Category: exchange rates

Sterling heads southeast from $1.82

SECOND QUARTER GDP HOBBLES STERLING

Investors are still nervous about sterling after Britain’s economy shrank by more than expected in the second quarter of the year. Canadian interest rates remain steady for another month.

Sterling continued last week’s downward trek at roughly the same pace. With minor variations it headed southeast from $1.82 on Monday to $1.7750 on Friday. A bounce this morning took it to $1.7850 in time for London’s opening.

The FX market was not alone in feeling the stultifying effects of the summer slowdown. Price movements were either dampened by lack of interest or intensified by lack of liquidity. Sterling did not have a particularly easy run. The week began with news that Treasury revenues fell by more than £30 billion in the last tax year. Expenditure had clearly gone up so investors were left to fret about what the government was going to do about the mismatch.

Wednesday’s Monetary Policy Committee’s minutes failed to provide sterling bears with any ammunition. There was no hint that the Bank of England would extend its Asset Purchase scheme – “printing money” as some would have it – beyond the £150 billion already earmarked. Even the last £25 billion of that is not yet committed to the programme.

That revelation was good for sterling, as was the following day’s retail sales figure for June. Sales were up by 1.2% on the month and 3% higher than a year earlier. It was a different story on Friday, however. Every three months the Office of National Statistics correlates all the available information to see how the British economy as a whole has performed. For the first three months of the year investors already knew that Gross Domestic Product shrank by -2.4%. They were expecting the first estimate of second quarter GDP (it will be revised a couple of times before the final figure) to show a much smaller -0.3% contraction. What they got was a -0.8% shrinkage, more than twice the forecast decline. Not surprisingly, sterling took a hit.

Canada was more forthcoming than some others with its supply of data last week but the Loonie’s main driver was the market’s growing appetite for “risk”. The Canadian, New Zealand and Australian dollars all outperformed the pound as investors broadened their net. On the data front Canadian retail sales did better than wholesale sales, rising by 1.2% in the year to may while wholesale sales drifted -0.3% lower. The Bank of Canada did exactly as expected at its monthly meeting, leaving the policy interest rate steady at o,25%.

Still in its recent range of $1.75-$1.85 the pound is going nowhere fast. Having failed to push past $1.92, the pound clearly has no secret reserves of power. The $1.75 support level could well be the next port of call. With sterling well off its highs buyers of the Canadian dollar should protect themselves with a 50% hedge.

Post courtesy of TTT Moneycorp

Sterling slips against the loonie

STERLING DRIVEN BY RISING INVESTOR CONFIDENCE

UK data were of little consequence to sterling. An IMF review of the British economy was less than complimentary. Canadian business optimism jumps sharply.

On most fronts (US Dollar, Japanese yen, euro) the pound did well but it lost ground to the “risky” commodity dollars – including the Loonie – and emerging market currencies. It never traded only above last Monday’s $1.8750 starting point and spent the rest of the week going downhill. It ended Friday at $1.82 and was still down there when London opened this morning.

Sterling’s survival had little to do with the UK economy and everything to do with outside influences. Underlying the whole FX market was a positive attitude to risk driven by renewed optimism among investors. There was, at least at the beginning of last week, no particular reason for their newly upbeat view but nobody was bothered by that minor detail. Equities were bid, as were the commodity dollars. Sterling was able to bob along in their wake without too much interference.

Economic data from the British economy were relatively scarce and such as did appear had only a modest effect on the currency. Inflation figures on Tuesday were exactly in line with expectations. A curious feature was the almost diametrically opposite outcomes for the harmonised European-style Consumer Price Index and the old Retail Price Index. CPI went up by +1.8% in the year to June and RPI was down by -1.7%. After Wednesday’s employment numbers, which showed a smaller than expected rise in jobless claims, there were no further official statistics.

Trouble appeared on Thursday with a review of Britain’s economy by the International Monetary Fund. The report highlighted the “significant uncertainties [which] remain about the adverse impact of the recession on banks’ asset quality” and again raised the possibility of a double-dip recession. Ajai Chopra, the IMF’s chief of mission to the UK, told journalists that “the UK has been getting the benefit of the doubt, both in the Government bond market and also the foreign exchange market.” “This benefit of the doubt is not going to last forever and it’s going to be important that the Government does not test the limit of the market’s confidence.” Investors took him at his word and stopped giving it the benefit of the doubt.

Just as investors’ sentiment overrode hard economic data for the pound, so it did for the Canadian dollar, as it did for its Australian and New Zealand counterparts. Increased investor confidence means an increased appetite for currencies that might benefit from a resurgence in global trade. In almost every case the appetite for “risky” currencies and the antipathy towards “safe-haven” US dollars and yen overrode any influence from the domestic economic data. One of the few exceptions came on Monday when the Loonie jumped nearly a cent against the US dollar after the Bank of Canada’s business outlook survey showed firms to be much more optimistic. The sales outlook index jumped a massive sixty points in the second quarter from -22 to +38, a ten year high.

The week ahead brings several potential challenges for sterling. Public sector borrowing, the minutes of July’s Monetary Policy Committee meeting, June retail sales and the first estimate of second quarter GDP could all provide rods for sterling’s back. Even if the first three prove harmless it will not be until Friday that the GDP figure either kills or cures.

Back into its recent range of $1.75-$1.85 the pound is going nowhere fast. Having failed to push past $1.92, the pound clearly has no secret reserves of power. Now that sterling is off its highs buyers of the Canadian dollar should protect themselves with a 50% hedge.

Post courtesy of TTT Moneycorp

Pound up, but not going anywhere

STERLING BOUNCED AROUND BY DATA

UK industrial production disappoints investors. IMF upgrades economic forecast for Britain but not by much. Canadian employment report better than expected.

With the Canadian dollar unchanged against the US dollar over the week sterling’s performance was underwhelming. It lost half a cent, touching a $1.8650 low and a $1.90 high along the way. When London opened this morning it was trading at $1.8750.

Sterling was looking reasonably comfortable until Tuesday morning when the industrial and manufacturing production data for May were announced. It was a similar story to what happened with the first quarter GDP numbers a week earlier. Investors became too optimistic about what the figures would show. For the second time running an important economic measure – industrial production this time – was a disappointment. The market had been looking for a second small improvement, something like 0.2%. What it got was a -0.6% fall.

The Halifax provided another reminder of recession with a -0.5% fall for its house price index in June. Even though the annual decline slowed from -16.3% to -15.0% it was not helpful to sterling.

Not that the week was entirely without good news. For long enough the IMF took a gloomy line on the UK economy. Its previous estimate, in April, was of a -0.4% GDP contraction next year. On Wednesday it revised its forecast to +0.2%. The upgrade is hardly reason for rejoicing but it does represent a positive shift from downbeat to feeble. Britain’s trade deficit was another positive surprise when it narrowed in May to its smallest in three years. More help came from the Bank of England after Thursday’s Monetary Policy Meeting. The bank announced it would not extend the Asset Purchase Facility which, to date, has spent £100 million on buying bonds. It might be a different story after next month’s meeting but, for the time being, investors are pleased to see a pause in the potentially inflationary programme.

Of all the Purchasing Managers’ Indices recently the Canadian Ivey PMI has been one of the strongest. That trend came into sharp focus on Tuesday when it leapt nearly ten points to 58.2, well into the growth zone that begins at 50. Supporting the strong PMI number was the residential property sector. Housing starts were up by 8% in June, building on the 14.8% May rise in building permits (planning permissions granted).

Friday’s employment report was similarly helpful. Instead of the 40,000 net job losses that analysts had been predicting there were only 7,400. That meant the overall unemployment rate was also better than expected at 8.6%. The only bad news came from a record $1.4 billion trade deficit and a 30.3% rise in the number of bankruptcies registered in May.

Although still above its recent range of $1.75-$1.85 the pound is going nowhere fast. Having failed to push past $1.92, the pound clearly has no secret reserves of power. Now that sterling is off its highs buyers of the Canadian dollar should protect themselves with a 50% hedge.

Post courtesy of TTT Moneycorp

Pound riding high against loonie

STERLING SCUPPERED BY FIRST QUARTER GDP

Downward revision to Q1 growth scares investors. Loonie struggles alongside other commodity currencies.

A good start to the week took sterling from $1.9050 almost to $1.93. The reversal came quickly and by Thursday the pound was down to $1.8750. A rally to $1.91 was followed by a fresh decline. When London opened this morning sterling was trading at $1.88.

The clear and obvious culprit for sterling’s decline last week was the final revision to first quarter Gross Domestic Product on Tuesday. After the modest upward revision to the US figure a week earlier investors had got it into their heads that the UK figure would receive the same positive treatment. The more optimistic among them had bought sterling in anticipation of a figure better than the -1.9% quarterly change that had been estimated previously. The realists were primed for disaster and began to sell sterling even before the announcement. When everyone saw that -1.9% had changed into -2.4% they threw up their hands in horror (even though these numbers relate to stuff that finished happening three months ago). Sterling came under immediate pressure.

The Purchasing Managers’ Index for Britain’s manufacturing sector on Wednesday was better than expected at 47. Friday’s services PMI was in the growth zone at 51.6. Compared to the US and Euro zone opposition they were good figures. Yet neither was enough to reverse the negative sentiment that had set in after the GDP numbers.

Where the pound could blame the first quarter GDP downgrade for its lack of performance the Canadian dollar had no single point of failure. Its initial decline and subsequent turnaround against the US dollar on Wednesday had no obvious connection with any bad news from Canada (or good news from elsewhere). As much as anything the Loonie’s performance was down investors’ changing appetite for safety or risk and their worsening perception of the global economy. April’s figure for Canadian GDP was exactly in line with forecasts. The industrial product price data were softer than expected but not by so much as to change expectations for Canadian interest rates. It was all down to mood, and the mood last week did not favour the commodity dollars.

Although still above its recent range of $1.75-$1.85 the pound is going nowhere fast. Having failed to push past $1.92, the pound clearly has no secret reserves of power. Buyers of the Canadian dollar should take advantage of an eight month high to build their position. Sterling could well be higher in the future but when?

Post courtesy of TTT Moneycorp

Sterling to Loonie at highest rate since Dec 2008

Canadian money
Canadian money

Our friends at TTT Moneycorp help us keep an eye on the exchange rates between Canada and the UK. The rates have not been so good for people wanting to bring over their hard earned money from the UK and invest in their new lives in Canada. And let’s face it even small changes in the exchange rates can make a big difference when you bring over the proceeds of your house sale.

So it is good news when the rates start looking good – or at least better than they have been. If you have been holding off on moving your money over then now might be the time to talk with Moneycorp or HiFX.

Related Posts Plugin for WordPress, Blogger...