Euro hits back as UK manufacturing slows

Yesterday saw the Pound fall back slightly against the Euro, as contrasting figures showed slowing unemployment in Germany, and a slowdown in manufacturing growth in the UK. The movement was only small however, as the morning’s data was close to expectations, and the UK manufacturing sector is at least still growing.

Of more interest was the Bank of England’s banking stability report, which all the UK’s major banks thankfully passed. RBS and Standard Chartered were the weakest mentioned, but all have now significantly increased capital buffers compared with before the financial crisis, and Bank of England Governor Mark Carney said the UK banks’ job in increasing capital was “almost done”.

This left the Pound fairly stable against both the Euro, losing half a cent through the day’s trading, and the US Dollar, where it fell third of a cent. This morning we have important Eurozone inflation figures at 10am, when we will find out if deflation fears will help keep the Euro at these cheaper levels in the short term.

Canada emerges from recession
Those of you sending money to Canada have enjoyed some excellent exchange rates recently at the expense of the Canadian economy, which technically entered recession this year, but has now emerged, posting annualised growth of 2.3% for Q3. One factor keeping the Canadian Dollar cheaper has been the central bank’s interest rate cuts, twice this year to 0.5%, and it now seems unlikely that further cuts will be announced today at December’s 3pm (UK time) news release. This could be as good as it gets for the Canadian Dollar exchange rate, and with the ‘Loonie’ currently around 11% cheaper than it was in April this year, a great time to fix your exchange rate should you have a need for CAD in the coming months.
Interest rates to come for EUR and USD

The main themes for exchange rates in December are still likely to be the interest rate decisions in the Eurozone (tomorrow) and USA (December 16th). Rumours of further QE and an interest rate cut from the ECB have been fuelling a cheaper Euro, while the Federal Reserve is quite likely to raise US interest rates – potentially sending the US Dollar even higher in price than the 5% increase in its value we have seen since June. Buyers or sellers of either currency should beware of potential volatility before the Christmas break. Closer to home there is no major data in the UK for the rest of the week and the Pound is therefore likely to remain in the middle of the currency see-saw between the battling Euro and US Dollar once again.