Exchange Rate Forecast

Exchange rate forecasts and foreign currency news

Catalonian vote due tomorrow

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Catalonia Vote Tomorrow

The people of Catalonia tomorrow will go to the polls to vote on their next Government leader. In October this year Carles Puigdemont declared Independence for the region however the Government of Spain declared the referendum as illegal and since that point Puigdemont has been in exile over in Belgium.

At the time of the independence announcement the Euro did lose ground against Sterling and depending on how the vote goes at the end of this week, there could be volatility. Puigdemont has been campaigning through video feeds and is still thought to be the favourite to win the vote, even though he may have to form a coalition with another pro-independence party. There will be exit polls tomorrow with could provide a early indication, however the race is close and there could be volatility tomorrow.

Euro Makes Gains This Afternoon

This afternoon Sterling has lost ground against the Euro with the rate falling to 1.125 at the lowest point today. This has mainly been down to Theresa May suggesting Brexit could be delayed due to exceptional circumstances, May also faced Jeremy Corbyn in the final Prime Ministers Questions for 2017.

The EU today also made several announcements on the Brexit negotiations, with the transition period from Brexit to the new arrangement not moving past 31st December 2020. This announcement was also coupled with the Bank of England unveiling plans to allow European Banks to operate in London under existing rules. The UK Government are rightly totally committed to trying to keep as many European businesses and banks in the UK. Over the course of the next few months negotiations are going to move onto the trade talks and should there be positive progress Sterling could start to make gains. The uncertainty over the next few days could certainly help the GBP/EUR rate move back into the 1.14’s with optimism for Euro buyers as Brexit talks continue.

US Dollar strength following strong unemployment data

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  • Initial jobless claims down again despite higher unemployment rate and lower non-farm payrolls
  • Is the US ready for an interest rate hike?
  • GBPUSD continue their downward trend – 1.33281

Mixed economic data but is the US economy in good health

janet yellen of the FEDThe US economy took a slight negative turn last week, Non-Farms were down on expectations and unemployment rates were slightly up. However initial jobless claims have been down for two consecutive weeks with the labour force pulling their weight. Unit labour costs were significantly up highlighting the potential for wage increases and positive inflation.

Whilst non-manufacturing PMI took a turn for the worse its impact on GDP is marginal in comparison to the manufacturing PMI, but this is not necessarily what Yellen is looking for when it comes to a FED interest rate raise.

Is the FED ready for an interest rate raise?

There are many that hold the view the FED will likely hold off on a rate hike this year, recent economic activity tells me otherwise. Yellen is very hot on employment rates, the Non farm payrolls last Friday whilst below expectations, still projected healthy levels of job growth. The Labour cost improvements hint at further signs of wage growth in the US, and as we are met now with three consecutive releases of lower jobless claims, I am of the opinion that the FED are inching towards an interest rate raise in December.

This of course, would be the first interest rate raise promised since the previous December – which was when Yellen originally promised 4 hikes in 2016.

With the above in mind, whilst the US elections are likely to cause market volatility a rate hike from the FED could have significant implications for your US Dollar buying requirements. There is still a possibility that the FED could raise rates in September, however;

-If the FED do not raise rates in September, there could be a window of opportunity between the US elections and the next interest rate decision in December.

-The outcome of the US presidential Elections could impact the FED’s decision, especially given the wildcard Trump who has limited experience in a political environment and could make markets nervous.

Bare the above in mind when making a timed currency transfer.

Oil prices continue to fall hurting the Canadian Dollar

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  • US inventory data suggests oversupply
  • OPEC in discussions with Russia over production freeze
  • Iran continue to pump oil into markets since the release of their sanctions
  • UK economic data continues to shrug off Brexit vote

Oil prices hit $43 a barrel

oil price hikeOil prices have fallen sharply since the beginning of the week, due in most part to the oversupply in US stockpiles. Conflicting comments from major oil suppliers have also fuelled a drop in oil prices. Saudi Arabia have refused previously to cap oil supply, which in turn will cause overproduction and impact the value of oil.

Iran have recently had sanctions lifted on their supply which could in turn cause a supply war amongst non-OPEC nations. If OPEC and non-OPEC nations are unable to build a solid deal on freezing supply, and US stock inventories maintain their current levels, oil could continue to fall further which could cripple the Canadian economy.

Canada relies heavily on its oil exports, being one of its most important resources the price of oil is linked to the strength of the Canadian economy, and thus CAD exchange rates.

GBPCAD set for further gains

Economic data from the UK has surprised many since the referendum. The latest construction and manufacturing PMI for the UK showed total rebounds from their previous levels. If this trend continues we could see GBPCAD back in the 1.80 range.

Whilst this is good news in the short term, the UK still remains a member of the EU until Article 50 is invoked. This will produce further volatility for Sterling as we enter 2017, which is when we expect Theresa May to act. Currently we do not know when Article 50 will be enacted which adds further uncertainty for GBPCAD exchange rates going forward. If you do need to buy Canadian Dollars, doing so before the end of the year could be a safe option.

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