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Monthly Currency Update - GBP/EUR August 09

Monthly Currency Update - GBP/EUR August 09

Old Aug 4th 2009, 8:29 pm
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Default Monthly Currency Update - GBP/EUR August 09

Hi All,

Here is an overview of what’s been happening in the Currency Markets throughout July with the Euro.

Just when the green shots were at their greenest with consumer confidence and house prices running high and Sterling reflecting the momentum of this recovery, the final reading of Q1 GDP (Gross Domestic Product) brought everything crashing back to earth. Despite this data being considered historic (we are a clear quarter further on now), the fact that growth dropped by 2.4% (almost 10% if annualised), the deepest in 50 years, was a reminder of how severe this recession has been thus far and therefore how fragile this recovery seems in comparison.

The Eurozone however hardly remains unscathed from the credit crisis with the unemployment rate surging to 9.5% and the credit rating of Ireland being downgraded from sovereign AAA to AA1 accompanied by a negative downgrade

Further green shoots emerged in the housing market as the RICS housing survey unveiled a jump in its reading from -43.8 to -18.1 in June, which is the highest level since September 2007. However the unemployment data reminded the market of the effects of the recession with another 281k jobs lost in the last quarter, taking the unemployment arte up to 7.6%, its highest reading since January 1997.

Equity markets remained rampant as risk appetite continued for the second week, with 75% of the US companies who have reported thus far unveiling results that have exceeded market expectations. The FTSE has now climbed for 10 consecutive days, a feat only twice accomplished within its 25 year history. This ‘Armageddon bounce’ that took us out of the deepest darkest days in February/March is reflecting positively on Sterling as it continues to hold on to its gains for this year.

Green shoots from the housing market and the High Street quickly withered in the shade of the Q2 GDP data, that recorded a far steeper drop in growth (-0.8%) than was expected and took the year on year drop to 5.7%.

One of the many new mortgage approval releases had set the scene with a healthy 9% rise on the month but it was the Nationwide’s house price survey’s 4th rise in 5 months that really caught the eye, firmly consigning the ‘perhaps it’s a blip’ thought to the bin. The annual decline has now improved to just -6.2%, leaving most/all of the forecasts for 20-50% declines over the coming months in the same receptacle. Of course the stats can be misleading and the low levels of activity in the housing market have been cited as one potential caveat, as has the chronic lack of supply, but like the FX markets, at the end of the day its all about sentiment. Such is the importance of the housing market to the psyche of the consumer that this turnaround in fortunes could be extrapolated to unrealistic expectations for the economy, just as the demise of the housing market fostered so many gloomy forecasts just a few months ago. To take the middle ground, let’s just say that a housing recovery should at least ease consumer’s fears. The release of the monthly lending figures were another opportunity to justify your economic viewpoint. Lending to companies and consumers fell again, prompting concerns about the supply of credit and calls for the Bank of England’s quantitative easing to be extended. What the stats don’t tell you is how many companies/consumers are happy to be paying down debt and this may have a positive impact on the spending patterns eventually, albeit at a slower pace than the credit fuelled days of yesteryear.

In the EU, the IMF joined the currency debate by stating that economic fundamentals suggest the Euro is up to 15% over valued. The Euro fell initially on this report but towards the end of last week an EU economic sentiment index had touched an 8 month high and EU unemployment failed to soar to 9.7% as expected, settling for a smaller rise from 9.3% to 9.4%.

Current Central Bank Rates:

Europe (E.C.B): 1.00% (Next Meeting 11th August)
UK (Bank of England): 0.50% (Next Meeting 6th August)

Highs & Lows of July:

High: 1.1760
Low: 1.1495
Movement of 2.31%

Difference this would make on £200k

High: €235,200
Low: €229,900

A difference of €5,300

Whilst FX isn't the most thrilling of subjects, the sooner you begin to think about your money transfers, the more likely you are to make your money go further.

Regards
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