Pure FX Commentary

The pound enjoyed a great April, hitting multi-month highs against the euro, US dollar, Canadian dollar and Aussie. This is thanks to the UK dodging a triple-dip recession.

The euro looks set to fall in May as the European Central Bank has cut interest rates to a 0.5 per cent record low while the Eurozone recession is now forecast to extend into 2014.

The US dollar could strengthen as the US created 165,000 new jobs last month, 20,000 more than forecast, while unemployment fell -0.1 per cent to 6.5 per cent.

The Australian dollar is tipped to decline this month, as the mining boom officially turns kaput, while the RBA looks set to cut interest rates to an all-time low of 2.75 per cent.

Sterling Overview

The pound enjoyed a fantastic April, reaching two-month highs against the US, Australian and Canadian dollars, and a three-month high against the euro. Why? Because, against all odds, the UK avoided a triple-dip recession, instead expanding a surprise +0.3 per cent.

Moreover, from here the pound could continue to reach fresh heights. This is because:

With the triple-dip out of the way, the outlook for the UK is far brighter. This could continue to lift the pound.

With the UK economy in growth-mode, the Bank of England is unlikely to print more money. That will send sterling higher too.

The Eurozone is in worse shape than ever with its recession now set to extend into 2014. That will make the pound stronger, considered a safe haven?

Therefore, don’t be surprised to see the pound to continue to rise in May.

Euro Update

The pound hit its highest point against the common currency in three months in April and, moreover, could continue to climb. This is because:

The European Central Bank cut interest rates to 0.50 per cent this month. This makes the euro less profitable and so could weaken the currency.

The UK expanded +0.3 per cent in Q1 while the Eurozone recession is deepening. This could bring the euro down too.

Therefore, whist the euro remains relatively strong against the dollar this may not continue.

US Dollar

The pound enjoyed strong gains against the US dollar in April, hitting its highest point since early February. However, it’s unclear if sterling will continue to gain in May. This is because:

On the one hand, the Federal Reserve said this month that it may ‘increase’ its stimulus. This could weaken the greenback, because it involves printing more money.

On the other hand, the US created 165,000 jobs in April, 20,000 more than forecast, while unemployment fell to 7.5 per cent. This could strengthen the dollar.

Therefore, the pound may have reached its peak against the US dollar for the moment!

Australian Dollar

Sterling hit its highest point against the Australian dollar in two  months in April, gaining +3.44 per cent over the month. Moreover, it could continue to climb. Why? First, because the economic mood in Australia is quickly darkening, with some economists talking of a ‘protracted recession’ as the mining boom ends. Second, the Reserve Bank of Australia could soon cut interest rates to an all-time low of 2.75 per cent to support Australia’s economy.

New Zealand Dollar

Sterling stood still against the New Zealand dollar in April, gaining just +0.25 per cent across the month. However, odds are high the kiwi dollar will soon rise. Here’s why. The Reserve Bank of New Zealand is tipped to raise interest rates above 2.5 per cent next month to squelch an incipient housing boom. That will lift the kiwi dollar.
Second, New Zealand’s exports to China are booming, having risen 32.0 per cent in March compared to 12 months before. That too could lift the New Zealand buck.

Canadian Dollar

The pound hit a two-month high against the Canadian dollar in April, climbing +2.01 per cent across the month. Moreover, it could continue to climb in May. First, this is because the Bank of Canada is no longer set to raise interest rates above 1.0 per cent as had been forecast. This could bring the loonie dollar down. Second, Canada’s growth outlook for 2013 has been cut -0.3 per cent to just 1.5 per cent by the IMF. This too could weaken the Canadian dollar.

Brazilian Real

The real gained +1.01 per cent against the US dollar in April. Furthermore, it could continue to gain. Why? Well, first, because the US expanded less than forecast in Q1, at just 2.5 per cent. This has weakened the greenback. Second, Brazil’s central bank has begun what some see as a cycle of interest rate rises, increasing rates +0.25 per cent to 7.5 per cent in April. This could lift the real.

Turkish Lira

Turkey’s lira climbed +0.86 per cent against the US dollar across April and looks set to continue to climb. First, this is because the US expanded -0.5 per cent less than forecast between January and March, at just 2.5 per cent. That will weaken the buck. Second, Japan’s decision to print tens of billions of yen to beat deflation means money is pouring into Turkey. That should lift the lira.

Your Free Forecast

Get an exchange rate forecast from our friends at Pure FX. ‘To find out what we think will happen next to the exchange rate that is of most interest to you (UK sterling to euro to the US dollar to the Brazilian real), visit us at foreign exchange broker Pure FX, call us +44 (0) 1494 671800 or email back.  We’d be delighted to give you a free exchange rate forecast’.

Euro – But…

So, the euro is on top! However, the common currency looks unlikely to continue to climb this week. This is because official data this Thursday looks set to show that the UK avoided a triple-dip recession. This may lift the pound against the euro as well as the greenback as it signals the UK economy is picking up.

Also, the Eurozone recession is expected to have deepened, according to fresh data due this week. This may bring the euro down as concerns about the currency bloc’s economy mount up.

Plus, the European Central Bank may soon cut interest rates below 0.75 per cent to support Eurozone growth. This could weaken the euro too because lower interest rates make the currency less profitable. Therefore, look for the pound and US dollar to rebound against the euro soon.

Pure FX Monthly Report

The pound endured a bruising start to 2013, as investors bet on a triple-dip recession for the UK.

Like a phoenix from the ashes, the euro came back to life to make major gains across the board.

The US dollar lost out, as America’s slow but steady economic recovery continued to gain pace.

The Australian dollar’s luck continued to run out, as Australia looks rudderless without its mining boom.

UK Sterling

Have you ever seen a currency beaten so black and blue?

Sterling endured a bruising start to 2013 in January, losing more than 6 pence against the euro, and 5 against the US dollar. This takes the pound to a 14-month low against the common currency and its lowest point against the greenback since last August. Of course, while the pound might be bruised, this is like manna from heaven if you’re starting with euros or US dollars and plan to buy the pound. This is because it’s lifting your exchange rate, as though it were on stilts.

So, what’s to account for this veritable pound thumping? Well, it’s really two things. First, there’s the fact that the Eurozone is back. Back from the abyss that is, as the markets decide that, having survived 2012, the common currency is tougher than they thought. Second, the UK economy is still a car with a stalled engine. The UK contracted –0.3 per cent in the least three months of 2012, putting us on course for a triple-dip recession.

Whither next for the pound? Well, like I say, that depends on whether the UK enters recession. A triple dip would quickly see the pound fall further. Furthermore, though the Bank of England is holding fire on its stimulus now, the likelier a recession looks, the higher the odds it’ll start its printing press again. That’d bring the pound down too.

Euro

A phoenix from the ashes!

The euro enjoyed stunning gains across the entire board in January, as investor confidence in the Eurozone revives. Why the turnaround? Well, it’s really little more than a case of ‘New Year, new beginning’ as investors decide that, having come out of 2012 alright, the euro will surely manage whatever else is coming at it. For the moment meanwhile, the European Central Bank is holding interest rates at 0.75 per cent.

US dollar

USA! USA!

Good news out of the US economy drove the greenback 4 cents lower against the euro in January, even as the dollar climbed against sterling. Firstly, the US Department of Labor revealed that the United States created 335,000 more jobs than previously thought last year, pointing to an economy rapidly on the mend. In addition, the Fed kept up its stimulus, injecting $85bn into the economy. As a safe haven, all that good news meant the US dollar lost out.

Australian Dollar

The end of the Aussie economic miracle?

Sterling lost 3.0 per cent against the Australian dollar in January, chiefly thanks to the UK’s economic woes. This is in spite of the fact that almost all the indicators coming out from Down Under last month pointed downward. For instance, home loans fell –0.5 per cent in Australia in November while retail sales fell –0.1 per cent. This tells us that, with the mining boom set to peak in weeks, there’s not much else keeping the Aussie economy afloat. Looking ahead, that could see the Australian dollar start to resemble a lemming, and dive.

New Zealand Dollar

Perhaps a kiwi can fly?

The New Zealand dollar claimed a whopping 5.4 per cent from sterling in January as well as hitting a 14-month high against the greenback as New Zealand’s economy looks set to accelerate. Speaking recently, Nick Tuffley, chief economist at one of New Zealand’s biggest banks ASB, said that, “From quarter to quarter, we are going to see a lot more acceleration coming through.” If so, that puts New Zealand in a markedly faster lane than most industrialised nations, accounting for the flying kiwi.

Canadian Dollar

Oh, Canada!

The loonie enjoyed one of the measliest gains against the pound in January, at just 1.61 per cent, as America’s northern neighbour got off to the new year on the wrong foot. For one, Bank of Canada governor Mark Carney (soon to take the top job at the BoE) stopped hinting he’d raise interest rates above 1.0 per cent, as Canada’s economy no longer warrants the rise. Furthermore, a Reuters poll of economists predicts job creation in Canada is set to slow dramatically. All of which adds up to a lame-duck loonie!

Brazilian Real

Up the real, but down Brazil?

Brazil’s currency claimed +2.8 per cent from the greenback in January, in spite of the fact that economic growth in Brazil slowed to just 1.0 per cent. So why the climbing real? Well, it’s one part global optimism, as a bright outlook for the US leads investors to take risks elsewhere. It’s also one part capital flows, as Fed chairman Ben Bernanke floods the market with $85bn a month, meaning investors takes that cash elsewhere, to places like Brazil.

Turkish Lira

Turkey in the fast lane!

The lira enjoyed a gain of half a cent against the US dollar in January, as Turkey got off to 2013 in a bullish mood. For instance, finance minister Mehmet Simsek predicts that, following growth of just 3.0 per cent in 2012, that will increase to 4.0 per cent this year, making Turkey one of the world’s fastest-growing countries. Add to that the fact that, at 6.2 per cent, inflation is at a 35-year low, and there’s good reason to think the lira will keep climbing.

Chinese Yuan

The talk in 2013 is of the yuan’s growing global status.

When will the currency be fully floated? When will it challenge the US dollar as the world’s reserve currency? Already, there are signs that the ruling Chinese Communist Party is paving the way for this new role. In 2012, it greatly increased the amount of foreign trade allowed to be conducted in yuan. However, before it becomes a global currency, the CCP must make the yuan fully convertible. It won’t be popular until China eases its grip on the currency’s inflows and outflows.

To find out how all this will impact your foreign exchange transactions, feel free to visit foreign exchange specialists Pure FX, email enquiries@purefx.co.uk or call +44 (0) 1494 671800. They’d be delighted to give you an in-depth response to your query.

Currencies Update

Pound

Pound falls on retail sales, BoE pessimism

Poor old pound! Sterling endured fresh losses against the euro and US dollar this week, taking the pound to its lowest point against the greenback since last June. This is down to falling retail sales and the Bank of England’s (BoE) bleak assessment of the UK economic outlook.

To start with, retail sales fell –0.6 per cent in January according to the Office for National Statistics, far worse than forecasts for +0.5 per cent growth. Insofar as the UK economy is driven by domestic spending, this cuts the odds for strong growth in early 2013. The data therefore sent the pound lower.

Secondly, Bank of England governor Mervyn King painted a bleak picture of the UK’s economic outlook last week, when he spoke at the bank’s Quarterly Inflation Report. King told journalists that UK inflation would continue above the BoE’s 2.0 per cent target, reaching as high as 3.0 per cent in the summer from 2.7 per cent now. He also played down the prospects for economic growth, predicting that UK output would only return to its pre-financial crisis peak in 2015. This means the recovery will have taken seven full years. Insofar as neither forecast suggests a thriving UK economy, King’s testimony sent the pound lower last week too.

What’s set to happen to the pound next? Looking ahead, I think sterling will continue to lose out against both the euro and US dollar. In part, this is because Mervyn King’s testimony last week was a forward-looking indicator. This means it told us what’s going to happen to the UK economy in the future. And, if the Bank of England governor is right, that’s nothing too upbeat. Second, there’s little denying the feeling that luck is against sterling at the moment. For instance, if you type ‘UK pound’ into Google Finance, you’ll find a range of articles talking about how the pound is a currency to sell, it has strong downward momentum, and so on. As such sentiments can be self-perpetuating, the pound will continue to fall. It’d take either a sudden turnaround in the UK economy, or a relapse of the Eurozone debt crisis, to change that.

Euro

Euro on pause as Eurozone shrinks –0.6 per cent in Q4

Elsewhere, the euro was all-but unchanged against the US dollar this week, as the Eurozone’s recession deepened at the end of last year. The Eurozone shrank –0.6 per cent in the last three months of 2012, the deepest contraction since the recession started in Q2. In particular, it’s notable that Germany, the Eurozone’s powerhouse, shrank –0.6 per cent last quarter too. This suggests it’s no longer immune to the continent-wide slowdown.

What’s going to happen to the euro next? I think the euro’s next move will be higher against both the pound and US dollar. In short, this is because the common currency didn’t really lose out against the pound or greenback last week, in spite of the deepening recession. I mean, if the UK entered a triple-dip recession, you can be sure it would spark widespread sterling losses. Yet just as sentiment is against the pound this year, so it seems to be with the euro. And if a deepening recession isn’t enough to send the euro lower, well, it need only take a little bit of good news to send it higher.

US Dollar

Talk of ‘currency wars’ could cause US dollar strength

Last of all, I think there’s potential for the US dollar to gain in the short term against the pound if not the euro. This is because the failure of the G20 to stem talk of ‘currency wars’ over the weekend will add to global uncertainty. This favours the greenback.

Meeting in Moscow over the weekend, the leaders of the globe’s twenty largest economies were supposed to allay fears of worldwide ‘currency wars’. In case you don’t know, this is where individual countries fight to lower their exchange rate, and so gain a competitive advantage over each other.

In particular, Japan has been accused of currency aggression in recent weeks, as it promises to print unlimited quantities of yen. However, given the differences that divide the G20, it proved impossible to agree on anything more than generalities in Moscow. A promise among member countries that ‘we will not target our exchange rates for competitive purposes’ amounts to very little. Hence, talk of global currency wars is likely to continue. That then will favour the greenback, as the biggest winner in times of global uncertainty.

Find Out More

So, sentiment is against sterling and with the euro, while talk of currency war will lead to more volatile exchange rates. To find out how all this will impact your foreign exchange transactions, feel free to visit us at foreign exchange specialists Pure FX, email enquiries@purefx.co.uk or call +44 (0) 1494 671800. We’d be delighted to give you an in-depth response to your query.

Sterling-Euro Updates

Peter Lavelle at Pure FX writes, is sterling set to be the big loser in 2013? I’ve heard several comments to that effect this week as the pound continues its sharp decline, notably against the euro. This week, sterling fell to its lowest point against the euro since October 2011 as investors place their bets as to what’ll happen this year. The general consensus is that, with the US economy picking up, and the Eurozone debt crisis receding, the UK is one of the worst-placed economies. This reflects the fact that the UK contracted –0.3 per cent in Q4 of 2012, putting us on course for a triple dip recession.

What’s going to affect sterling next? This week, there’s a lot of potential for sterling to keep losing out. First of all, Markit’s releases its monthly PMI of the UK services sector. This tells us whether UK services expanded in January and is important because it accounts for 3/4 of UK output. Alas, a contraction of 49.8 is forecast (figures beneath 50.0 signal shrinkage), which would see sterling fall further. In addition, incoming governor of the Bank of England (BoE) Mark Carney will appear before Parliament’s Treasury Select Committee, to discuss his views of UK monetary policy. Now, in recent speeches, Carney has argued that central banks should orient themselves away from fighting inflation so fixedly and focus instead on generating growth. That suggests he’s likely to ramp up the Bank of England’s printing presses when he takes the helm in July and would be sterling negative.

Meantime, the euro once more enjoyed smashing gains against the pound and US dollar this week, hitting 13-month highs against the pair of them. Funnily enough though, you’d be hard-pressed to find what particular announcement caused these gains. It’s not as if the Eurozone is out of recession or that the currency bloc’s members have taken another step to integration. Instead, this climb reflects a widespread view that the worst of the debt crisis is behind us. No longer is there an existential threat of the euro breaking up. That’s seen confidence increasingly return to the Eurozone, with a corresponding surge in the value of the common currency.

After a straight month of gains, I suspect we might begin to see the euro on the back foot before long. For one, French finance minister Pierre Moscovici told television station France 2 this Sunday that “the euro is strong, perhaps too strong in some regards.” This has sparked speculation that the Eurozone might intervene to weaken its currency, to boost exports, just as the UK, US and Japan are doing. The euro could sink as details of a government-wide corruption scandal emerge from Spain. Last week, leading newspaper El País published ledgers which seemed to show Spanish president Mario Rajoy receiving kickbacks stretching back to 1998. If Rajoy resigns over this, it would threaten Spain’s deficit reduction plan.

Latest Currencies Review

Welcome to the Pure FX account of the latest changes in the foreign exchange rates. This is intended as a brief guide to movements in the exchange rates this week to help put you in the best position for when you exchange currencies.

UK Pound

Pound slides as UK contracts –0.3 per cent in Q4

Poor old sterling! The UK pound shed another two cents against the euro last week, taking it to its lowest point against the common currency since December 9th 2011, as the UK economy contracts in Q4.

The UK shrank –0.3 per cent between October and December last year, more than forecasts for –0.1 per cent, chiefly as North Sea oil production fell. Planned maintenance on ‘Buzzard’, the North Sea’s biggest oil field, overran by two months, knocking –0.2 per cent from GDP according to the Office for National Statistics (ONS). However, even without this, the UK would still have shrunk –0.1 per cent in Q4.

What’s going to happen next?

This now raises the possibility that the UK will re-enter recession, if the economy also shrinks between January and March this year (a recession is officially defined as two consecutive quarters of contraction).

Euro

Euro rises as banks repay LTRO loans early

Elsewhere, the euro jumped against not just sterling but the US dollar this week as the Eurozone’s banks pay back an unexpectedly large chunk of their loans.

This month, 278 Eurozone banks will pay back €137.2bn lent to them by the European Central Bank in December 2011, as part of the ECB’s Long Term Refinancing Operation (LTRO). This beats out forecasts that the banks will repay just €84.0bn in January, and so signals the Eurozone’s financial system is in far better shape than expected.

What’s going to happen next?

Though this news is upbeat, it’s strictly related to the financial system, and so has little bearing on the real economy. In this respect, the Eurozone is still in deep recession, which will limit the euro’s gains going ahead.

US Dollar

Greenback shaped by events elsewhere but green shoots lift US

Last but not least, the greenback gained against the pound but lost against the euro last week as we’d expect from events in the UK and Eurozone. This means the markets all but ignored the brightening economic outlook in the US.

For instance, last month the number of new construction projects hit a 54-month high in the US, of 954 thousand year on year. This means there are 37.0 per cent more construction projects underway now than in December 2011. Meanwhile, Markit’s US manufacturing PMI hit 56.1 in December. This is miles above the 50.0 point that signals growth and so signals a sector enjoying rapid expansion.

What’s going to happen next?

Looking ahead, this good news could cause US dollar weakness, as it contributes to an upbeat global mood and hence risk appetite. (As the global reserve currency, the greenback benefits most when the mood is downbeat, and investors want a safe haven).

Coming Up

Here’s our calendar of the big economic releases that could affect the exchange rates this week.

Wed 30th 13.30 – US GDP (Q4)

Wed 30th 19.15 – US Federal Reserve interest rate decision

Fri 1st 08.58 – Eurozone manufacturing PMI (Jan)

Fri 1st 09.28 – UK manufacturing PMI (Jan)

Fri 1st 10.00 – Eurozone unemployment rate (Dec)

Fri 1st 13.30 – US non-farm payrolls (Jan)

Fri 1st 13.58 – US manufacturing PMI (Jan)

Find out more

With the UK economy flat-lining, and confidence in the Eurozone rising, the pound could yet fall further. To find out how this will impact your foreign exchange transactions, feel free to visit us at foreign exchange specialists Pure FX, email enquiries@purefx.co.uk or call +44 (0) 1494 671800. We’d be delighted to give you an in-depth response to your query.

Currencies – Free Advice!

If you are buying overseas, you’ll need to keep an eye on exchange rates. Peter at Pure FX can provide free advice. He writes, this week, the euro had a decent week last week, gaining half a cent against the pound and US dollar, as Eurozone finance ministers agree a deal to cut Greece’s debt to 124.0 per cent by 2020. This includes dispersing some €30.0bn to Greece while the Hellenic country will be issued fresh loans to ‘buy back’ its existing debt, so it can then pay a lower interest rate. Convoluted as this is, it helped the euro because it shows us Europe’s commitment to Greece’s euro membership.

However, the euro’s gains were nonetheless limited as economic data points to a protracted slowdown on the continent. The latest survey from the Eurozone’s factories revealed the sixteenth consecutive monthly slowdown, with little sign of a pick-up before 2013. Unemployment meanwhile hit 11.7 per cent last month, particularly as the jobless in Spain and Italy pile up. Hence, though the Eurozone may not be about to fall apart, its economic prospects don’t look bright. Email back for a free chat with Peter about spot rates, forward contracts etc.

Keystone Caps

Keystone Buy to Let Mortgages will now offer loans up to £500,000 to existing landlords. Apparently, brokers working with Keystone say that they are ‘increasingly looking to complete mortgages on multi-unit apartment blocks and high value multiple occupied properties.’ The previous Keystone cap on its loans per property transaction to existing landlords was £350,000.

David Whittaker of Keystone Buy to Let Mortgages says, ‘One of the reasons for launching Keystone earlier this year was to meet the needs of professional landlords who have been underserved by the mainstream buy to let lenders in recent years. Upping the maximum loan amount clearly demonstrates that we are able to respond quickly to investors’ ongoing requirements in order that they can expand their portfolios at a time when housing is in desperately short supply.’ As ever, talk to your broker.

All for now other than to remind seminar attendees to please print off the seminar plan and bring it with you on the day. If you think you should have received a welcome email and a seminar plan but have not, please email back asap.

BTL Mortgage Update

Working from a press release, we note that ‘Leeds has extended its 5.99 per cent, 2-year fixed rate, 80 per cent LTV buy-to-let deal until 31 January 2015. There is no higher lending charge and 10 per cent capital repayments are allowed each year without penalty.’

We are, following our successful weekend seminar, now able to offer one-on-one BTL mortgage advice via our IFA friends at The Buy To Let Mortgage People Limited. Drop us a line and we will put you in touch.

On the subject of the seminar, we have been inundated with replies for the various freebies. We hope to get through all of these, on a one—to-one basis over the next 24 hours. Please bear with us.

Start Up Loans

The Department For Business has just announced the first wave of start-up loans for young people. The scheme is available to people aged between 18 and 24 wanting to launch their own business. It provides loans of up to £2,500 as well as business mentoring and support, It is hoped the scheme will help launch 30,000 new businesses.