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Is rising inflation in the UK a good thing?

October 17, 2016 by Rob Lloyd

Brexit inflationFollowing last week’s social media storm regarding Unilever’s row with Tesco, we ask whether rising prices in the UK is a positive thing?

The fall in the Pound’s value which has been fueled by growing Brexit concerns will likely have an impact on consumer prices. And given Tuesday’s Consumer Price release for September it could be early signs that prices in the UK are going up, and its likely the consumer will foot the bill.

So what is driving the prices up in the UK and what impact could it have on the economy?

A cheaper Pound makes buying goods and services overseas more expensive. Prior to the UK’s referendum £1 would have acquired €1.30 whereas now, €1.30 would cost you £1.17, a clear 17p difference on every Pound. This may not seem like a lot at face value but in theory, €130 worth of goods would cost you an extra £17, or a €130,000 property purchase an extra £17,000!

But these extra costs for supermarkets are unlikely to be absorbed by company profits, it will be the consumer that will pay the difference on their favorite household items. It will be the poorest families in Britain that will feel the pinch the most.

But what about rising wage growth?

Of course none of this is a concern if wage growth continues to grow in line with inflation. But the reality of Brexit and the complexities that come with it for business are not ideal. The uncertainty that Brexit causes will likely have an impact on job and wage growth unless Theresa May can negotiate a good deal for the UK.

This may also have a significant impact on unemployment rates, as jobs are slacked unemployment rates in the UK could heighten which could fuel weaker consumer spending. A cycle which could lead the UK into a recession.

And as a net importer, the UK engine is far better maintained with a Stronger Pound but as BoE’s Mark Carney has stated, the UK economy is being cushioned by a cheaper Pound from foreign investment.

Data this week that could impact your currency requirements

Tuesday’s Consumer Price release could show strong numbers as a result of a cheaper Pound, but this is not necessary signs of a stronger economy. Thursday’s retail sales are far more important at this stage and will be watched for signs of contraction for consumer spending.

GBP EUR exchange rates could benefit from strong inflationary figures on Tuesday, but longer term gains for Sterling are unlikely. Euro buyers should make the most of spikes in the market.

Filed Under: British Sterling Tagged With: Brexit, growth forecasts, Inflation, Theresa May

What next for GBPEUR exchange rates?

August 8, 2016 by Rob Lloyd

As the Pound continues to tumble and investors come to grips with Brexit – which hasn’t even happened yet, we ask what next for Pound Sterling this week?

Pound Sterling sensitive to economic releases

pound sterling weakness aheadIt’s worth noting that Pound Sterling will be more sensitive to economic releases going forward, as much of the blame seems to be pointed at Brexit, any signs of economic slowdown will be linked to the vote which gives investors more reason to be anxious about where they place their money. Whether this be in the form of consumer or business surveys, or growth forecasts from third party institutes, Sterling has very little room for improvement whilst the economy is being hammered with recession warnings.

Whereas before, data that would normally provide little volatility for the currency is now considered a huge indicator of economic health, and this week’s releases have the potential to weaken Sterling to range boundaries of 1.14-15.

If you need to buy Euros, today might be a good idea

Given the last round of PMI releases lead to the Bank of England cutting rates, I would not be surprised to see the manufacturing and industrial outputs on Tuesday to cause quite a stir, if the data is positive, it would likely be put down to pre-Brexit luck given that the data is for June. If its negative, the upcoming vote to leave the EU will be where the fingers point.

If I was buying Euros anytime soon, today could be your last opportunity to see rates as they are, I am expecting further weakness especially after the NIESR growth forecasts later on Tuesday. The release will look at the last 3 months up to the end of July, and will make predictions around growth based on analysis. The data is considered accurate, current forecasts of 0.6% were last predicted for June and I am expecting the NIESR to downgrade such predictions, based on the latest round of negative data.

If you have a large sum of Pounds to exchange, I would be considering doing it by the end of play today.

Filed Under: British Sterling Tagged With: Brexit, GBPEUR, growth forecasts, Pound Sterling weakness

Is the US heading for a Recession?

July 8, 2016 by Rob Lloyd

  • Non-Farm payroll figures today key indicator
  • Brexit shook the global markets
  • FED hikes off the table
  • US Dollar well overvalued

us dollar uncertaintyWith all the attention on the UK’s vote to leave the EU, it would appear that investors have forgotten about the warning signs for the US economy. May’s Non-Farm payroll figures saw sharp drops to its lowest levels since 2010 which raises alarms for employment. Today’s release is expected to outperform May’s figures but not to levels seen in the early months of 2016.

Non-farm payroll is a key barometer of US growth and in the event today’s release follows similar trends to May, it could be a signal for slower growth. Given that the markets are still reacting to Brexit are today’s figures likely to outperform?

Keep an eye on today’s release, another month of low numbers could see shifts in the US Dollar.

With this in mind, if we cast our minds back to Janet Yellen’s meeting with congress, she discussed the reasons for slower economic growth and changed her interest rate forecasts for 2017 and 2018.

And with 4 initial rate hikes promised this year, this number is looking now likely to be 1.

So what has driven this level of uncertainty since the FED announced 4 rate hikes? Janet Yellen points to global economic slowdown, mixed data releases and now Brexit as some of the reasons for keeping rates on hold.

The markets continue to pile into the US Dollar post-Brexit and this is where concerns begin to surface. With a number of signs pointing to economic slowdown in the US, I fear that the US Dollar is overvalued and any signs now of negative growth could see the Dollar tumbling. Today’s non-farm payroll figures could be the first major indicator and investors will be watching it with scrutiny.

Filed Under: US Dollar Tagged With: growth forecasts, Inflation, Janet Yellen, US interest rate

CAD strength, oil prices and the upcoming Monetary Report

April 13, 2016 by Rob Lloyd

CAD strengthCAD has been rallying against several currencies in recent months, noticeably the USD which currently trades at 0.781. On the surface this would illustrate a stronger economy but it does in fact come with risks for a currency reliant on oil.

Since January of this year, the Loonie has strengthened 10 cents against the USD, triggered by higher oil prices and uncertain interest rate hikes, which the Fed has been promising since the end of last year.

Oil prices have been on an uphill trend since the beginning of April and have peaked at $41.61 which now raises questions as to how the BoC will tactically play the Monetary Report and Rate Decision this afternoon.

The BoC Interest Rate decision

Given the strength of the Loonie in recent weeks coupled with oil price peaks, expectations are that the BoC will downplay the economic situation as well as keep existing interest rates intact to reverse CAD strength. In any event, a weakening of CAD will keep oil exports thriving which is ideal for an economy heavily dependent on its oil exports.

Filed Under: Canadian Dollar Tagged With: CADUSD, growth forecasts, interest rates, Oil prices

U.S Dollar – Key Data Due For Release Later Today

April 1, 2016 by Rob Lloyd

Investors losing patience over interest rate promise

US dollar strengthThe US Dollar is heading for its worst quarterly performance since 2010 amid fears of dampened promises over Interest rate hikes, ahead of Today’s key events.

On Tuesday, Federal Reserve Chairwoman Janet Yellen raised concerns over slower growth in the economy and justified a slower interest rate change to encourage spending. The impact of her dovish comments created doubts over the future of the US economy.

Positive week for the Euro

Positive data from the German and Eurozone CPI have been the driving factors behind the strengthening of EUR this week. This is good news for the Euro currency and has eased previous concerns regarding deflation levels.

Ahead of today’s US unemployment and non-farm payroll data, the USD has strengthened almost 2 cents against the Euro as forecasters expect positive outcomes. However, these remain incredibly volatile events for the US and worse than expected figures will dim hopes further of an interest rate hike, potentially strengthening the Euro against the Dollar.

USD continues to strengthen against GBP this morning

GBP has been gradually decreasing since yesterday against the Dollar off the back of poor manufacturing data released earlier this week.
We can expect this weakness to continue throughout the course of the day as Sterling is already under pressure, and should data from the US meet expectations at the very least, I think we can expect the trend to continue and as we speak. GBPUSD is trading back towards the lower end of its recent trading channel of 1.40 – 1.44, currently trading in the 1.41’s.

Filed Under: US Dollar Tagged With: Federal Reserve Bank of America, GBPUSD, growth forecasts, Pound Sterling weakness, USDGBP

Weekly forecast: Sterling to continue fall against the Euro?

February 8, 2016 by Joe Wright

Sterling one of the worst performing currencies so far in 2016

Sterling bulls have been dealt a number of blows in recent weeks with the currency making financial headlines for all the wrong reasons. GBPEUR levels are currently trading around their worst levels in almost a year and the Pound wasn’t helped last week as the Bank of England’s dovish inflation report continued to put pressure on the currency.

pile-pound-coinsLast Thursday (known as ‘Super Thursday’ due to the large volume of economic data released) saw the Bank of England (BoE) release a report cutting growth forecasts from 2.5% down to 2.2% for 2016, whilst also cutting growth forecasts for 2017 down to 2.3% down from a previous figure of 2.6%.

Will the negative trend continue for Sterling?

I expect the dovish comments from the BoE last week coupled with the increasing uncertainty surrounding the potential for a ‘Brexit’ to continue to weigh on Sterling’s value. Additionally economic data coming out of the UK this week could apply further pressure to the value of the Pound, with the release of Industrial Production and Manufacturing data (which hit 6 year lows last month) being released on Wednesday, as well as the NIESR (National Institute of Economic and Social Research) GDP estimate for the past 3 months which could signal a further slowdown in line with global markets once again negatively impacting the value of the Pound.

euro-coin-cents-pileOver the upcoming week I cannot personally see the Euro’s strong run versus the Pound running out of stream unless we’re presented with substantially weak data coming out of Europe with Friday being the key day as German, Italian and Eurozone Gross Domestic Product figures are due out.

Should you be looking to avoid volatility it may be a good idea to complete any currency conversions you have earlier in the week as opposed to later due to the above GDP figure releases having the potential to move markets quite sharply.

Filed Under: British Sterling Tagged With: Bank of England (BoE), Brexit, GBPEUR, growth forecasts

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