed an increase, this was reported to be down to rising energy bills. And lastly Inflation also rose to 1.9% last month from 1.5% in October predicted to be down to fuel costs from the Office for National Statistics. These all contributed to pound strength that was felt against a basket of currencies through yesterday, making the pound worth more.

Breaking News – Early this morning Australia released their Gross Domestic Product figures, these came in surprising lower than predicted and has improved the pound position by nearly 1% already this morning.

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GBP Exchange Rates Strengthen on Positive Housing Data

This is a brief summary of today's report. Click here to read the full report on our main website.

Sterling has had a positive start to this mornings session as early this morning house data from the Royal Institute of Chartered Surveyors showed house prices in England and Wales rose at their fastest pace in three years in November, but there are signs that activity may be levelling off just as new instructions to sell hit a 2-year high.

House prices have started rising again in annual terms in recent months, having slumped around 20 percent from their peak during the financial crisis. However, prices have largely been supported by a lack of supply.


Some analysts worry the housing market could suffer a relapse next year if the economy fails to pick up strength and unemployment rises sharply next year, this may subsequently have an adverse affect on the value of the pound.

Dubai Bailout

In what was perceived as a positive move for the market Abu Dhabi assisted Dubai with a $10 billion bailout package to help assist their burdening debt problems. On the back of the news stock markets were to move positively and in particular the banks with shares in HSBC, Standard Chartered, Banco Santander, Barclays and Lloyds all posting positive gains.

This move was to also see some positivity for the pound as a move to riskier assets such as the pound was seen. This was to also affect the value of the US Dollar as the Dollar is classified as a safer asset than sterling.

Euro News

Employment in the Euro Zone fell for the fifth consecutive quarter by 0.5% as an extra 712,000 people were out of work during the three months from July to September. Industrial data was also poor with an annual decrease of 11.1% and a monthly decrease for October of another 0.3% - figures that were to lead to Euro weakness yesterday afternoon.

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Sterling Forecast

This is a brief summary of today's report. Click here to read the full report on our main website

Sterling had strong gains on Friday primarily caused by the announcement from Moody's the credit rating agency that the UK and the US top AAA was under no immediate threat which was to bring confidence to the pound and USD. Moody's Investors Service also said that the earliest they could see a change being made to the rating would be 2013 and this would be the worst case scenario.

The Week Ahead

Today following the Rightmove house price data released early this morning (figures were worse than expected) we have seen a reversal of Friday's trading with Sterling losing nearly 0.5% against the Euro and nearly 0.25% against the USD, this trend may well continue with little data due for release today, although for those with a GBP/EUR requirement you may wish to keep a close eye on European Employment data released at 10:00.

Tuesday we have the minutes released from the Reserve Bank of Australia which should give indication as to whether the bank has ended its recent run of raising interest rates or indeed whether we will see a hike for the fourth month in a row. We are likely to see GBP/AUD volatility following this release.

Other data of note this will again be from Australia with GDP figures due for release on Wednesday. Expectations are for 0.6% growth and any change from this level is bound to cause AUD movement.

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Early boost for GBP following no downgrade from Moody's

This is a brief summary of todays report. Click here to read the full report on our main website

Sterling has seen a slight boost this morning as Moody’s the credit rating agency said the US and UK are in no threat of downgrade from their current triple ‘A’ rating

"Only the UK and the U.S. are classified as 'resilient,' rather than 'resistant.' Their resiliency will be tested in the next couple of years, but for now they have a high degree of financeability and debt affordability," the analysts said in a presentation.
"The rise in debt and higher interest costs could test the ratings under some scenarios, but not right away."

Bank of England Interest Rate Decision

The Bank of England kept its key interest rate on hold at a record low 0.5% and its quantitative easing asset-buying programme unchanged at £200 billion yesterday, a decision that analysts had widely expected. Subsequently sterling was to see very little movement as the market was still reacting to Alistair Darling’s pre-budget report on Wednesday and the persistent concerns about Britain’s fiscal health and ever increasing debt burden.
Darling said he expected the economy would grow by 1 to 1.5% in 2010 but acknowledged the recession had been deeper than he predicted in April and unveiled a one-off super tax on bank bonuses and other taxes on the rich. He was to give little detail on how he will cut Britain's huge budget deficit and his tax on bankers' bonuses may hinder London's attraction as a leading global financial centre. Indeed the need for huge fiscal tightening in the years ahead may mean the BoE keeps policy rates lower for longer than expected, analysts said.

Paul Robson, currency strategist at RBS Global banking in London, said that Britain's precarious fiscal position means the outlook for sterling "remains challenging" and added that there is a "clear risk" the BoE will have to expand QE.

Should we see future extensions of QE then we could certainly see levels for sterling creep lower in the coming weeks and months based on how the market has reacted to previous extensions. Yesterday’s decision was to give little away and the market will be waiting for the Bank of England minutes released in two weeks to interpret the Banks Monetary stance and view to ongoing policy.

Should you be sending money overseas and in particular those that are risk averse, booking your currency prior to your requirement date maybe a wise move. Contact the office on free phone 0800 328 5884 to discuss the implications this may have on your transfer.


Other Data of Note

The US trade deficit with the rest of the world dropped unexpectedly in October, by 7.6%, as a surge in exports offset a small increase in imports, official data showed yesterday. The goods and services trade gap totalled a seasonally adjusted $32.9 billion, down from a revised $35.7 billion in September, the Commerce Department said. Most analysts had forecast the deficit would rise to $36.8 billion and may have given some reason as to why the USD strengthened slightly in the afternoon’s session.

Sterling will not be the only currency affected by data releases today and other releases to note are as follows:

09:30 – UK Producer Price Index – month on month and year on year (measures the average change over time in the selling prices received by domestic producers for their output).

12:15 – European Monetary Union - Jean Claude Trichet speech

13:30 – US Retail Sales

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GBP Forecast after Pre-Budget Report

This is a brief summary of today's report. Click here to read the full report on our main website

UK interest Rate Decision

All eyes today will be on the Bank of England and their interest rate decision for December. With it being expected to remain on hold at 0.5%, the decision itself may not cause massive volatility. Predictions however are that the central banks stimulus package may not be over, with some analysts predicting a further £20bn to be injected into the economy.

This could be seen as a massive negative for the Pound and exchange rates may continue to tumble. At a time when the UK is the only G20 nation yet to come out of recession, a view that further stimulus is required to bring growth back to the economy may put an end to thoughts of 4th quarter growth and an end to the worst recession since WW2.

The Pre-Budget Report

Yesterday, Chancellor of the Exchequer Alistair Darling addressed the House of Commons with his pre-budget report. This was seen to be the main influencer of Sterling exchange rates, and in turn the cost of sending money overseas or selling foreign currency. But what did the report contain?

The main positive seen for the Pound was news that there would be no windfall tax on bank profits, on the back of this alone we saw Sterling rally during the early stages of the report.

However, Darling announced that National Insurance contributions will rise in April 2011, on top of the increase already released in last year’s report. Value Added Tax (VAT) will revert back to 17.5% from January 2010. Banks will be charged a one off 50% tax levy on all bonuses paid out over £25k. These three key policies were all seen as negative measures and heaped pressure on the Pound, even though they look set to raise over £13.5bn for the Government.

With negative sentiment suffocating the Pound, Alistair Darling finally admitted his growth predictions for the UK economy have been wrong. The Chancellor chose yesterday to re-grade his 2009 predictions from a contraction of between 3.25 and 3.75% to 4.75%. This was another factor driving the Pound down. After all, this is the person who should be in the best position to predict such figures. It comes as no surprise that the Pound had a tough day.

Other factors affecting the Pound

Yesterday did hold more in store for Sterling than just the Chancellors report. German CPI data showed an improvement on both October’s figures and analysts expectations, supporting the Euro. UK Goods Trade Balance showed a worse than expected figure, meaning exports were reduced, demand for the Pound down, and in turn bad news for GBP exchange rates. The New Zealand interest rate decision for December was also released at 8pm last night, showing a hold at 2.5%, as expected.

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