Exchange rates stall as uncertainty increases

There were some good headlines for the UK economy on Friday, with the trade deficit narrowing more than expected for August. However, the improvement was more due to a fall in imports, rather than an increase in exports, and separate figures showed a decline in UK construction. So the Pound did not benefit greatly, closing the week slightly up against the US dollar, and slightly down against the Euro.

This week starts quietly today, but we have UK inflation tomorrow, followed by unemployment on Wednesday.

In Europe, S&P have cut France’s credit rating outlook, as a fresh wave of concerns over the Eurozone economies sweeps through the markets. France, and more importantly Germany, largely carried the single currency bloc through its recent recession, but both are now being watched keenly as their economic recoveries are called into question. Sluggish Eurozone growth may well weaken the Euro, but may be unlikely to give us better exchange rates for buying Euros, as the knock on effects for the UK economy and the Pound are also significant. Friday’s disappointing export figures are an obvious example, so don’t assume that more Eurozone troubles will necessarily lead to a cheaper Euro.

George Osborne said on Thursday that “The eurozone risks slipping back into crisis, and Britain cannot be immune from that – it’s already having an impact on our manufacturing and exports”. European Central Bank President, Mario Draghi, is due to give a speech on Wednesday morning.

In the USA, we have retail sales (Wendesday) and consumer sentiment (Friday) likely to give movement in US Dollar rates. Will we see more evidence of growth in the USA, and the dollar continuing on its recent path of increasing value?

So the coming weeks are likely to be crucial for the economy in one way or another, and as always that is likely to significantly impact on exchange rates. For an informal discussion around your own transactions and to help protect yourself from volatility in rates, just call us at Currency Index.