GBP/Euro Monthly Update
Nov 5th 2008, 8:25 am
#1
BE Enthusiast
Thread Starter
Joined: Dec 2004
Posts: 524
GBP/Euro Monthly Update
As requested by a number of BE regulars here's a brief update on what's happening in the currency markets. Sorry it's so long, but any market watchers out there will know a lot has been happening!
Summary: GBP/EUR moved a step closer to joining the ranks of the more volatile currency pairs as it covered the entire previous 7 month’s trading range in just one week!.
Last months events again impacted the Dollar more than most currencies but GBP/EUR endured its fair share of volatility covering a range of more than 4 cents from below 1.25 to almost 1.29.
• The month had started badly for Sterling as the UK’s mortgage lending for August fell to just £143 million from £3 billion in July and £9 billion a year ago. The stamp duty saga was mainly responsible but huge falls in the manufacturing and service sector surveys confirmed that Q3 is heading for negative growth. The demise of Bradford & Bingley highlighted the UK’s link to the world financial crisis but the escalation of banking failures into the European arena last week more than balanced the books for GBP/EUR. Indeed the German and Belgian bank failures, along with a similar collapse in EU-wide manufacturing activity and a rise in unemployment, appeared to finally convince the ECB that there was actually something to worry about.
This reversed the previous hard-line stance on inflation and money markets immediately priced in a possible cut next month, sending the Euro tumbling against all major currencies, including Sterling.
• At the beginning of the month, the cascade of European institutions succumbing to the credit crunch saw the Euro fall against Sterling, taking GBP/EUR close to 1.30 for the first time since March this year. But as Sterling slid against the Dollar, EUR/USD fared relatively well, leaving GBP/EUR to give up all of those gains and more.
• The UK Government action to announce a £500 billion package, to crank start the LIBOR market and re-capitalise the UK banking sector, was well received by the markets, but initially failed to either restore confidence in the stock markets or help the jammed inter-bank lending. The UK then joined in the co-ordinated 0.50% rate cut, but still Sterling and UK stocks were buffeted by the storm in the global markets. London’s pre-eminence as a global financial centre counted against Sterling as Dollar based funds in the City were forced to liquidate non-Dollar assets, including those in Sterling, sending the Pound sharply lower. The heavy contribution that the City makes towards UK growth also helped to turn sentiment against the UK currency and finally the massive unwinding of carry trades, one of which is GBP/JPY, made a significant impact.
Despite an alarming jump in the UK unemployment rate to 5.7%, GBP continues to remain well supported against its Eurozone counterpart.
• GBP also got the wind behind its sails with the Brown/Darling plan to tackle the banking crisis gaining international recognition.
• Helped by this politics of proactivity to tackle the crisis, investors are looking to GBP with a little more confidence, after GBP was stunned 12 months ago after the Northern Rock debacle.
• After testing the recent high close, GBP/EUR appeared to be floating in relatively calm waters, compared to the unprecedented volatility seen in virtually every other currency pair in recent weeks.
• However, the speech by Bank of England Governor King started to brew a storm for the Pound when he admitted that recession was likely and that Sterling may have further to fall. Gordon Brown then confirmed what we all really knew about the likelihood of a prolonged downturn and this official pronouncement from these 2 key figures, sent GBP/EUR sharply lower to 1.25.
• Having attempted, quite rightly, to maintain morale on the economy in recent months, both of them no doubt compelled to face up to reality and begin the job of resuscitation in the face of overwhelming evidence in the past month and, not least the impending release of the key Q3 GDP figure (of which they would have had prior notice).
• The worse than expected outcome of a 0.5% decline laid down the first step towards the definition of an official recession and GBP/EUR slumped to a new all time low at 1.2205.
Going forward most industry analysts expect continued volatility. No surprises there!
Whilst FX isn't the most thrilling of subjects, the sooner you begin to think about your money transfers, the more likely are to make your money go as far as you do.
Best Regards
Mark Bodega
Director - HiFX
Summary: GBP/EUR moved a step closer to joining the ranks of the more volatile currency pairs as it covered the entire previous 7 month’s trading range in just one week!.
Last months events again impacted the Dollar more than most currencies but GBP/EUR endured its fair share of volatility covering a range of more than 4 cents from below 1.25 to almost 1.29.
• The month had started badly for Sterling as the UK’s mortgage lending for August fell to just £143 million from £3 billion in July and £9 billion a year ago. The stamp duty saga was mainly responsible but huge falls in the manufacturing and service sector surveys confirmed that Q3 is heading for negative growth. The demise of Bradford & Bingley highlighted the UK’s link to the world financial crisis but the escalation of banking failures into the European arena last week more than balanced the books for GBP/EUR. Indeed the German and Belgian bank failures, along with a similar collapse in EU-wide manufacturing activity and a rise in unemployment, appeared to finally convince the ECB that there was actually something to worry about.
This reversed the previous hard-line stance on inflation and money markets immediately priced in a possible cut next month, sending the Euro tumbling against all major currencies, including Sterling.
• At the beginning of the month, the cascade of European institutions succumbing to the credit crunch saw the Euro fall against Sterling, taking GBP/EUR close to 1.30 for the first time since March this year. But as Sterling slid against the Dollar, EUR/USD fared relatively well, leaving GBP/EUR to give up all of those gains and more.
• The UK Government action to announce a £500 billion package, to crank start the LIBOR market and re-capitalise the UK banking sector, was well received by the markets, but initially failed to either restore confidence in the stock markets or help the jammed inter-bank lending. The UK then joined in the co-ordinated 0.50% rate cut, but still Sterling and UK stocks were buffeted by the storm in the global markets. London’s pre-eminence as a global financial centre counted against Sterling as Dollar based funds in the City were forced to liquidate non-Dollar assets, including those in Sterling, sending the Pound sharply lower. The heavy contribution that the City makes towards UK growth also helped to turn sentiment against the UK currency and finally the massive unwinding of carry trades, one of which is GBP/JPY, made a significant impact.
Despite an alarming jump in the UK unemployment rate to 5.7%, GBP continues to remain well supported against its Eurozone counterpart.
• GBP also got the wind behind its sails with the Brown/Darling plan to tackle the banking crisis gaining international recognition.
• Helped by this politics of proactivity to tackle the crisis, investors are looking to GBP with a little more confidence, after GBP was stunned 12 months ago after the Northern Rock debacle.
• After testing the recent high close, GBP/EUR appeared to be floating in relatively calm waters, compared to the unprecedented volatility seen in virtually every other currency pair in recent weeks.
• However, the speech by Bank of England Governor King started to brew a storm for the Pound when he admitted that recession was likely and that Sterling may have further to fall. Gordon Brown then confirmed what we all really knew about the likelihood of a prolonged downturn and this official pronouncement from these 2 key figures, sent GBP/EUR sharply lower to 1.25.
• Having attempted, quite rightly, to maintain morale on the economy in recent months, both of them no doubt compelled to face up to reality and begin the job of resuscitation in the face of overwhelming evidence in the past month and, not least the impending release of the key Q3 GDP figure (of which they would have had prior notice).
• The worse than expected outcome of a 0.5% decline laid down the first step towards the definition of an official recession and GBP/EUR slumped to a new all time low at 1.2205.
Going forward most industry analysts expect continued volatility. No surprises there!
Whilst FX isn't the most thrilling of subjects, the sooner you begin to think about your money transfers, the more likely are to make your money go as far as you do.
Best Regards
Mark Bodega
Director - HiFX
Nov 5th 2008, 9:34 pm
#2
Forum Regular
Joined: Jan 2008
Location: central Portugal
Posts: 62
Re: GBP/Euro Monthly Update
Cheers Mark for doing this post. It has explained a lot. I have become unnaturally fascinated by the workings of the currency markets since I moved to Portugal, much to the annoyance of my missus. I look forward to my daily check of the currency converter. She insists I was becoming a nerd until last week when our savings increased considerably and she got a bit excited too. I might keep the 1.22 news to myself for a bit. Wished I had changed our money at 1.29. Keep up the good work, see what you can do to improve the rate and I'll try not to miss the boat.
