GBP/EUR
Key data out this month:
UK:
Halifax House Price Survey
Nationwide Consumer confidence
BoE Interest Rate Announcement
Nationwide House Prices
EU:
ECB Interest Rate Announcement
German IFO (Business Sentiment)
Impact of data in the market place:
We are still witnessing substantial concerns over an economic slowdown, supported by evidence that credit conditions are continuing to deteriorate; this was shown when GBP weakened to record lows near the 0.80 level against the Euro earlier in the month. As widely expected the Bank of England cut interest rates by 0.25% lowering the base rate to 5.00%. This was the third rate cut in 5 months as the BoE try and resolve the dilemma of slowing growth and inflationary pressures. There are expectations of further rate cuts over the next few months to help the economy which is thought to be being pushed into a recession following difficulties in the credit and mortgage markets – clearly this may have further negative implications for those expecting GBP/EUR to strengthen. The UK housing data remained weak with the Halifax Bank reporting house prices fell by 2.5% - the biggest monthly decline for 12 years, showing parallels to the 1990’s housing slump. Mortgage approvals also fell to a record low as mortgage tightening took effect. This latest trigger for doom and gloom in the UK press had an effect on Sterling, sending GBP/EUR to an all time low below 1.25. GBP/EUR did claw back slightly following reports that the BoE plans to allow banks to swap mortgage backed securities of Government bonds easing the credit conditions in the mortgage market.
The ECB left interest rates unchanged at 4% and in the statement which followed, ECB president Trichet spoke of further warnings to control inflation which has surged to its highest level for almost 16 years – this inflationary pressure has ruled out any ECB rate cuts in the near future. Despite some positive trends (within the German industrial sector, for example), there are still increased fears over the Euro-zone economy. With both economies on a rocky road, there is certainly some further volatility to be seen in the coming months ahead and something GBP/EUR buyers will need to be aware of.
Central bank rates:
UK (MPC)
Current rate: 5.00%
Last change & date of change: 10/04/08
Next Meeting: 8th May
EU (ECB)
Current rate: 4.00%
Last change & date of change: 06/06/07
Next Meeting: 8th May
High & Low of the month:
High: 1.2779
Low: 1.2346
Difference of cost on a €200k property:
£5,489.01
GBP/USD
Key data out this month:
US:
Unemployment rate slightly increased to 5.1% from a previous 4.8%.
FOMC minutes from March meeting show that the policy group has grown far more pessimistic about economic outlook.
FOMC cut interest rates by 0.25% as expected.
US New Home Sales fall by -8.5%.
UK
Bank of England cut interest rates by 25 basis points to 5.00% as expected
UK unemployment rate remains steady at 5.2%.
Bank of England minutes show a surprisingly mixed vote over the UK interest rate decision. Only 6 members voted for a .25% rate cut with perennial dove Blanchflower voting for a .50% cut and 2 members voting for a hold.
UK retail sales show a fall coming in at -0.4%.
Impact of data in the market place:
In comparison to recent months the rate for GBP/USD has remained fairly stable and the range in which it has traded has been comparatively tight. The market has begun to demonstrate renewed resilience to any disappointing data releases and reactions to negative data are becoming less dramatic for both GBP and USD.
There is still little positive data coming from either economy but the markets ‘hard nosed’ approach to these releases is helping to level off the dramatic fluctuations that have seemed the norm of late. For clients this could mean a calm before the storm. When the market is flat it can often be at it’s most dangerous, a coiled spring waiting to unwind!
Central bank rates:
FOMC; 2.00%
Bank of England; 5.00%
High & Low of the month:
High; 2.0049 04/04/08
Low; 1.9599 15/04/08
Difference of cost on a $250k property:
£2863.03
EUR/USD
Key data out this month:
From the UK:
The government announced £50 billion plan to swap bank mortgage debt for government bonds to ease the impact of the credit crunch on the housing market.
BoE cuts by 0.25% to 5%
Rightmove House prices for April drop by 0.1% (1st time decline since Rightmove start the Survey in 2002)
From the E.U:
ECB interest rates – held at 4.00% again (11mths running)
Eurozone unemployment stable at 7.1%
German IFO dropped to 102.4 from 104.8 in March
From the U.S:
University of Michigan Sentiment Survey hit a 26 year low.
U.S President launch the fiscal stimulus package (form of tax rebates to up to 130 million US)
Fed cut rate 0.25% to 2.00%
Impact of data in the market place:
There’s no doubt that the rapid appreciation of the Euro against the US dollar has been impressive. In fact, the EUR/USD pair has surged over 9 percent since January 1, 2008 as the Federal Reserve has aggressively slashed interest rates.
EUR/USD breached 1.60 for the 1st time as an ECB member suggested a rate rise was being actively considered.
Adding to this momentum, the Dollar strengthened, brushing off more distressing news from the housing market and taking comfort from a surprise improvement in weekly jobless claims. The odds on a further rate cut from the Fed were slashed and analysts started to talk about the potential benefits of Bush’s fiscal stimulus package, which is expected to start today and be spread out over coming weeks in the form of tax rebates to up to 130 million US households.
US housing data again put in a dismal performance with housing starts building permits for March reflecting the unequivocally bad news from that sector.
Indeed, the markets are already well aware that expansion has slowed dramatically. Consumer price gains accelerated in March, as measured by both the headline and core measures, which exclude volatile items such as energy and food. These signs of building inflation pressures have led traders to cut back speculation of aggressive rate cuts by the FOMC. The markets are almost always right when it comes to pricing in rate decisions, and if the FOMC policy statement released with the actual rate announcement suggests that inflation is now their predominant concern, the US dollar could actually rally significantly.
Longer-term indications still point to a chronically weak Dollar, and fiscal stimulus or not, we except EUR/USD to retain it’s attractiveness for investors, leading to new high later in 2008.
Central bank rates:
UK: (MPC): 5.00%
US (FED): 2.00%
EU (ECB): 4.00%
High & Low of the month:
High: 1.60186 (21/04/2008)
Low: 1.55155 (30/04/2008)
Difference of cost on a £200k property:
High: $320,372
Low: $310,310
A difference of $10,062
Source
HIFX