Eurozone and USA face problems

The Pound enjoyed mixed fortunes last week, as the key monthly data releases in the UK economy were generally positive, including a drop in unemployment and positive inflation figures, although retail sales growth was disappointing. The net result has given us broadly good current exchange rates, and in contrast this week we have very little important data scheduled.

One piece of important UK news that we do have this week will be the Bank of England minutes on Wednesday morning – if the Monetary Policy Committee seriously considered extending Quantitative Easing this month (the results of the vote are contained in the minutes) then expect the Pound to fall.

More likely to be dominating the headlines will be the critical stories in the USA and Greece. Looking across the Atlantic first, President Obama has a few weeks to negotiate new borrowing rules with the Republicans consent, before the world’s largest economy faces a potentially ruinous ‘fiscal cliff’ in January.

At the same time in Greece, the IMF and Eurozone ministers fell out last week over how much time Greece should be given to repay its much-debated bailout. With these influential institutions arguing and Greece running out of time, it is a wonder that the Euro has not weakened further – but remembering the UK’s economy is heavily exposed to Europe perhaps we will not see any further drop in the Euro price, assuming that disaster is averted. The protests last week across Europe though, show that the task will not be an easy one.

Meetings are scheduled through the week between the IMF and Eurozone finance ministers, and any new announcements are likely to cause sharp movements in the price of the Euro.

With these momumental economic events likely to dominate financial markets for the remainder of 2012 and beyond, it is impossible to predict what might happen with exchange rates, particulaly for sterling which may find itself at the mercy of events elsewhere. All we do know is that many of our clients have recently been opting to use Forward Contracts to secure exchange rates up to 2 years in advance – giving peace of mind and fixed costs for their transactions. Do speak to us if you would like to find out more.