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05 Oct 2015

This Week can the EUR/GBP break 74 Pence?

Weak growth in payrolls (+142k), as well as a downward revision to August’s already disappointing result raised fresh doubts about the likelihood of the Fed hiking rates this year. Indeed, markets are now not expecting a 25bps hike in the US until mid-2016. This saw the dollar lose ground.

Likewise, a less optimistic view of the outlook for rate hikes in the UK (first +25bps now expected towards end 2016) weighed on sterling. Shifting monetary policy expectations were to the benefit of the euro last week.

The EUR/USD pair regained a solid footing above $1.12, while EUR/GBP traded back up around 74p. Meanwhile, cable (GBP/USD) was broadly unchanged on the week, trading around the lower half of the $1.52-1.53 range.

In the week ahead, the focus will stay on monetary policy, with the BoE meeting and the Fed minutes due. Although, discussion on the health of the labour market and its relation to Fed policy will still bear watching. Meantime, with BoE speakers coming across as somewhat ‘stoic’ recently with regard to the potential risks facing the UK economy, the meeting minutes will be looked at to see if the MPC has adopted a more cautious stance. Either way, they are likely to confirm that the BoE remains in no hurry to hike rates in the UK.

Overall, a key thing to look out for this week will be if EUR/GBP can make a sustained break above 74p, a 6-month high.

Portugal vote in past government

Pedro Coelho and Paulo Portas have regained power in the latest general election with 39% of votes from early calculations. Interestingly, people are opting to vote for small leftist parties which is reducing the main opposition parties stance to win power in government. Read more

Euro-area – More stimulus could be required

The Purchasing Managers index (PMI) for manufacturing and services fell to 53.6 for September from 54.3 in August. A reading above 50 indicates expansion. Chris Williamson who works for Markit pointed out that job creation which fell to an ‘eight month low’ will be disappointing for the ECB.

Spain, Germany, Italy and France in September all registered strong performance in regards PMI which points to expansion within their economies. Read more

UK services sector accounts for 79% of Economy

In July the Services sector grew by 0.2% which may hinder growth for the third quarter. While services may be slowing, consumer confidence remains high and consumers have not spent the savings they are receiving from low energy prices.

Additionally the UK current account deficit in the first quarter of 2015 is just 3.2% of GDP. This is down from 5.4%. The ONS has revised growth figures for 2011 – 2013 which means that the UK economy is now 5.9% above pre-recession peaks. Read more

Deloitte interviews CFO in UK

UK CFO’s expect to make less new hires in the coming year as economic worries from Asia, Interest rate hikes and global economic outlook are hurting their plans. 73% of respondents believed that economic uncertainty was high. Interestingly CFO’s pointed to Global worries more so than the upcoming UK poll on EU membership. This is possibly due to the fact that for the majority of CFO’s, business in the UK accounts for roughly 20% of their total output. Read more

 

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