Four Important Dates For Exchange Rates In The Next Month
Here is our guide to the four economic events and the corresponding dates to look out for over the next month that are the most likely to affect exchange rates
. Apart from these pre-known events, it is also important to keep an eye on ongoing global news such as commodity and oil prices which can push up inflation to sovereign debt issues in Europe.
27th April 2011: UK FIRST QUARTER GDP
Quarterly Gross Domestic Produce (GDP) is always crucial to currency markets but a lot of the Pound’s current weakness is due to the absolutely dire UK GDP figures that we saw for the final quarter of 2010 – with many hoping that the next figure for the first quarter of 2011 will show much improvement. GDP for the last quarter of 2011 showed a contraction rather than growth coming in at -0.6 percent. If the figure on the 27th April comes in showing growth, Sterling would be likely to begin to pick up as it would help ease concerns on the Bank of England about raising interest rates.
If however, the figure did not improve, the consequences for Sterling would be dire. Two consecutive quarters in any economy revealing a decline in GDP is considered to indicate a recession. Another negative figure would therefore imply that the UK was officially bank in recession – although it is expected that the figure will pick back up this time round.
There could be some volatility in the markets near to the date of this GDP announcement as currency investors protect themselves from any potentially harmful news with a potential retreat in Sterling.
27th April 2011: FEDERAL RESERVE INTEREST RATE DECISION
The US is seen as lagging behind the UK and Europe in terms of tightening up monetary policy which is why we have been seeing a weak Dollar - and Sterling holding much more against the US Dollar whilst slumping against the Euro.
There has started to be the odd remark and news report however regarding the first comments made from Federal Reserve members about tightening up policy – and in particular withdrawing monetary stimulus which is expected to occur before any rate rises. As we saw with the recent European rate rise, these public remarks usually continue and build up to a storm meaning that by the time of the change in policy, markets are almost sure what decision is going to take place and begin moving funds and strengthening the currency weeks in advance.
If you need a Sterling to US Dollar transfer therefore, it is worth bearing in mind that rates are relatively good at the moment with so much uncertainty about what will happen with when exactly UK and US interest rates will change.
5th May 2011: UK INTEREST RATE DECISION – 12.00 NOON
The UK and European interest rate clash is bound to bring about volatility as it did in early April being the most significant event on the economic calendar.
It kicks off with the UK interest rate decision at 12 noon. A rate hold at 0.5 percent may see Sterling weaken, particularly if Europe raises rates again for the second month in their announcement just 45 minutes later.
Should rates rise above 0.5 percent, it would be natural for us to see Sterling strengthen. The only unfortunate event that could cancel this out against the Euro is if Europe also raise rates on the same day but strength could still be seen against other currencies.
Current predictions for an interest rate rise range from May – September so a rate hike on the 5th is not at all impossible. It will be clearer nearer the time how much is going in the favour of a rate hike, following daily data in areas such as retail sales, manufacturing data and house prices as ever, as well as the crucial GDP figure and Bank of England minutes.
5th May 2011: EUROPEAN INTEREST RATE DECISION – 12.45 PM.
Forty-five minutes on from the UK interest rate decision and Europe will announce their own move.
Any hike, being the second in two months, is likely to push the Euro higher. At present, there are some reports saying this is very possible but much may depend on how data from Europe and some of the struggling cash-strapped nations such as Portugal and Ireland turns out following the first rise. It will become apparent whether the first interest rate rise has worked against or for weaker nations over the course of the month.
If Europe do not raise interest rates on the 5th there may be a window of opportunity for Sterling, the Dollar and other major currencies to gain back some ground.