Exchange Rate Forecasts

An unexpected drop on factory output prices is the reason for sterling’s weakness yesterday. Factory prices (ie. prices for finished goods) declined 0.1% on the month, versus expectations of a 0.2% rise. This suggests that inflation may not be gathering pace as as some had feared, and the inflationary pressures are still limited to energy [...]

Lots of comment in the press over the weekend on the Euro’s slide. Continuing trouble in France, ECB indecision over interest rates cited as reasons for the weakness. Very often it is not the news itself, but the market’s reaction to news items that gives the best indication of market direction. The enourmous $66Bn US [...]

Today is a US holiday (Veteran’s Day). Euro weakness was the main theme yesterday, with EURUSD weaker, GBPEUR up, and GBPUSD only down a little. No change from the MPC, as expected. US consumer confidence was 79.9, higher than the expected 76.5. The US Trade Deficit was higher than expected, at a record $66.5Bn for [...]

The dollar rallied yet again yesterday, breaking the April 2004 lows against EUR and dragging cable down through the October low at 1.7388. The riots in France are certainly not helping the Euro. Sterling remains firm against the Euro and most other currencies, the dollar being the main exception. GBP EUR – Support 1.4755 then [...]

Trichet’s comments on Thursday continued to pressure the Euro through the end of last week. More importantly, Friday’s jobs report showed a strong wage growth component, further fueling fears over inflation, and giving the dollar a good excuse to continue its rally. We have now broken the 1.1868 level (July lows), making a new low [...]

Despite stating that the ECB was “ready to move at any time necessary” on interest rates, Trichet’s remarks failed to give a clear indication of a near term rate hike, and the Euro took an immediate hammering as a result. Alan Greenspan’s testimony before the Joint Economic Committee of the US Congress also helped the [...]

This is an interesting snippet on interest rate differentials with regard to EURUSD. Note how most analysts’ estimates are “sitting on the fence” at 1.1500 -1.2900. Personally, I think the Euro rate outlook will strengthen as inlfation spreads across the Atlantic, and the US rate outlook will weaken as consumer and corporate spending begins to [...]

Claude Trcihet failed to make any hawkish comments, describing current interest rates as “appropriate”. It was his use of this word that sparked the Euro sell off. The statement was very unclear on the ECB‘s intentions, neither confirming nor denying that rates will rise in the near term. The market was expecting a firm indication [...]

Markets drifted on lack of data yesterday, with a slightly weaker dollar being the pervasive theme. In contrast, today is packed with releases, most importantly the ECB press conference at 13:30. Claude Trichet is expected to make hawkish comments on inflation and interest rates, with some analysts now giving 50/50 odds of a quarter point [...]

Analysts are now unanimous in their view that UK rates will remain on hold until at least February, when some believe the BOE will cut by a quarter point. Median estimates put the rate at 4.0% at the end of 2006, against the current 4.5%. This implies relatively flat rates going forward. The Fed raised [...]