Pound/Euro exchange rate forecast Outlook

Monday 10th December 2012

Good morning. Sterling Euro rates hit a 5 week low last week, before staging a slight recovery on Thursday and Friday. As always for a Monday, today I will take a look at what has moved the rates in the last week, and take a view on what the forecast for Pound/Euro exchange rates moving forwards. 

In today's report:

• Pound/Euro hits 5 week low before recovering on Friday


• Effect of budget statement on exchange rates


• Weakness after ECB speech pulls the rate higher again


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

Sterling vs. Euro; 

With last week’s Autumn Statement and data releases you would have expected substantial movement on both sides of the channel, and some significant movement for the GBP/EUR cross. Unsurprisingly with the ever so unpredictable currency markets the pair remained range bound with a 1 week movement within 0.65%. This week’s report will look at what has affected the rates and why Sterling seems to have put a stop to the recent decline in rates and strengthening Euro. 

 

So what happened with rates last week?

Markets opened at €1.2331 last Monday with a raft of data from the Euro zone, UK and States; Sterling was seen as the best performer as with a Purchasing Managers Index (PMI) of 49.1 (predicted 48.0). Across the Chanel, the Euro zone scored 46.2 with Greece coming bottom of the pile at 41.8. Albeit positive news for the UK sentiment it didn’t actually affect the rates much as the GBP/EUR cross seemed to be awaiting the Autumn Statement from George Osborne on Wednesday with Interest rate and GDP figures out on Thursday. 

What effect did the Autumn statement have?

The Autumn Statement was announced Wednesday with changes in Income Tax, Tax Relief, Capital Spending and Welfare; with the most worrying aspect being that debt reduction targets were behind schedule. This lack of progress could indicate towards a future downgrade of Britain’s AAA rating which would hinder the UK’s ability to borrow at current levels reducing the value of the pound. This could also mean further Quantitative Easing for the UK, putting Sterling at risk somewhat. 

Euro weakness pushes the rate higher again

There was however some good news for the Pound/Euro rate on Thursday as President Mario Draghi said “economic weakness will persist next year”. The European Central Bank (ECB) cut its growth forecasts and the Euro weakened as the mid-market moved up 0.5% within the space of an hour; further weakness continued through Friday as the Bundesbank slashed the 2013 German Growth Forecast from 1.6% to 0.4%. The Frankfurt based central bank did say it would recover to 1.9% in 2014. 

So from the 5 week low for the GBP/EUR cross, rates could come back up due to the weakness in the Euro zone. Alternatively, we could also see further Quantitative Easing (QE) out of the UK as debt reduction targets are behind schedule, and more stimulus might be required to help and bolster growth in the UK, potentially weakening Sterling. So the tug of war between Sterling and Euro continues, with no clear consensus on which direction things will go in the coming weeks and months. 

So what does this mean if you are looking to fix a rate or make the most out of your funds? 

If you are looking to purchase Euro’s at the moment, yes the rates have come down from the August High of €1.2878, but we're still looking pretty good at the €1.24 level. If you need to buy Euros, it's important to remember that at the end of last year you would have seen the mid-market nearer to €1.13. 

A typical purchase of €200,000 would now cost you over £15,000 less! Certainly if I needed Euros, I'd be happy to trade above €1.24 and would not want to risk losing out more should the UK have it's credit rating downgraded.

If you are looking to sell Euro’s and you are wary of the problems in the Euro zone or you are in the process of signing for a property a Forward Contract is a great tool for securing your price ready for completion. 

A Forward Contract takes the volatility out of the market and means you know exactly where you stand once you have completed either selling or buying a property abroad. 

Another option for Euro sellers is a Stop Loss order. This allows you to continue taking any gains, but should the market move against you, you can place an order to trade at a certain level, limiting any potential loss should the market go against you. 

To find out how Forward contracts operate, along with all the market contracts available to you hy not send me a free enquiry now. I can provide a free consultation on all the options available to you. 

Click here to send a free enquiry now.

Weekly Economic Data that may affect exchange rates 

Monday – There is no UK data of note today. There is however a raft of data from the Eurozone including German Trade Balance and wholesale prices, Italian Industrial Output and GDP figures, Greek inflation data and Industrial production, in addition to an EU wide investor confidence Survey. 

Tuesday – Today we have UK House Price Balance from RICS. There is also a bond auction in the UK. In the Eurozone we have the German & EU wide ZEW survey on economic sentiment. Over in the United States we see Trade Balance numbers and wholesale inventories. Further afield, Australia has a consumer confidence survey. 

Wednesday – It’s all about unemployment in the UK today, as we will see the claimant count, unemployment levels and average earnings data. Later in the morning we have a speech by one of the BoE’s MPC members, so this could cause volatility for Sterling. In the Eurozone inflation is the order of the day, with the latest numbers from Germany and France. Over in the USA we will see Imports and Exports, an interest rate decision from the FED, the latest FOMC economic predictions and a budget statement. 

Thursday – Unusually quiet in the UK for a Thursday, with only a CBI industrial trends survey. In the Eurozone we will see inflation data for Spain and Italy, and also Greek unemployment and the ECB monthly report. There is also a European Council meeting which will discuss the debt crisis. In the states we have inflation, Retail Sales & Business inventories. 

Friday – We end the week with Services & Manufacturing PMI from Germany France and the whole EU. Over in the US we have a raft of inflation data in addition to Industrial production. There is nothing of note from the UK.
 

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/2012/12/poundeuro-exchange-rate-forecast-outlook.html

Autumn statement effect on exchange rates

Wednesday 5th December 2012 

Good afternoon. The market has now stabilised after the Autumn statement by the chancellor. In this afternoons post I’m going to have a quick look at the effect of the statement, and also what is coming up in the next few days that could affect exchange rates. 

Effect of Autumn budget statement on exchange rates 

This is an easy one to sum up; there was little to no reaction at all! Sterling had been falling in the run up to the announcements anyway, and this morning was at a 1 month low against the Euro. As is often the case, the currency markets move more on rumour than actual fact, and the Pound was already vulnerable as investors braced for grim tidings from the UK's finance minister in his half-yearly budget statement. This is how GBP/EUR has moved today:

The market has already been anticipating a difficult Autumn Statement and this was for the most part already priced in to rates. Earlier this morning, the pound barely reacted to a survey showing Britain's service sector grew at its slowest pace in almost 2 years. The PMI number was below forecasts, but still just above the magic 50 level, which signals growth, which is probably the reason we saw hardly any movement. 

You can see in the chart above the market was already at its lowest before the speech, and the Pound/Euro rate actually recovered by around 0.3% just before Mr Osborne starting speaking. During the speech we saw basically no movement at all, as there were no surprise announcements. 

You can read a quick guide here as to what the statement contained from the BBC. The only real thing of interest was the scrapping of a planned 3p rise in fuel duty. Also of interest to the currency markets were the growth forecasts which are now predicted to be -0.1% in 2012, down from 0.8% predicted in the Budget. Forecasts for next few years are: 1.2% in 2013, 2% in 2014, 2.3% 2015, 2.7% in 2016 and 2.8% in 2017.

Quantitative Easing announcement tomorrow

Lowered growth forecasts could open the way to more quantitative easing by the Bank of England QE is generally perceived as negative for a currency. But if the fiscal austerity programme is relaxed too much that could also be negative as it would bring the UK's triple-A rating into question. 

The next announcement on QE is tomorrow lunchtime, when the Bank of England will announce whether or not they will increase the measures. We will also see the Bank of England and European Central Bank announce their latest decisions on interest rates. 

I don’t’ expect any surprises on either QE or interest rates. In the run up to Christmas it’s highly unlikely that there will be any changes, but depending on how economic figures are in the next few weeks, we may see more QE in the early part of next year.

• Do you need to buy or sell Euros? 


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Source | Foreign Exchange Rate Forecasts | http://foremostcurrencygroup.blogspot.com/2012/12/autumn-statement-effect-on-exchange.html

Pound/Euro exchange rate forecast December

Monday 3rd December 2012
Good morning everybody. It's a new month, and today I'll take my usual retrospective look at what happened last week, why the Pound/Euro rate fell, and what the month of December may hold in store for Exchange Rate forecasts for the best Pound/Euro exchange rates.

In this week’s Report: 

• Pound/Euro rates fall on Bailout news 


• New Governor for the Bank of England 


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

Sterling vs. Euro; 

Pound/Euro rates dropped to a 5 week low on Friday last week, as the Euro gained further strength due to the fact progress has been made with bailouts for troubled EU countries such as Greece and Spain. The main cause for the strength was the approval of Greece’s next bailout payment, which was uncertain in the early part of last week. As you can see from the chart below, rates have been in decline for some time, which will cause concern for anybody needing to purchase Euros. 

 
Why has the Euro strengthened? 

The strength came as the German parliament has approved a Eurozone bailout payment of 44bn euros (£32bn; bn) for Greece by a large majority despite unease about the cost. Before Friday's vote, Finance Minister Wolfgang Schaeuble warned German MPs that the fate of the Eurozone was at stake in Greece, which has had two huge international bailouts in recent years. "A Greek bankruptcy could lead to the break-up of the single currency area," he said. 

Despite the fact that Greece's government had carried out reforms and passed a harsh austerity budget, the release of the next round of money was delayed for weeks by a disagreement between its lenders - the International Monetary Fund (IMF) and European Central Bank (ECB). The European Commission has set out a timetable for integration, including plans for a separate budget and joint issuance of debt. 

In the short term the commission's chief, Jose Manuel Barroso, envisages a new fund inside the EU budget to speed up structural reforms. The instrument - essentially a fund for struggling economies in the 17-nation currency bloc - would require governments to sign "contracts" similar to the strict conditions demanded for bailouts. Mr Barroso said: "We need a deep and genuine Economic and Monetary Union in order to overcome the crisis of confidence that is hurting our economies and our citizens' livelihoods." 

The news was welcomed by the markets, and the Euro gained strength as a result, causing it to become more expensive and pushing GBP/EUR rates lower. 

New BoE Governor announced, what could this mean for Sterling? 

In other news last week, the appointment of Mark Carney as the new Bank of England governor has been generally welcomed. However, with an expanded brief which includes overseeing the health of the country's banks, it will be a tough job. 

The first foreigner to be appointed Governor of the Bank of England in its 318-year history said he was “going to where the challenges are greatest”. He is currently the governor of the Bank of Canada, and will replace Sir Mervyn King next summer after the Chancellor decided against another British candidate for the role. 

Mr. Carney, 47, who had previously ruled himself out of the running for the governorship, is credited with helping to protect Canada from the global economic crisis. It is one of the few countries to have recovered fully from the financial meltdown. His appointment came as a surprise to City experts who had predicted that Paul Tucker, the deputy governor, would be promoted. 

What this means for the Pound is uncertain. Some say he is more of a ‘hawk’ than outgoing governor Mervyn King, who for some time has been talking the Pound down. However the challenges that Canada faced are very different to ours, mainly as the fact they avoided recession was due to the fact they are a commodities based currency. We will have to wait and see what his approach means, but in general the news has been welcomed by the markets. 

Summary for Pound/Euro rates 

We have seen rates fall for several weeks now, due to renewed strength in the Euro. Despite UK growth forecasts being revised up, Sterling is failing to make any gains against the Euro. Given there have been warnings the UK may head back to recession, there is every chance rates could continue to drop away, however if we get better growth figures this week, the Pound could make a recovery. 

Regardless whether you need to buy or sell Euros, contact us today to discuss the different options you have available to you. It’s free to have a consultation, and in this way you can find out how to protect against the rate moving against you, and make sure you are making the most of your currency. 

Click here to send me a free enquiry. 

Weekly Economic Data that may affect exchange rates 

Monday – It’s the start of a new month, and the first data release of note is UK House prices from the Halifax. We will also see some UK inflation data this morning. In the Eurozone we have various inflation numbers which could dictate future interest rate movements. Elsewhere we have US Construction Spending, Vehicle Sales, Inflation data and a speech from the FED. 

Tuesday – Today’s UK data comprises Retail Sales numbers and Construction figures. The EU wide inflation figures at 10am could affect GBP/EUR prices. From Canada we have an interest rate decision. 

Wednesday – We kick off with Australian GDP figures. Later in the morning we have another host of inflation numbers from the Eurozone, in addition to Retail Sales. The UK also releases some inflation figures. Over in the USA we have Mortgage applications, Employment numbers, Factory Orders and Inflation Data. 

Thursday – An important day for the UK today. At 09:30am we have Trade balance figures. Later in the morning we have the latest decision on Interest Rates and Quantitative Easing. Both of these have been key to Sterling’s weakness recently. EU data today comprises of French Unemployment numbers, EU wide GDP figures and the latest interest rate decision from the European Central Bank. There are some Jobless numbers from the USA at 13:30pm and in the evening New Zealand announces its interest rate decision. 

Friday – We end the week with UK House Prices, Industrial & Manufacturing Production and the latest inflation numbers. There is also a GDP estimate in the afternoon that could affect the value of the Pound. In the EU we will see French Trade Balance data and German Industrial Production. Stateside we have Earnings data, Unemployment, Non-Farm Payrolls and a Consumer Sentiment Survey.

 

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/2012/12/poundeuro-exchange-rate-forecast.html

Pound/Euro exchange rate forecast

Tuesday 28th August 2012
Good morning. Today I'll take my usual retrospective view on what caused the Pound/Euro rates to drop away, and the events in the coming weeks that will dictate the direction of exchange rates and the Pound Sterling forecast in the coming months.

In this week’s Report:

• Pound/Euro rates decline as ECB poised to take action
• UK Economy didn’t shrink as much as thought
• Pound/Dollar rates hit 3 month high on QE threat
• Round up of the week’s other data that may affect rates

Sterling vs. Euro;

Last week we saw the single currency strengthen significantly, causing the pound euro rate to drop away. Trading opened Monday morning around the 1.2760 mark and steadily dropped throughout the week closing on Friday afternoon around 1.2630 as the graph below shows. In this week’s report we will look at the causes as to why the Euro has reached a two week high against Sterling, and what the coming weeks and months may have in store for the GBP/EUR rate.













Last week’s trading opened with sterling holding firm in the mid 1.27’s, relatively close to the best rates in 4 years. As is often the case though, spikes such as this are usually short lived. The great exchange rates didn’t last long, as expectation grew within the markets that the ECB will take action to ease Spanish and Italian borrowing costs.

The renewed expectations of some progress on the debt crisis saw investors pre-empting the ECB’s next move, and resulted in investors moving their funds from the safe haven of the Greenback and back into the single currency, giving it strength and pulling the exchange rate down. The possibility of ECB action came in tandem with the news that public net borrowing in the UK has increased unexpectedly, in a time where the UK government is continuing to make cuts, weakening the Pound.

It's not all bad news!

There was some good news for the UK however on Friday, when figures showed that the UK economy shrank by less than previously thought between April and June. Revised data from the Office for National Statistics (ONS) show the economy contracted by 0.5% during the quarter, less than the 0.7% it announced last month. It didn’t have much of an effect on rates however, as many economists had expected the figures to show a smaller contraction and so for the most part, this was already priced in to rates, and was overshadowed by events in the Eurozone.

So what next for the Euro?

After a summer lull, the euro zone faces two months that will go a long way to dictate whether its debt crisis, now into a third year, will spiral out of control or finally be contained. The ECB appear to have temporarily stopped the rot and are now looking towards fast effective austerity measures.

In the next few weeks, we will see ECB inspectors travel to Athens to assess its debt cutting targets. There is also an ECB meeting where Mario Draghi will try to garner support for the Central Banks plan to bail out struggling economies, the ECOFIN meeting in Cyprus will see EU finance ministers thrash out plans to help Spain and Italy, and Spain will conduct an audit of its banks to see how much of the available bailout funds it will need. So, the future of the GBP/EUR rate hinges on what results from the above events.

What you can do if you need to buy or sell Euros.

With so much uncertainty over what will happen in the EU, the exchange rate could move significantly in either direction in the coming weeks. Due to this, many clients are choosing to remove any risk from the market and lock into a Forward Contract. This enables you to fix today’s exchange rates for up to 2 years into the future, allowing you to budget effectively, protecting against adverse exchange rate movements, and most of all give you peace of mind in a volatile and confusing market.

To discuss this and other options available to you, contact me now.

Weekly Economic Data that may affect exchange rates

Monday – UK Markets were closed for Bank Holiday, but there were some numbers from Germany showing Import Prices and Business Climate expectations. In a quiet market the figures had little effect on exchange rates.

Tuesday – UK Markets reopen but there are no data releases of note. In the Eurozone we will see German Retail Sales and Consumer Confidence, in Spain the latest GDP numbers are released. In the United States we will see Consumer Confidence and a Manufacturing Survey.

Wednesday – Relatively busy today. In the Eurozone we’ll see German Inflation Data, Italian Retail Sales and Consumer Confidence, Greek Inflation numbers and French Business Climate assessment. In the USA the Fed’s Beige Book looks at the current economic satiation, in addition to GDP numbers released at 13:30pm.

Thursday – In the UK today we have Mortgage Approvals, measures of Consumer Credit and Consumer confidence numbers. In the Eurozone we see German Employment figures, Consumer Confidence numbers from Spain and the whole EU, and EU wide measures of Consumer Confidence, Industrial Confidence and Economic sentiment. Stateside sees Jobless Claims.

Friday – A quiet end to the week. Spanish and Greek Retail Sales, Italian Unemployment and inflation numbers, EU Consumer Price Index. In the USA we have a Speech by the FED chairman and a measure of consumer sentiment.

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/2012/08/poundeuro-exchange-rate-forecast.html

Portugal Real Exchange Rate in the EZ

Flashback

From 1995 to 2001 the large decrease in nominal interest rate (panel 1) fueled an expansion in private expenditure (panel 2) financed with debt (panel 3) while the increase in demand pushed nominal labor compensation to ran a rate of 6 percent per annum, a rate well above labor productivity, and GDP inflation to increase to 4 percent per annum. The result was a large and rapid loss in competitiveness vis-a-vis the eurozone partners (panel 4). During and after the recession of 2002, labor compensation and final prices inflation decelerated, but not sufficiently, and Portugal competitiveness continued to, this time slowly, deteriorate against the other eurozone members (panel 4). (click to enlarge)

Competitiveness

A measure of REER based on ULC vis-a-vis the rest of the eurozone, normalized to 100 in 1995, was at 83.4 in the the fourth quarter 2011 implying a cumulative loss of 16.6 pp. A similar measure based on GDP deflators was at 88.3 implying a cumulative loss of 11.8 pp.

Consequences ?

The observation that the real exchange rates remained misaligned so persistently (the GDP deflator REER moved very little since the starting of the euro) leads to the following question: will the REER have to adjust back to the 1995 level or even overshoot to remedy the accumulated consequences of overvaluation?  One argument for overshooting is that the accumulation of net external debt means that the current account cannot be balanced simply by returning to the initial real exchange rate. Now there is a deficit stemming from the increased debt service (and much lower remittances). Therefore, to restore current account balance, an over-depreciation might be required. However not every model/economist agrees on the necessity of the REER adjustment. Another old dispute.

P.S.
One has to remark that last year current account adjustment has been extraordinary and mainly driven by net exports. An interesting question is to explain how this improvement occurred. 

Source | The Portuguese Economy | http://theportugueseeconomy.blogspot.com/2012/09/portugal-real-exchange-rate-in-ez.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

Pound/Euro exchange rate forecast outlook

Monday 19th November 2012
Good morning. Another Monday morning, so let's take a retrospective look at what happened with exchange rates this week. In today's post I'll also look at some of the tools you can use to protect against exchange rates moving against you.


In this week’s Report: 

• Bank of England warns of triple dip recession


• Greek bailout casts shadow over Eurozone 


• US Dollar strengthens 


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

Sterling vs. Euro; 

After a crazy week on Sterling/Euro last week, many people will be looking at this week a little unsure as to how their own requirements will play out. Many thought sterling would start to stretch its legs against the single currency as it started the week by pushing up to a 6 week high on the cross by Tuesday. 

This bullish run for the pound was, as often is these days, more of a dash than a marathon as BoE Governor Mervyn King poured his customary glass of icy water over the hopes of strong UK economic growth. By predicting that growth will follow a long and winding road, and saying there could be scope for further QE as it is only assessed every month and not forecasted; King and his MPC colleagues moved the market down over a point in a single trading session on Wednesday after their inflation report. 

It should come as no surprise that the pound fell on the back of Kings’ speech, as it is certainly not the first time. It is also no coincidence either; throughout the financial crisis a tenet of BoE policy has been to keep the pound weak to aid UK exports to both boost economic growth and support the UK’s payments deficit. We will find out even more detail from the central bank when they release their minutes of the last meeting, on Wednesday.

The effect of the Eurozone crisis on Pound/Euro rates

What Mervyn King cannot control however, is the performance of the much maligned Euro zone economy. Figures at the end of last week showed that the 17 nation currency area returned to recession and gave the weekly graph a kick in its tail with the rate forced up on Friday, just not quite as high as it got to on Tuesday. 

One of the reasons the rate did not drive further and may not do so is the closeness and interdependent nature of the UK and Euro zone economies. Although the Euro zone appears to be teetering on the edge of disaster and the UK has posted good growth for the last quarter, the short-term forecasts still do not expect a sustained sterling rally. 

Every bail out of sovereign states strengthens the Euro as investors take it as a signal of solidity in the euro zone and the threat of a Spanish bailout, an economy which dwarfs Greece’s, would potentially see a large swing in the Euros favour. 

How to protect against rates moving against you

So going forward, if you are looking to buy Euros you should consider placing a Stop Loss order.This is where you can instruct us to purchase your currency should it drop below a pre-agreed level. 

For example, if you have set your budget at 1.22 you can then take a bit of a gamble on rates getting better, but have a safety net in place should rates fall. This is a good way to approach the current market, as it means you don’t lose out on all the recent gains and can still trade at a reasonable level. 

Click here to find our more about our rates and service.

Weekly Economic Data that may affect exchange rates 

Monday – Rightmove releases the latest UK House Prices this morning showing how that sector is performing. Eurozone data includes Italian Industrial Sales & EU wide construction output. We may also see news on Greeks latest bailout. Over in the United States we have House prices. 

Tuesday – There are no UK releases today. In the EU we have German inflation data and the EcoFin meeting. Further afield we have the latest minutes from the Reserve Bank of Australia. 

Wednesday – Quite an important day for the UK as we have the BoE minutes from the latest MPC meeting, which will show the discussions regarding Quantitative Easing. There are no EU releases of note. USA data today comprises of Jobless Claims, Mortgage Applications and a Consumer Sentiment survey. 

Thursday – Fairly quiet in the UK today with only a minor industrial trends survey being release. There is a host of inflation numbers from across Europe that could affect GBP/EUR rates however. There is also an EU consumer confidence survey. 

Friday – Mortgage approvals is the only notable release from the UK this morning. In the EU we have German GDP figures and a European Council meeting. There is nothing of note from the US.
 

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/2012/11/poundeuro-exchange-rate-forecast-outlook.html

Getting the best GBP/EUR exchange rates

Monday 24th September 2012
Good morning. It's the start of a new week, so as usual I will look at what has happened with Pound/Euro rates over the last week, where rates may head based on what we know about the current economic situation, and also a round up of the most important data releases this week that I think could have an impact on exchange rates.

In this week’s Report:

• Pound/Euro rates recover from 3 month low


• More QE could be on the way from the Bank of England


• Sterling/Dollar at near 13 month high


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

 Sterling vs. Euro;

 

So what's been happening?

 

Over the last few weeks the Pound vs. Euro rate has been steadily dropping as investors become more confident about the Eurozone tackling its debt problems. During this time we have seen the exchange rate drop from a 4 year high of €1.2860 down to the lowest in 3 months when we touched €1.2350. This demonstrates not only how volatile the market is at present, but also the affect fluctuating exchange rates can have on any currency requirement. In just a few weeks the cost of a €200,000 property has fluctuated by nearly £7000.00.

 

So what is causing the volatility and what can we expect to see in the coming weeks?

 

It’s really all down to confidence in the Eurozone. When we hit the highs, there were significant concerns over the Eurozone’s debt issues which had weakened the Euro significantly. In the last few weeks however, we have seen Germany give the go ahead for the regions new rescue fund and the European Central Bank laying down bold plans to lower the borrowing costs for struggling countries. This is what has caused GBP/EUR rates to fall as confidence returned to the single currency.

 

In the last week however, poor euro zone business activity data fanned concerns about a deepening recession in the region, helping the Pound /Euro rate rise back to around the €1.25 level. The Euro has fallen in value as gloomy euro zone purchasing managers' surveys suggested the European Central Bank's plan to buy the bonds of indebted euro zone countries has yet to bolster business confidence.

 

So will rates now continue rising or is this just a short lived spike?

 

Any significant gains are probably unlikely, due to the impact of the fragile Eurozone economy on the UK, which has strong trade links with Europe. We have actually seen better UK data recently, including signs of falling unemployment and a strong rise in industrial production, which suggest the economy may have recovered in the third quarter. However, Bank of England minutes released last week showed that some policymakers felt the UK economy may need more stimulus, keeping alive speculation the central bank may extend its £375 billion QE programme in November.

 

Weak fiscal numbers (such as Friday’s data showing UK borrowing is more than 25% over target) will keep the pressure on the BoE to ease monetary policy further to support growth, and more QE may well weaken Sterling as it has in the past. Governor Mervyn King gave a downbeat assessment of the British and world economy last week, and warned the euro zone could yet fall apart.

 

Summary 

 

So in a nutshell, GBP/EUR rates are being pulled in both directions; renewed concerns over the Eurozone are weakening the Euro, however concerns over more QE in the UK and how the EU debt crisis may affect our economy are holding Sterling back from making significant gains. Where rates will move in the coming weeks comes down which way this currency tug of war goes, which in turn depends on confidence in the Eurozone. Forecasts from the major players differ wildly from as high as €1.29 to as low as €1.18 by year end, illustrating how uncertain things really are.

 

In times like these, simply leaving things to chance is a very risky strategy, and you could end up with a rate much worse than necessary. You can take some control over the market by knowing what tools are available such as Stop Loss, Limit Orders and Forward contracts. Having a free consultation with us will allow you to employ a strategy that is right for you, and having a framework in place means you can budget effectively and not be caught out by unexpected swings in the rate such as we have seen recently.

 

If you need the best exchange rates send me a free enquiry now. 

 

Weekly Economic Data that may affect exchange rates

  

Monday – In the UK today we will see the latest House Prices which reflect overall economic health. In the Eurozone there are Italian Trade Balance figures, German economic assessments and Import prices. There is nothing of note from the USA other than some minor manufacturing numbers.

 

Tuesday – There are no UK releases at all today. There is a meeting between ECB president Mario Draghi and German Chancellor Angela Merkel, which could throw up some surprises and affect the value of the Euro. Staying in Europe, we have Consumer Confidence measures from Germany and Italy. Elsewhere, the USA has some consumer confidence and house price measures, and New Zealand releases its latest Trade Balance figures.

 

Wednesday – A big day for Germany today, with the latest Inflation data and Retail Sales numbers being released. We will also see the UK CBI trade survey, although it doesn’t usually affect GBP very heavily. Across the pond we have the latest US Mortgage Applications and home sales numbers.

 

Thursday – It’s likely to be a choppy day for Sterling/Euro. Starting in the UK we have the latest GDP numbers in addition to confidence and Business investment measures. In the Eurozone we see Consumer Confidence, Industrial Confidence, Money Supply and Germany unemployment. In the United States there are measures of Jobless Claims, Home Sales and Durable Goods orders.

 

Friday – There are no significant UK releases today. In Europe we have French GDP and Consumer Spending, Italian & Greek Inflation Data. In the United States there are various measures of personal Spending and inflation.

 

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/getting-best-gbpeur-exchange-rates.html

Pound/Euro forecast and Best Exchange Rates

Thursday 11th October 2012
Good morning everybody. In today’s post I’m going to have a look at how exchange rates have fared so far this week against the Euro and the US Dollar, in addition to the types of contract that are available to help you make the most of your currency if you are looking for the best exchange rates.   

Sterling falls against Euro, before making modest recovery

During the first part of this week, the Pound/Euro rate steadily slipped away, at one point dropping to the low €1.23’s. The main reason for the drop was a very IMF forecast that predicted the UK economy would remain in recession for the rest of the year. This caused investors to shun the Pound and this caused it to steadily weaken, pulling exchange rates down.

The decline halted on Wednesday however, and rates started to recover and climbed back into the low €1.24’s. There was no specific data that caused the gains; it was simply the fact that after several days of losses, investors started to buy back into Sterling, causing a modest gain in the exchange rate.

So what’s the forecast, will rates recover or start to drop again?

As always this is impossible to answer, however the recent gains are not likely to last in my opinion, die to the weak UK economy and the prospect of more Quantitative Easing next month from the Bank of England. The poor numbers coming out of the UK at the moment really put pressure on the Bank of England to print more cash under its quantitative easing programme, and I expect this to happen in November. There is also talk that they may move the Interest down to new record lows, and if these things happen then it will undermine the pound in the near term and may cause a drop in rates.

Economists' forecasts for the UK have worsened steadily this year and the third quarter is expected to show only very modest growth. The weak data will increase concerns that the government will fail to deliver on its plans for cutting the deficit. This would raise the risk of the UK losing its prized AAA credit rating which could also weigh heavily on Sterling.

In a speech on Tuesday, BoE Governor Mervyn King talked about the pros and cons of inflation targeting, suggested policymakers were focusing on QE as the main policy tool for providing further easing. To me this suggests he is setting the scene for more stimulus. We will see.

So that’s that then, rates are going to fall?

They may do if we only look at UK data, however other events globally are also moving the exchange rates. Focus is back on Greece as rioters tried to disrupt Angela Merkels recent visits.

The debt crisis there is far from over, and if investors globally become uncertain over what will happen with regards to further bailouts, then the Euro could weaken and rates could start to rise again. So it’s still the case that rates are being pulled in 2 directions, and there is no way to know which way the trend will go.

If you need to buy or sell foreign currency, what should you do?

There are various options you can look at, but what you shouldn’t do is leave things to chance and just hope rates will move your way.

There are many options which you can use to protect yourself against rates moving against you, for example Forward contracts, Stop Loss and Limit orders.

Forward Contracts

A ‘Forward Contract’ allows you to eliminate the risk of fluctuating exchange rates by locking in an exchange rate today for a transaction that will take place up to 2 years in the future. Forwards are very popular when buying overseas, as it allows you to fix a rate on the balance due at the same time as securing your deposit, thus protecting you from unfavourable movements in the market. A 10% deposit is required to secure the contract.

Stop Loss and Limit Orders

For those less risk averse that are happy to gamble on the rate moving up in their given time frame, 2 other contracts are available: Stop Loss and Limit orders. A Stop Loss order will protect you against adverse exchange rate movements and secure your currency if it falls below a pre-agreed level, giving you a worst case scenario while still allowing you to take advantage of any gains in the rate should the market move in your favour.

A Limit order is the opposite; it is placed to secure currency at a specific price that may not be currently available. This type of contract is particularly useful when the markets are moving in a positive direction for you. If you have a target rate you are aiming for, you can place a Limit order to buy should it get there, while having a Stop Loss order in place to protect against adverse movements.

Get in touch today


Regardless of whether you are buying or selling currency, you should take the opportunity to have a free consultation on the options available.

Click below to send me a free enquiry now, and I can get in touch to discuss your requirements, run through your options, and explain how we can help you get the best possible exchanger rates I look forward to hearing from you.


Click here to send me a free enquiry

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

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/2012/10/poundeuro-forecast-outlook-2012-best.html

Foreign Exchange Market Commentary

EUR/USD closed lower due to profit taking on Tuesday while extending last week's trading range above the 20-day moving average crossing. The low-range close sets the stage for a steady to lower opening on Wednesday. Stochastics and the RSI remain neutral to bullish signalling that sideways to higher prices are possible near-term. If it extends the rally off this month's low, June's high crossing is the next upside target.

USD/JPY closed higher due to short covering on Tuesday but remains below the 20-day moving average. The mid-range close sets the stage for a steady opening on Wednesday. Stochastics and the RSI remain bearish signalling that sideway to lower prices are possible near-term. If it extends Monday's decline, the reaction low crossing is the next downside target. Closes above the 10-day moving average crossing are needed to confirm that a short-term low has been posted.

GBP/USD closed lower on Tuesday as it continues to consolidate above the 20-day moving average crossing. The low-range close sets the stage for a steady to lower opening on Wednesday. Stochastics and the RSI are neutral to bearish hinting that a short-term top might be in or is near. Closes below the reaction low crossing would temper the near-term friendly outlook. If it extends this month's rally, June's high crossing is the next upside target.

USD/CHF closed lower on Tuesday while extending this summer's trading range. A short covering rally tempered early losses and the mid-range close sets the stage for a steady opening on Wednesday. Stochastics and the RSI have turned bearish hinting that a short-term top might be in or is near. Closes below the 20-day moving average crossing would temper the near-term friendly outlook in the market. If it extends the rally off June's low, trading range resistance crossing is the next upside target.

Source | Forex Update | http://adeel-forex-update.blogspot.com/2009/07/foreign-exchange-market-commentary.html

Canton Rotary Club gears up for foreign exchange student

In a skit at Wednesday’s meeting of Canton Rotary Club, a Yugoslavian Youth Exchange Student told about her first experiences in the USA. Local Rotarian Diana Tucker played the role of Sasha Pavletich, a 16-year-old exchange student from Yugoslavia, who had arrived at the Peoria airport just a day prior to coming to greet the Canton Rotary Club. Robert Ritschel played the role of Leo Tonetti and Kathy Taber the role of Leoett Tonetti, host parents to Pavletich.

Rotary International was founded in 1905 in Chicago, and is the world’s oldest service club. The object of Rotary is to encourage and foster the ideal of service as a basis of worthy enterprise, and to encourage and foster the highest ethical standards in business and professions.

For more information about hosting a student, or becoming an exchange student, contact Stanko at 647-7567 or Tucker at 647-5917. The program is open to students ages 15 to 19.
Rotary Youth Exchange was first established in the 1920s in Denmark. It has grown to host more than 9,000 students yearly.

Source | Forex Update | http://adeel-forex-update.blogspot.com/2009/07/canton-rotary-club-gears-up-for-foreign.html

Guest Article: The INR-USD Exchange Rate – Will the Rupee Depreciate?

By Ashutosh Gupta, Vice President of Investment Research and Chief Transition Officer, Evalueserve and
Surbhee Sirohi, Manager in the Investment Research group, Evalueserve .
May 2011.

The USD-INR exchange rate is an important indicator of investor sentiment and can significantly impact not only the fortunes of individual firms and sectors but also the government. While this exchange rate has been very stable overall for the last five years, there have been periods of significant volatility. For example, USD-INR moved from 40 to 51.50 from March 2008 to March 2009. We believe there is a significant downside risk to USD-INR exchange rate and will explore some of the risk factors here:

•  Inflation is at an all-time high; the Consumer Price Index (CPI) increased by 10.88% in 2009 and by 13.19% in 2010. The monetary policy changes to control inflation have been ineffective. We believe this is because inflation is being driven primarily by structural supply side challenges such as lack of agricultural infrastructure, low crop yields, low organized retail penetration, and lack of import buffer for staples such as pulses where India is one of the main producers worldwide.

Figure 1 depicts the percentage change in the consumer price index (CPI) over the last ten years.

Figure 1: Inflation – Percentage Change in Average Consumer Prices (2000–10)

Figure 2 highlights the comparison of yields for select crops.

•  India as one of the fastest growing economies should be a favoured destination for investment. Nevertheless, it witnessed a decline in Foreign Direct Investments (FDI) in 2010, making it the only BRIC country where this happened. This is troubling as FDI is an important indicator of investors’ faith in a country’s long-term prospects. Foreign Institutional Investment (FII), which provides short-term portfolio investment money inflows, has been buoyant, but these funds are volatile by nature and are prone to “flight risk”, something that happened during the financial crisis. Most countries prefer FDIs to FIIs. India in 2010 experienced a decline in FDI although FDI increased globally (see Figure 4).

• Recent widespread corruption scandals have reinforced the negative perception of governance deficit in India. This, combined with regulatory and tax uncertainty, will deter foreign investors. For example, several global firms who invested in India’s telecom sector have had to write off billions of dollars of their investments.
• A major source of foreign currency inflows to India is remittances; India received USD 55 billion in remittances during 2010. The Middle East accounts for a major share of this inflow and the current turmoil in the region may negatively influence it.
• The combined central and state government deficit has stubbornly stayed around 10% of GDP. Another major concern is that India imports about 70% of its oil and efforts to increase the production capacity of petroleum and natural gas domestically have not been very successful.
• India’s current deficit is about 3%, the level it reached during the crisis of the 1990s. A current account deficit is not bad by itself for a growing economy if it helps build important long-term productive assets. Unfortunately, some of this money already seems to be feeding speculative real estate activity instead. This is exacerbated by the fact that the more volatile FII money (and not the more stable FDI) is funding the current account deficit.

• The United States (US) economy seems to be on the path to recovery. It is very likely that the improving US economy will draw more funds at the expense of emerging countries. This can already be seen in the FDI inflows, which increased by 43% in 2010.

After studying the various demand and supply factors for the Rupee, we have arrived at three likely scenarios:

First Scenario – Rupee Depreciation

This scenario is likely to occur if oil prices continue to rise or if FII money “exits” because of a crisis of confidence. Based on past evidence, even a relatively orderly outflow of USD 15 billion of FII money over a year could result in the INR depreciating by 22–30%. This would imply an exchange rate in the range of INR 55–60 to USD 1. It could get even worse if the flight of capital were to take place over a shorter period. This would imply a higher cost of petrol, diesel, and petroleum products in India, leading to even higher food prices and Consumer Price Index. The current account deficit would balloon and the rising inflation could create a vicious cycle.

Second Scenario – Rupee Appreciation

This scenario is likely to occur if the FII money continues to flow in and FDI levels improve. An appreciating Rupee will make imports cheaper and lead to better managed deficits and inflation. The flip side is that Rupee appreciation would erode India‟s cost advantage in the export sector especially the booming ITES sector and likely invite government intervention. This is what happened just before the onset of the 2008 financial crisis when the USD-INR touched 39 and the Indian government repeatedly intervened in the currency markets to halt the Rupee appreciation.

Third Scenario – Status Quo

This is the most benign scenario. The exchange rate continues to move in its current range and slowly appreciates over the long term as the economy continues to develop and India strengthens its position in the global markets. The government‟s efforts to improve agricultural infrastructure bear fruit in the longer term and inflation declines. Exchange rate fluctuations do not cause any major disruption in the trade environment.

According to our analysis, during the next two years the probability of the first scenario (depreciation of Indian Rupee by 20%) is the highest (about 50%) while the other two scenarios have an equal probability of approximately 25% each. In other words, there will be pressure on the Rupee unless steps are taken to fix structural issues described in this article. The Indian government and RBI are well aware of this risk and are definitely hoping for the third scenario, in which India essentially grows its way out of trouble over a couple of decades and where they only have to intervene occasionally to smoothen out excess volatility. As Subir Gokarn, a deputy governor of RBI recently said, “Intervention is not costless, it simply transfers the cost from one constituency of the economy to another.”

Full whitepaper available from this link. 

Source | The Currency Forecasting Blog (CFB) | http://currency-forecasting.blogspot.com/2011/06/guest-article-inr-usd-exchange-rate.html