Sterling review

Friday 11th April Trading

Trading on Friday saw the Pound fall 0.46% against the Euro, wiping out the brief rally sterling had experienced after the Bank of England’s interest rate cut on Thursday. This resulted in a 1.69% loss for sterling against the single currency over the week.
The final day of the week also saw the pound make small gains against the Canadian, New Zealand and Australian Dollar’s (+ 0.27%, + 0.61% + 0.25% respectively) following a poor performance during the rest of the week.

Review of the week's trading

The Euro’s record high this week against the Pound and the Dollar, was help by the European Central Bank conforming to expectations and leaving the Euro zone’s main refinancing rate at 4% for the 10th consecutive month. In fact, much of the movement on currency markets last week was informed by central banks. Sterling was hamstrung by rising speculation of interest rate cuts by the Bank of England, who reduced the UK base rate to 5 per cent on Thursday. The move had been forecast well in advance following a run of weak data from the UK. The Halifax released House price information showing that prices had fallen by 2.5% nationally, the worst monthly performance since the recession of the 1990’s. This coupled with a slump in consumer confidence added to the gloom in the UK, and sterling weakened accordingly.

Over the week sterling fell almost 1% on the Dollar and 1.69% on the Euro. On a £100,000 property this equates to an increase in cost of £1,690 for people buying in the Euro Zone and nearly £1,000 for anyone purchasing in the States. When such large losses are possible for sterling over the course of just one week, it seems unwise not to consider the option of a forward contract to protect yourself against future currency movements. Speak to your account manager today to find out more about how agreeing a rate on your currency purchase now, can save you money in the long run and help with the financial planning surrounding your purchase.

The Week Ahead

Data releases to look out for this week are as follows:
Monday 14th April
09:30am – United Kingdom - Producer Price Index, Input and Output dataThese releases are monthly measurements of the rate of inflation experienced by UK manufactures when buying goods and services (input), and the price changes of goods produced by UK manufacturers (output). For both, a high reading is positive (or bullish) for the Pound, while a low reading is seen as negative (or bearish).
13:30 – United States – Retail SalesChanges in Retail Sales are widely followed as an indicator of consumer spending. A high reading is seen as positive for the Dollar, while a low reading is seen as negative.

Tuesday 15th April
00:01 - United Kingdom - BRC (British Retail Consortium) Retail Sales MonitorThis shows the performance of the retail sector. A high reading is seen as positive for the Pound, while a low reading is seen as negative.
00:01 - United Kingdom - RICS (Royal Institute of Chartered Surveyors) – House Price BalanceThis data shows the strength of the UK housing market, which can be considered as an indication of the strength of the economy as a whole. A high reading is seen as positive for the Pound, while a low reading is seen as negative.
09:30am – United Kingdom – Consumer Price Index (CPI)A measure of price movements in a representative shopping basket of goods and services. The purchase power of the Pound is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. A high reading is seen as positive for the pound, while a low reading is seen as negative.
10:00 – Germany – ZEW Survey – Economic SentimentA measure of institutional investor sentiment, reflecting the difference between the share of investors that are optimistic and the share that are pessimistic. An optimistic view is considered as positive for the Euro, whereas a pessimistic view is considered as negative.

Wednesday 16th April

10:00 – Euro Zone – Consumer Price Index13:30 – United States – Consumer Price Index
As discussed above CPI data is a key indicator for measuring inflation and changes in purchasing trends. A high reading is seen as positive for the currency of the market concerned, while a low reading is seen as negative.
G7 Conference
A surprising announcement from the G7 Conference, (a meeting of finance ministers from the UK, Canada, France, Germany, Italy, Japan and the US), came on Saturday. The brief but strong passage read:

"Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability. We continue to monitor exchange markets closely, and cooperate as appropriate. "
Many analysts believe the statement suggests that G7 may move to support the Dollar in order to reduce the cost of gold and oil subsequently improving their inflation problem. Such a move would see the Dollar increasing in value against sterling and therefore becoming more expensive. As the pound is currently still near it’s 26 year high against the Dollar, it may be worth talking to your account manager and moving on your Dollar requirements sooner rather than later.