Statement at the Conclusion of the 2012 Article IV Consultation Mission to Saudi Arabia

Mr. Masood Ahmed, Director of the Middle East and Central Asia Department, made the following statement at the conclusion of the 2012 Article IV Consultation mission that visited Riyadh during May 14–26:¹

Economic performance has been exceptionally strong and the outlook remains buoyant. Oil production has been raised to ease pressures on global oil prices, and increased government spending coupled with accommodative monetary policy has supported continued acceleration in non-oil activity. Overall real GDP is estimated to have grown by 7.1 percent in 2011, with 8 percent growth recorded in the non-oil sector— the highest since 1981—and private sector growth at 8.5 percent. Saudi Arabia has provided important support to the global economy during a period of high global uncertainty, including through its actions in stabilizing the global oil market. Higher imports and increased workers’ remittances linked to the strong growth of the Saudi economy, together with expanded financial assistance have exerted a positive spillover and helped support other economies in the region and beyond.

Reflecting prudent economic management, the economy is likely to remain buoyant. On current trends, real GDP is projected to grow by 6 percent in 2012. The private sector is again expected to lead the way, reflecting the increased role of the private sector in the economy, a clear break from the past. Inflation is likely to remain modest at about 5 percent in 2012, but should be monitored carefully for signs that the economy is overheating. Fiscal and external surpluses are expected to remain very strong at almost 17 and 27 percent of GDP, respectively. However, given the current external environment and possible spillovers to global oil markets, the outlook is subject to some uncertainty.

Taking advantage of the strong state of the economy to advance the reform agenda and further strengthen institutions will help sustain growth in the years ahead. While there has been progress on diversification, the Saudi economy remains dependent on oil exports, and growth has been driven mainly by factor accumulation. Targeted government investment alongside product and labor market reforms can facilitate a more dynamic private sector and stimulate job creation for nationals. A strong and resilient financial sector also supports this process, with the 2011 Financial Sector Assessment Program (FSAP) Update providing a number of options that together with the ongoing implementation of Basel III will further strengthen risk management and promote capital market development.

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¹ In accordance with Article IV of its Articles of Agreement, the IMF holds bilateral consultations with its members, generally once a year. An IMF staff mission visits the country, gathers economic and financial data, and meets those responsible for the country's economic development and policies. Once they have returned to headquarters, the members of the mission draw up a report to be submitted to the Executive Board for review. Following this review, the Managing Director, as Chairman of the Executive Board summarizes the opinions of the Executive Directors, and this summary is forwarded to the country's authorities.

Source | International Monetary Fund - Blog NEWS | http://imf-news.blogspot.com/2012/06/statement-at-conclusion-of-2012-article.html

Pound/Euro forecast August/September 2012

Monday 20th August 2012
Good morning. So as usual for Monday mornings, here's my outline of what has been happening to the Pound/Euro rate in the last week, with a full analysis of what is causing the movements. In addition I will look at where rates may head in the coming weeks, and also list a run down of the weeks economic data that could affect rates.

In this week’s Report:

• Pound climbs to 2 week high against US Dollar
• Events in Eurozone continue to drive rates
• Thin trade in holiday season creating peaks and troughs
• Round up of the week’s other data that may affect rates

(For currencies other than GBP, EUR and USD, contact us for a consultation)

Sterling vs. Euro;

After the excitement of the previous week and the comments made by Mario Draghi’ s and Mervin King - last week failed to produce any real excitement. The Pound broadly maintained its strength against the single currency, trading in a very narrow range throughout the duration of the week despite a number of important data releases made on both sides of the channel.













On Tuesday Sterling gained marginally over the Euro as UK inflation surprisingly rose for the month of July, whilst at the same time figures released showed that the Eurozone economy shrank in the second quarter of 2012. Although positive news for the UK economy the market didn’t react too much as the general view was that the Bank of England’s stance on monetary policy is unlikely to change any time soon, and therefore the results to a certain extent remain irrelevant for now.

The week continued in a similar fashion as the market showed indifference when, as expected on Wednesday, the Bank of England produced the minutes from the Interest rate setting meeting from the beginning of the month. This reported a 9-0 vote to keep interest rates on hold and no further Quantitative easing.

As surmised in previous reports, with UK rates firmly on hold and further QE off the table in the near term, Sterling is unlikely to play a dominant part in driving the cross for the time being. The focus is firmly set on the performance of the Eurozone. This was evident on Friday when the Pound began to lose some ground against the Euro following comments from the ECB and Angela Merkel of decisive action expected to reduce the borrowing costs for Spain and Italy.


So if the ECB take action could this lower GBP/EUR rates?

Any action by the ECB early next month to lower borrowing costs for Spain and Italy could well give the euro a lift against the Pound. But equally, now that they have outlaid an expectation, any lack of any bold action especially at a time when worries about Greece are resurfacing could send the euro lower across the board.

The status quo is likely to remain for the time being as markets remain quiet in part due to the holiday season. However there also seems to be somewhat of an undercurrent of disquiet as the problem in the Eurozone seems once again to be coming to the surface.

On the face of things the key members of the Eurozone are all singing from the same hymn sheet and claiming that they will do ‘whatever it takes for the euro to survive’ and thus far have managed to keep the markets subdued. However, cracks in the armour seem to be getting larger after Finland’s outspoken Foreign Minister last week claimed that the country was preparing for a ‘full blown currency crisis’ and the possibility of the Euro breaking up.

So it certainly looks like the EU debt crisis will continue to drive the Pound/Euro rate for the short to medium term. In uncertain times such as these, it's important to know your options and not just hope rates will go in your direction. Make sure you make the most of your currency, and use all the tools at your disposal to ensure that you maximise your position within the currency markets.

Contact me now for a free consultation.

Weekly Economic Data that may affect exchange rates

Below we list the main economic data releases of the week. It should be noted that as August is the holiday season in much of the world and Europe in particular, we are very quiet indeed on the data front. This does not necessarily mean there won’t be movements in rates however. Often when trade is thin in quiet periods we see larger swings in exchange rates than usual so if you have an imminent exchange to make, contact us today to have a free consultation.

Monday – There is little data of note today. The only scheduled releases are Construction data from Europe and a report from the FED in the states about Economic Activity.

Tuesday – On the whole another very quiet day for data. The UK releases its latest Public Sector Borrowing data at 09:30am. In New Zealand we see the latest inflation report from the Reserve Bank of New Zealand. Australia publishes its most recent Bank minutes. In the USA the FED gives a speech.

Wednesday –The only thing to watch out for is the FOMC minutes from the states that might affect GBP/USD rates.

Thursday – The markets have been saving all the data for today. UK: Mortgage Approvals & a CBI Trades Survey. EU: German GDP, German Imports & Exports, German, French & EU wide Inflation Data, EU wide investor confidence. US: Housing Prices, Homes Sales. New Zealand: Imports Exports & Trade Balance.

Friday – A little busier today with GDP figures from the UK in addition to a measure of business investment. In Europe the Greek and French leaders meet, which could mean an announcement about the Greek bailout. Over in the States we have durable goods orders.

Getting the best exchange rates

You want the best exchange rates, of course you do. That's why you're reading this blog to try and gauge your timing. Take the next step and send us a free enquiry and have a consultation on all the options available to you.

It's free, it doesn't obligate you, and you may be surprised how much you can save by using us to get exchange rates that are up to 5% better than offered by banks. Click below to send your free enquiry now, and get a response the same day.

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Source | Foreign Exchange Rate Forecasts | http://foremostcurrencygroup.blogspot.com/2012/08/poundeuro-forecast-augustseptember-2012.html

Slovak Republic—Concluding Statement for the 2012 Article IV Consultation Mission

Slovakia enjoyed one of the strongest recoveries in the region, reflecting its sound economic fundamentals and prudent policies. However, the economic outlook is clouded by spillovers from the euro area crisis. Policies should focus on mitigating risks and promoting growth. The government’s commitment to fiscal consolidation is welcome, but durable adjustment will require complementary reforms. Continued strong financial oversight is essential. Boosting employment is a top priority. The government’s economic program now being elaborated provides an opportunity to put in place the needed reforms to promote vibrant and inclusive growth.

1. The economy is expected to continue growing at a healthy pace. Buttressed by strong external demand, real GDP expanded by 3.3 percent in 2011—among the highest growth rates in the region—despite a sizable fiscal consolidation. Strong growth continued into the first quarter on the back of expanded auto production. Amid a worsened external environment, growth in 2012 is projected to slow to 2.6 percent. This relatively benign slowdown reflects strong trade linkages with Germany, continued external competitiveness, a still-moderate government debt ratio, and a sound banking system. Growth is projected to pick up to about 3½ percent over the medium term as the external environment strengthens and rising domestic demand closes the output gap.

2. However, risks to this outlook are mostly to the downside. Externally, an intensification of the euro area crisis would reduce demand for Slovak exports and increase bond spreads, reducing growth and weakening banks’ balance sheets. Working together with European partners in creating a more complete monetary union would help allay this risk. Domestically, a loss of market confidence in government’s commitment to fiscal consolidation would increase funding costs and result in tighter credit conditions. An early parliamentary approval of durable deficit reduction measures would reassure markets.

3. Policies should focus on mitigating risks and building a foundation for a strong and inclusive growth. Durable fiscal consolidation would put public finances on a sustainable footing. Continued strong oversight of the financial sector and close cross-border supervisory cooperation would maintain financial stability. Mutually reinforcing structural reforms to the labor market, education, and the business climate would boost employment and promote more inclusive growth.

Durable fiscal consolidation to promote sound public finances

4. The significant fiscal retrenchment in 2011 is welcome, but further adjustment will be needed to ensure debt sustainability. In 2012, adjustment stalled amid the election cycle and expenditure overruns, and the deficit is expected to remain broadly unchanged at 4¾ percent of GDP. In the absence of further fiscal consolidation, public debt ratio will remain on a rising trajectory and become increasingly vulnerable to shocks. Stabilizing the debt at 40 percent of GDP in the long run—a level that would leave room for the expected increase in ageing-related costs and other priority spending—would require a structural fiscal effort of about 2½ percent of GDP relative to 2011.

5. While the government’s deficit reduction plans are appropriate, policies should be prepared to let automatic stabilizers work fully. Though the details are still being worked out, it appears that the planned measures would be sufficient to lower the deficit to below 3 percent of GDP in 2013, while not unduly constraining growth. If growth turns out lower than expected, policies do not need to counterbalance the resulting revenue shortages, but should instead be allowed to operate automatically (for example, through higher unemployment compensation and social assistance), thereby limiting the effects on the economy. At the same time, if growth surprises on the upside, the higher revenue should be saved to facilitate the adjustment.

6. The focus of the planned adjustment mainly on boosting revenues is broadly appropriate. Following a sizable expenditure-based consolidation in 2011, the room for additional spending cuts without fundamental public sector reforms is limited, necessitating focus on revenue measures in the short run. These include shifting pension contributions from the second to the first pillar, introducing a progressive personal income tax, increasing the corporate income tax rate, extending the bank levy on corporate deposits to retail deposits, as well as broadening social insurance and income tax bases.

7. However, complementary reforms are essential to ensure a durable fiscal consolidation. The planned shift of pension contributions brings with it increased future government pension obligations. We therefore welcome the authorities’ plans to combine it with a parametric reform of the first pillar. The reform should be underpinned by an actuarial analysis to ensure the system’s financial solvency. The proposed increase in direct taxes may reduce incentives to invest, underscoring the need for a more welcoming investment climate. The envisaged numerous changes to the tax system could raise collection risks, while the bank levy could discourage financial intermediation.

8. In the medium term, considerable savings could be achieved by improving tax administration and expenditure efficiency. Removing nonstandard exemptions and strengthening VAT administration could generate some 1½ percent of GDP in additional revenue. The planned unification of revenue collections would aid in this regard. International comparisons suggest that increasing efficiency in health spending could generate some 1¾ percent of GDP in savings. The planned reform of public administration could result in additional efficiency gains. The generated savings could be used to further reduce debt, to improve the quality of public sector outcomes, and to finance improvements to public infrastructure in less developed regions of the country.

9. The recently adopted fiscal responsibility legislation (FRL) is welcome, but there is scope to further strengthen the fiscal framework. The Slovak FRL is broadly in line with best international practices: it enhances transparency and accountability, covers a broad definition of government, and includes appropriate enforcement mechanisms. However, making the FRL fully operational requires anchoring the budget in a sound medium-term fiscal framework. Moreover, collecting and publishing in the budget financial information of public entities, including hospitals, would improve the monitoring of fiscal risks.

Strong oversight and cross-border cooperation to maintain financial stability

10. Slovakia’s banking system is sound. Strong fundamentals and effective supervision have helped the sector weather the crisis well. Banks are liquid, well-capitalized, and largely funded by domestic deposits.

11. Nevertheless, risks call for continued supervisory vigilance. The largely foreign-owned banking system is exposed to risks stemming from potential renewed stress in Europe and deleveraging by parent banks. Sizable holdings of Slovak government bonds leave banks’ balance sheets vulnerable to a widening of bond spreads. Close cooperation with home supervisors is essential to mitigate cross-border risks. Recent steps by the National Bank of Slovakia to strengthen bank capital and liquidity buffers are welcome.

12. A speedy resolution of nonperforming loans (NPLs) would support an expansion of credit. NPLs have been slow to come down, particularly in the corporate sector. Removing tax obstacles—such as allowing loan losses to be tax deductible in the year they were incurred—would reduce delays in loan write-offs and free up capital. In this regard, recent amendments to the Act on Bankruptcy and Restructuring would encourage timely restructuring and speed up NPL resolution by allowing creditors to take a more proactive role in bankruptcy proceedings.

13. Curtailing risks in housing lending would further strengthen banks’ balance sheets. The less-stringently regulated “other housing loans”—which are not subject to the regulatory limit on the loan-to-value (LTV) ratio and not financed by mortgage bonds—have surged, driving up the average LTV ratio. Subjecting all types of housing loans to the same LTV limit would ensure loan quality and help prevent excessive risk-taking.

14. Promoting deeper financial markets would bring economic gains by enhancing investment efficiency and broadening access to finance. This could be facilitated by further relaxing investment restrictions for the Pillar II pension funds and by developing a secondary market for government bonds.

Structural reforms for a vibrant and inclusive growth

15. Boosting employment should be a top priority.Unemployment remains in double digits, largely unaffected by the improvements in output. Effective implementation of the reformed Labor Code should help reduce unemployment over the longer run. Better-targeted vocational training through occupationally-oriented curricula, informed by cooperation with employers, would reduce skill mismatches. A sharper focus on market needs in tertiary education would spur innovation and increase productivity.

16. Addressing persistent regional economic imbalances calls for mutually reinforcing structural reforms. Regional development could be enhanced through policies to expand and improve infrastructure. Consideration should also be given to increasing employment incentives by differentiating labor costs by region according to the cost of living, including by supplementing future lower increases in minimum wages in less developed regions with means-tested social benefits and targeted reductions in social insurance contributions. Measures to enlarge the rental housing market, including by easing rental regulations, could help address shortages that inhibit mobility. Addressing lingering corruption and weak property and contract rights enforcement would reinforce ongoing efforts to improve business climate.

The mission would like to thank the authorities for their warm hospitality and cooperation.

Source | International Monetary Fund - Blog NEWS | http://imf-news.blogspot.com/2012/06/slovak-republicconcluding-statement-for.html

Pound/Euro exchange rate forecast for September 2012

Monday 10th September 2012
Good morning everybody. I'm back from sunny Kos in Greece, so let's get cracking and see what's been happening with exchange rates. In a nutshell, the Euro has been gaining strength and as a result Sterling/Euro exchange rates have fallen further from their recent highs. Today I'll take a look at what's been happening in Europe, why the Pound/Euro rate has fallen, and what the coming weeks may hold. If you need to buy or sell Euros at the best exchange rate, read on....

In this week’s Report:

• Euro gains strength pulling GBP/EUR rates down
• Is a solution to the debt crisis imminent?
• Pound/Dollar rates climb steadily to .60
• Round up of the week’s other data that may affect rates

Sterling vs. Euro;

Speculators waited in anticipation last week as a relatively stable few days led up to Mario Draghi’s long awaited ECB press conference. Today I will consider the major announcements from both the UK and Euro-zone that drove the sterling-euro cross price since I've been away.


Last week began with a UK Manufacturing data report that was greater than predicted; lifting the pound as speculators concluded that the announcement would reduce the chance of more Bank of England stimulus. Sterling gains were offset, however, as on that day Angela Merkel stood before Bavarian beer drinkers to announce her support for a unified euro.

The inference of her speech appeared to be that the hard line taken with troubled Euro-nations, such as Greece, was ultimately to bring about an end to the crisis, rather than to simply protect German interests. The markets took the signal as an affirmation that a plan was on its way and this, coupled with a buoyed sterling, kept the markets relatively constant around the €1.26 level.













Just as the steam from Chancellor Merkel’s comments began to wane, and European stocks slipped again, Mario Draghi set the cat amongst the pigeons when he explained to lawmakers that if the ECB were to purchase two to three year sovereign debt from troubled nations, this was not tantamount to outright quantitative easing; a breach of their mandate.

All eyes fell on Draghi and Thursday’s announcement; the euro had tentatively held its ground, never quite weakening back to the four year high levels, but not quite strong enough to warrant the sterling-euro cross to fall below the 1.26 mark. Speculators were divided as to the fate of the euro; the broad strokes of the ECB plan were relatively well known by this point, what was not, were the details. Draghi could announce an insubstantial plan, such as capped bond purchases, that would disillusion markets in a similar vein to his prior press conference. A stronger message however, would settle investors, buoy the euro and reduce the dreaded bond yields of nations such as Spain.

Although the ECB President delivered with respect to content, Draghi’s speech was perhaps not the vitriolic call to arms many expected, or hoped, it would be. The markets did respond, albeit eventually, as an initial weakening of the Euro during the speech ultimately saw the single currency close in on two-month highs against the US dollar stealing momentum from the yen.

Friday delivered weaker than forecast Non-Farm payroll data from the US which will have driven speculators from the dollar to the euro as the ECB’s recent actions, and the risk of Fed stimulus, has seen more traders drop their risk-adverse positions on Europe. The news also caused GBP/USD rates to rise above the .60 level for the first time in quite a while.

With the euro increasingly gaining on its counterparts we have seen the Pound/Euro rate start to drop further away from the recent highs, on Friday falling over a point down towards €1.25. As such it has never been a better time to consider your currency options if you need to buy or sell Euros. We have a range of contracts to cater to many Forex requirements. Whether you are buying or selling Euros, we can provide you will all the information to help you make an informed decision and make the very most of your currency.

Make the first step now, click here to make a free enquiry.

Weekly Economic Data that may affect exchange rates

Monday – Today is all about the EU. We have various releases including Italian GDP data, Greek Inflation numbers, EU investor confidence, French Industrial Output and Portuguese Trade Balance. Elsewhere there are some House Price figures for the UK, and GDP figures for New Zealand.

Tuesday – Today we have some Trade Balance figures from the UK showing imports and exports. A little quieter in the Eurozone with German wholesale prices the only data of note. In the USA we have Trade Balance figures.

Wednesday – An important day for GBP/EUR. Starting at home we have a host of earnings and unemployment data at 09:30am. In the Eurozone we have Inflation data from Germany, Spain and France. There are also some industrial production figures for the EU. Over in the USA there are several Import and Export numbers being released at 13:30pm.

Thursday – The only UK data of note is the BoE Quarterly Bulletin. It’s relatively quiet in Europe also with only Greek unemployment and Italian inflation data. Most figures today are from the USA: Jobless Claims, Interest Rate decision, FOMC minutes & a monthly budget statement.

Friday – The G20 meeting starts today, which is a gathering of finance ministers and central bank governors and thus could add a new dimension to the currency markets. Scheduled releases today include EU inflation and unemployment numbers, US inflation and Retail Sales figures.

Getting the best exchange rates

You want the best exchange rates, of course you do. That's why you're reading this blog to try and gauge your timing. Take the next step and send us a free enquiry and have a consultation on all the options available to you.

It's free, it doesn't obligate you, and you may be surprised how much you can save by using us to get exchange rates that are up to 5% better than offered by banks. Click below to send your free enquiry now, and get a response the same day.

Click here to send me a free enquiry

Source | Foreign Exchange Rate Forecasts | http://foremostcurrencygroup.blogspot.com/2012/09/poundeuro-exchange-rate-forecast-for.html

GBP/EUR & GBP/USD forecast September 2012

Thursday 13th September 2012
Good afternoon everybody. I'm posting a quick update on what's been happening so far this week with exchange rates. In a nutshell, it's not much! Sterling remains near a 4 month high vs the US Dollar, and is still just below €1.25 against the Euro. Let's take a quick look at each cross in turn:

Pound/US Dollar remains near 4 month high

Rates are looking pretty good for the Pound against the US Dollar, remaining around the .61 level. The reason for this is firstly more confidence in the Eurozone, which has meant investors leaving the safe haven Dollar. This in turn has weakened it slightly making it cheaper to buy.

The rate is also supported by expectations of more monetary easing by the U.S. Federal Reserve which will be announced later this afternoon at 17:30pm. This has underpinned demand for perceived riskier currencies such as the Pound, and helped push rates up a little. Many analysts said the pound could rise further against the dollar if the Fed does relaunch its bond-buying programme, which tends to weigh on the dollar, but sterling was also vulnerable to the risk policymakers will hold fire.

All in all it's a good time to look at buying Dollars, given it's at a multi month high, and not very far away from the best it's been in a year.

Sterling/Euro remains flat in the €1.24's

In contrast to the good Pound/Dollar rate, Pound/Euro has fallen in recent weeks from the 4 year high we saw in the summer.

The single currency has been lifted by growing confidence in euro zone assets after Germany's Constitutional Court gave the green light to the region's new rescue fund and the European Central Bank's bold plans to lower borrowing costs for struggling countries.

This means investors are much more confident of the Eurozone being able to weather further financial storms and bailouts, and the Euro has strengthened accordingly. A stronger Euro is more expensive to buy, and that's why rates have fallen.

Over the last few days however the market has been very flat indeed, with hardly any movement in rates to note.

Tomorrow we have the G20 meeting starting, which is a gathering of finance ministers and central bank governors and thus could add a new dimension to the currency markets. Scheduled releases tomorrow also include EU inflation and unemployment numbers, US inflation and Retail Sales figures, so we could see a little movement then.

Also the FED's actions this evening could cause some movements in rates. Keep an eye on the Twitter feed in the sidebar, which I regularly update with the latest exchange rates to see how things are moving.

I'll be back on Monday morning with my usual detailed analysts of the Sterling/Euro rate and a full breakdown of next weeks economic data.

Getting the best exchange rates

You want the best exchange rates, of course you do. That's why you're reading this blog to try and gauge your timing. Take the next step and send us a free enquiry and have a consultation on all the options available to you.

It's free, it doesn't obligate you, and you may be surprised how much you can save by using us to get exchange rates that are up to 5% better than offered by banks. Click below to send your free enquiry now, and get a response the same day.

Click here to send me a free enquiry

Source | Foreign Exchange Rate Forecasts | http://foremostcurrencygroup.blogspot.com/2012/09/gbpeur-gbpusd-forecast-september-2012.html

Pound/Euro forecast outlook October 2012

Monday 1st October 2012
Good morning everybody. It's the start of a new week and a new month. Today I'm going to have a look back over what has been happening with Pound/Euro rates in the last week. In short, we've seen a slight recovery in Pound/Euro rates, however during the next month there are some key decisions in both the UK and EU that could pull the rate in either direction. I will also touch on tools and strategies you can use to protect against the rate moving the wrong way.

In this week’s Report: 

• Sterling/Euro remains choppy due to debt crisis


• EU problems now spreading to Spain 


• What will October hold for GBP/EUR rates


• Round up of the week’s other data that may affect rates 

Sterling vs. Euro; 

After losing ground against the euro in recent weeks, the pound started last week strongly as worries over Spain once again took centre-stage. The pound subsequently rose to its highest level in two weeks against the euro over fears that Spain would become the latest member of the Eurozone to request a bailout. Renewed concerns over Greece and a weaker-than-expected German sentiment survey also weighed on the single currency.

The pound was also lifted by talk of a €3 billion injection of farm subsidy payments, which the Eurozone pays the UK once a year. All of the above resulted in Sterling/Euro rates making a slight recovery.
"The thing that is dominating market sentiment is when Spain will apply for a bailout. And, until that happens, it is weighing on both the euro and sterling, but especially the euro," said currency strategist Adam Myers of Credit Agricole.

The euro weakened further mid-week with Spanish ten year bond yields rising to 6 % on Wednesday. There was no let-up on the Euro either, with the Bank of Spain warning that gross domestic product for the Eurozone’s fourth largest economy would keep falling at a "significant rate" in the third quarter of 2012.

The rise in GBP/EUR rates continued, with the pound hitting a three week high against the euro on Thursday, helped by news Britain's economy contracted less than expected in the second quarter and as worries grew about Spain's debt and economic problems.

However, the trend was reversed on Friday as the euro gained around 0.5% against the pound over the course of the day after investors gave a cautious welcome to Spain's 2013 draft budget. This demonstrates how quickly trends can change.
Also last week, the troubled southern European nation of Spain unveiled a 2013 budget based on spending cuts that many saw as an effort to pre-empt the likely conditions of a bailout – which could be seen as a positive for the euro and other riskier currencies, as it would allow the European Central Bank to start buying the country's bonds to try and lower yields, effectively lowering borrowing costs.

So, what does all of this mean if you need to buy or sell euros in the near future? 

Is the rate likely to go up or down? With so much uncertainty in both the Eurozone and the UK, it is almost impossible to predict which way the markets will move. On the one hand, the talk of Quantitative Easing in the UK could potentially weigh heavily on the pound. QE effectively floods the market with Sterling, weakening the pound in the process and bringing exchange rates down.

On the other hand, with problems in Greece starting to resurface, and the fear Spain will soon be forced to seek a bailout, GBP/EUR rates could easily move in the opposite direction. When we had some negative news out of Greece back in October 2011, the euro lost 3 cents against the pound over the course of 10 days.
Regardless which way the markets will move in the coming weeks, there are tools at your disposal to help protect yourself from adverse movements and wild swings in rates of exchange.

Forward Contracts, Limit and Stop Loss orders are all handy tools to help make the most of your currency. Using these to take control of your currency requirement is a wise strategy to consider, as simply hoping the market will move in your direction can often prove very costly indeed.

To find out more about how you can limit your exposure to fluctuating exchange rates, send me a free no obligation enquiry today.

Weekly Economic Data that may affect exchange rates 

Monday – Starting in the UK, today we will see the latest House Prices from the Halifax, following by mortgage approval numbers and measures of manufacturing and consumer Credit. Over in the Eurozone there are Spanish inflation numbers, and manufacturing data for Italy and France. We also see Italian unemployment numbers. Across the pond we have US Manufacturing and Construction figures, in addition to a Speech by one of the FED’s FOMC members. 

Tuesday – Further UK House prices are released today, this time from the Nationwide. We also have construction data and the shop price index from the British Retail Consortium. In the Eurozone we have some inflation numbers. Further afield there is an interest rate decision in Australia, and Vehicle sales numbers from the United States. 

Wednesday – Fairly quiet in the UK today with only PMI data being released. In Europe we also have PMI in addition to the latest Retail Sales which is a good barometer of overall economic health. In the USA there are mortgage approval numbers and the latest unemployment measures. 

Thursday – As always for the first Thursday in the month we have the latest interest rate decisions for the UK and EU, in addition to possible change in the UK’s Quantitative Easing plan. It’s likely to be quite important as any changes could make a big difference to the GBP/EUR rate. In the USA we will see the latest FOMC minutes, in addition to the most recent Jobless Claims numbers. 

Friday – We end the week on a quiet note, with no releases for the UK. We will see some Factory order numbers from the Eurozone but they don’t usually have much of an impact on rates. In the USA we have various measures of unemployment, and as we touched on in the USD report, the all-important Non-Farm Payrolls.
 

Getting the best exchange rates

You want the best exchange rates, of course you do. That's why you're reading this blog to try and gauge your timing. Take the next step and send us a free enquiry and have a consultation on all the options available to you.

It's free, it doesn't obligate you, and you may be surprised how much you can save by using us to get exchange rates that are up to 5% better than offered by banks. Click below to send your free enquiry now, and get a response the same day.
 

Click here to send me a free enquiry

Source | Foreign Exchange Rate Forecasts | http://foremostcurrencygroup.blogspot.com/2012/09/poundeuro-forecast-outlook-october-2012.html

IMF Article IV Mission, Concluding Statement of the IMF Mission, May 29 to June 5, 2012

Much progress has been made in addressing Tuvalu’s economic challenges. The government has taken difficult decisions regarding spending, tax compliance is rising, and the new Policy Reform Matrix (PRM) process should streamline the process by which donors help the government reach its own priorities. The banking system is moving toward health, and public enterprises’ operations have shown improvement. All these steps are commendable, but a significant agenda remains to be implemented. To secure these gains and return Tuvalu to high growth, the government should build on these successes.

Economic Developments

A slow recovery is underway in Tuvalu, but there are important risks. GDP grew in 2011 for the first time since the global financial crisis, led by the private retail sector and education spending. We expect growth to rise slowly from 1.1 percent last year to 1.2 percent this year as the services sector continues to grow. Falling prices for imported goods such as clothing pulled inflation down to 0.5 percent in 2011, but the prices of domestically produced goods and services are also broadly stable. However, falling numbers of Tuvaluan seafarers, and the corresponding drop in their remittances, are hurting household incomes at a time when a strong, if weaker, Australian dollar is increasing imports. The possibility that seafarer income both does not recover and is not replaced by opportunities such as seasonal employment schemes is the biggest risk to long-term sustainable growth.

Even beyond employment, Tuvalu remains exposed to the difficult global environment.

Strong performance at the Tuvalu Trust Fund (TTF) has brought closer the point where it will begin to recapitalize the Consolidated Investment Fund (CIF). But a reversal could hurt the TTF, depriving the government of necessary support. Proceeds from licensing and joint ventures have improved the government’s revenue prospects, but further strengthening of the Australian dollar could negate these gains. On the other hand, a rapid weakening of the dollar could cause prices of imported goods to rise quickly. In the current fragile environment, this would present serious difficulties for Tuvaluan households.

Policy Discussions

Fiscal Policy and the Global Environment

The global crisis led to two linked problems in Tuvalu. First, high spending has drained the government’s assets just as the TTF was hit by poor returns. Second, falling seafarer employment hurt household incomes. Both have been aggravated by the strong Australian dollar, which reduced U.S. dollar-denominated earnings for seafarers and the government.

Now is the time to build on last year’s successful measures to bring the budget under control. Steps taken to bring down TMTS costs, and the decision to approve no new scholarships this year were difficult and commendable. Thanks to these steps, improved tax compliance by the private sector, and a large one-off Australian grant, the CIF will not be exhausted in 2012¹. But budget support next year will be tied to implementing PRM measures. Raising the TCT rate is an important step, but raising compliance among PEs – currently none of which pay TCT – will be crucial both to bring deficits down in the future and for securing budget support from donors. The next step for direct taxes is to follow through with penalties for noncompliance, including nonfinancial ones such as passport suspension. On subsidies, returning TMTS referrals to a committee of doctors should begin to bring costs down. The authorities should also continue to coordinate with donors to ensure scholarships remain at a sustainable level and bring CSOs transparently on budget. Public wage increases should also be tied more closely to inflation. Finally, new joint ventures should be signed with care, and only after verifying that market-based borrowing by NAFICOT does not endanger concessional assistance from donors.

Going forward, expenditure should be reoriented toward supporting social goals and growth. The PRM rightly focuses on primary education and streamlining health expenditure. More support for training, for example by enrolling women and broadening the curriculum at TMTI and by determining priority areas for awarding scholarships, will improve Tuvalu’s ability to send productive workers abroad, as will taking more advantage of seasonal labor schemes in Australia and New Zealand. Cuts to capital expenditure should not postpone needed infrastructure improvements, and Outer Islands projects should be clearly prioritized and financed by the FTF’s unspent balances rather than relatively scarce government resources.

These and other ongoing efforts will also help Tuvalu deal with the challenging global environment. Smaller budget deficits will allow the government’s assets to be rebuilt while better training and more opportunities for Tuvaluan workers, in New Zealand and increasingly in Australia, will help cushion the blow of declining seafarer demand. The new objective-based asset allocation of the TTF should be implemented with a strong bias toward protecting Tuvalu’s asset holdings, both of the TTF and the TNPF, from risky conditions in global financial markets.

Supporting Private Sector Growth

Raising incomes will also depend on creating a better business environment. Some results are already visible from public enterprise reform: collections at TEC are up and TMTI is on a better footing. But further improvements are undermined by overlapping arrears with the government, which PEs cite as a reason not to pay taxes. However, improvements at the banks are encouraging, as they will grant more Tuvaluans access to credit and increase capacity to support new businesses.

Continuing to implement the PE reform agenda is key to supporting growth. Addressing tax arrears and poor customer payment culture is especially challenging in small countries. Improved accounting procedures should help sort out the net position of unpaid government supplier payments to PEs and PE tax arrears, but more important in the long run will be ensuring both parties make all payments on time and transparently. The effort to commercialize PE operations is also paying off with improved risk management at the NBT and higher collections at TEC. In the long run, this will increase the flow of dividends to the government, easing fiscal pressures, and reduce PE overdrafts at the NBT, freeing capital for lending.

The financial system has made significant strides, and progress seems likely to continue. The improved focus on credit quality and financial position of the DBT and NBT are encouraging. In particular, the DBT has begun to clean its balance sheets by writing down uncollectible loans. As the NBT’s risk monitoring capabilities improve, it should begin to do the same. On the other hand, delinquencies from small loans at the TNPF are a concern of unknown magnitude: to ensure the Fund’s continued financial health, the authorities should seek to have its actuarial viability assessed, and also amend the law to encourage retirees to take annuities rather than lump-sum withdrawals.

Government interference in the economy should also be reduced. As they return to health, the DBT and NBT should gradually be allowed to set their own rates, at least in areas, such as lending to businesses, where they are already effectively in competition. Installing a new and fully professional board at TEC to ensure the company’s independence will show that Tuvalu is serious about improved PE management. Finally, the unfortunate situation at TCS presents a very difficult problem with no easy solution. Private companies are already taking over TCS’ traditional business of supplying the Outer Islands. To facilitate this transition, the government should coordinate with businesses both in Funafuti and the Outer Islands to ensure that they have sufficient credit and freight capacity to ensure all Tuvaluans have access to retail goods.

Source | International Monetary Fund - Blog NEWS | http://imf-news.blogspot.com/2012/06/imf-article-iv-mission-concluding.html

Pound/Euro forecast outlook 2012 Best Exchange Rates

Monday 22nd October 2012
Good morning. It was a torrid weak for Pound/Euro rates last week, with levels dropping to their lowest in 4 months. In this mornings report I'm going to have a look back at the reasons why rates have fallen, and what the rest of 2012 may have on store for exchange rates. If you need the best possible rates, click the link at the bottom to send me a free enquiry today.

In this week’s Report:

• Pound/Euro rates hit 4 month low 


• More Quantitative Easing on the way? 


• Better UK data pushes other crosses higher 


• Round up of the week’s other data that may affect rates 

Sterling vs. Euro; 

The pound hit a four month low against the Euro last week dropping to the high 1.22 mark. Trading opened last Monday morning around at 1.2407 and steadily dropped throughout the week closing on Friday afternoon at around 1.2296 as the graph below shows. This report aims to analyse the reasons why the pound has stooped to a four month low against the Euro and what the coming weeks may have in store for the GBP/EUR rate.

 
So what has happened last week to drop the value of the pound? One large factor was the mid week announcement by the Bank of England, which hinted that there would be another round of quantitative easing. The minutes of the last policy meeting released on Wednesday showed the BoE's monetary policy committee agreed that no further stimulus was needed. However the BoE’s policy maker, David Miles, in a statement to the Guardian newspaper, revealed that the bank needed a more expansionary monetary policy to steady inflation and boost sub-par economic growth. More quantitative easing is considered bad for the currency as it increases the supply, thus decreasing its value.

Later in the week, the European Union Summit which convened in Brussels gave some confidence to the Euro zone when it was agreed by the European Union leaders' that they would introduce a single European banking supervisor giving the European Central Bank overall responsibility for banking supervision. This will help lend stronger unity to the Euro zone and give investors stronger confidence in the Euro, thus giving it strength and making it more expensive to buy.

In the UK this week’s GDP figures, if worse than expected could also have a negative effect on the pound and could see rates drop further.

There was some good news for the UK last Friday when figures regarding the borrowing levels of the UK public sector saw that the net borrowing was £12.8bn in September, down from £13.5bn in the same month last year. The figure is lower than analysts had been expecting, while previous months' figures for this financial year were revised down by a total of £6.7bn.

Alongside this, a strong jobs report which shows that UK unemployment figures have fallen by 50,000 to 2.53 million in the three months up to the end of August also offers some optimism for the British economy and Sterling. While this helped the pound against other currencies, it was not enough to halt the decline in GBP/EUR rates due to the renewed confidence in the Eurozone.

With the on-going volatility in the Europe and mixed feelings regarding the British economy, the market will likely remain volatile in the coming weeks. If you need to buy or sell Euros then send me a free enquiry today, in order to limit your exposure to fluctuating exchange rates and to ultimately make the most of your currency.

Weekly Economic Data that may affect exchange rates 

Monday – A very quiet start to the week. In the UK we have the latest Nationwide Housing prices, which are a useful barometer for overall economic health. In the United States we see a FOMC member give a speech. There is no data from the Eurozone. 

Tuesday – Nothing from the UK today. In Europe we will see a business climate assessment from France. IN the United States there is some Manufacturing data, and Canada releases its latest retail sales. 

Wednesday – Again no data from the UK today. In Europe there is a raft of data releases from Germany: Manufacturing Data, Business Climate Assessment, and inflation data. The rest of today’s data is from the USA: New Home Sales, Mortgage Applications, Manufacturing Data and the latest Interest Rate decision from the Federal Reserve. 

Thursday – Probably the most important day for Sterling, as we have the latest GDP figures which will show if the economy is growing or shrinking. Europe has Retail Sales from Germany. In the United States we see Jobless Claims, Home Sales & Durable Goods Orders. 

 Friday – We end the week with Confidence measures from Germany and France, along with unemployment from Germany. In the United States we have the latest Gross Domestic Product numbers along with a consumer sentiment survey.
 

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Source | Foreign Exchange Rate Forecasts | http://foremostcurrencygroup.blogspot.com/2012/10/poundeuro-forecast-outlook-2012-best.html

IMF Executive Board Concludes 2012 Article IV Consultation with New Zealand

On June 6, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation¹ with New Zealand and considered, and endorsed, the staff appraisal without a meeting on a lapse-of-time basis.²

Background

The New Zealand economy continues to grow at a modest pace. Output grew by 1 percent in 2011, as elevated export commodity prices and favorable agricultural conditions helped offset the adverse impact of large earthquakes in Canterbury in late 2010 and early 2011. Continued aftershocks have delayed earthquake-related reconstruction. Domestic demand has remained soft as households and businesses continue to deleverage amid a weak housing market and an uncertain outlook. Elevated rates of unemployment, currently above 6 percent, and spare capacity have helped contain inflation.

The Reserve Bank of New Zealand (RBNZ) lowered the policy rate in March 2011 by 50 basis points to cushion the impact of the February earthquake. Since then, it has kept the policy rate on hold given the deterioration in the global economic position, subdued domestic activity, and the expected impact on future domestic activity of the strong exchange rate.

The nominal effective exchange rate has appreciated by around 30 percent since its trough in early 2009. The appreciation reflects the effects of higher export prices, positive interest rate differentials, and, although currently volatile, some increase in global risk appetite since end-2011.

Reflecting the slow recovery, past revenue and spending decisions, and accrued earthquake-related spending, the fiscal deficit in 2010/11 reached a record high of 9¼ percent of GDP on an accrual basis. Net government debt increased to 20 percent of GDP by mid-2011 from a low of 5½ percent in 2008.

The current account deficit in 2011 remained low at 4 percent of GDP, well below the 8 percent level in 2005-08, reflecting terms of trade gains, weak domestic demand, and low world interest rates. Net external liabilities have declined, but remain high at 72 percent of GDP at end-2011.

The banking sector remains sound. Bank profits are strong and nonperforming loans have fallen to less than 2 percent of total loans. Capital adequacy has improved since 2007, with the Tier 1 capital ratio reaching 10 percent in September 2011. Banks have made steady progress in lengthening the maturity profile of their wholesale funding since 2008 and increasing the share of retail deposits, but the total stock of banks’ gross external liabilities remains above 70 percent of GDP and loan-to-deposit ratios remain high.

The pace of New Zealand’s economic recovery is likely to remain modest. Output growth should pick up somewhat to 2⅓ percent in 2012 as earthquake reconstruction spending gains pace, although the size and timing of this spending is still uncertain. Growth is projected to rise to 3¼ percent in 2013, led by reconstruction. The key risks to the outlook are largely on the external front and on the downside, related to emerging weaknesses in the global economy and a possible upheaval in the global financial system.

Executive Board Assessment

In concluding the 2012 Article IV consultation with New Zealand, Executive Directors endorsed staff’s appraisal as follows:

Outlook and risks. The pace of New Zealand’s economic recovery is likely to remain modest. Output growth should pick up somewhat in 2012 as earthquake reconstruction spending is expected to gain pace, but the size and timing of this spending is still uncertain. High household debt is likely to weigh on the growth of private consumption as households will need to save to strengthen their balance sheets. The spare capacity and elevated unemployment will contain wage and inflation pressures in the near term. The risks to this outlook are on the downside and largely external, stemming mainly from emerging weaknesses in the global economy and a possible upheaval in the global financial system. The flexible exchange rate would provide an important buffer against shocks.

Monetary policy. The current accommodative monetary stance is appropriate. If the recovery remains on track and downside risks dissipate, monetary policy will need to tighten gradually to contain inflationary pressures. However, if the global recovery stalls or international capital markets are disrupted, the RBNZ has scope to cut the policy rate and provide liquidity support for banks.

Fiscal policy. The planned deficit reduction path strikes a balance between the need to contain both public and external debt increases while limiting any adverse impact on economic growth during the recovery. The authorities’ plan to return to budget surplus by 2014/15 should put New Zealand in a better position to deal with future shocks and the long-term costs of aging. Moreover, it will relieve pressure on monetary policy and thereby the exchange rate, helping contain the current account deficit over the medium term. New Zealand’s relatively modest public debt gives the authorities some scope to delay their planned deficit reduction path in the event of a sharp deterioration in the economic outlook.

External vulnerabilities and the exchange rate. New Zealand’s large net liabilities present a risk. Despite recent improvements, the current account deficit is projected to increase over the medium term as earthquake reconstruction activity gains pace and global interest rates normalize. To contain this increase and limit a further buildup of foreign liabilities over the longer term, the New Zealand dollar would need to be weaker than its current level. However, part of its current strength may dissipate over time with the eventual tightening of policy rates by major central banks. Increasing national saving, including through the planned fiscal deficit reduction, would reduce external vulnerability.

Financial sector issues. Banks remain sound, but they are exposed to highly leveraged households and farmers and rollover risks associated with large short-term offshore funding needs. While New Zealand’s bank regulatory norms are more conservative than in many other countries, the authorities should assess on an ongoing basis the balance between banking sector vulnerability versus efficiency to minimize the risk that systemically important banks pose to the economy. Options to strengthen prudential norms if needed could include setting banks’ capital requirements above the Basel III minimum or raising the core funding ratio more than the planned 75 percent to reduce short term external debt further. The RBNZ’s continued work on the costs and benefits of macroprudential measures is welcome, as is the authorities’ intention to implement key features of Basel III in early 2013.

Source | International Monetary Fund - Blog NEWS | http://imf-news.blogspot.com/2012/06/imf-executive-board-concludes-2012_19.html