Focus FX Currency Forecast
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3 Martie 2010 |
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RAIFFEISEN BANK S.A. |
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EUR/GBP: 0.906-0.93 (June)
During the last few days, the broad trend of GBP depreciation continued, with the trade-weighted exchange rate reaching its lowest level in more than a year last Monday. Compared to the US dollar, the pound slipped by up to 3% heading to GBP/USD 1.478, the weakest rate in the last 10 months. Sterling also lost ground versus the euro, as the single currency climbed over EUR/ GBP 0.915, for the first time this year. The main factor behind the weakness of the pound was the announcement that the UK insurer Prudential was taking over the Asian operations of the struggling US insurance giant AIG. Speculation about Prudential's need for US dollars (around USD 25 bn) for settling the cash part of the USD 35.5 bn deal led to a sell-off of the pound.
Another negative factor for GBP was the results of the latest Sunday poll on the upcoming general elections which will likely take place in early May. The poll showed a narrowing decline in the lead held by the Conservative Party over the governing Labour Party (only 2-percentage points). If this balance of power was the outcome on election day, the UK would end up with a hung parliament, resulting in a stalemate in which neither of the major parties have an absolute majority. For many market pundits, a result of this kind would be the worst-possible scenario, because it would significantly delay any prospects for vigorous consolidation of the country’s budget. Consequently, the economic recovery of the UK is on a shaky footing in the months ahead, and the political developments could also be marred by great uncertainty. Neither of these aspects will help to improve the market’s sentiment on the already weakened UK currency. Nor is the rate-setting meeting scheduled for Thursday expected to have a beneficial impact on the GBP exchange rate, as there will not likely be any changes to the key rate or the QE measures. Accordingly, we stick with our projection of more depreciation for sterling to EUR/GBP 0.93 by mid-year, and expect to see very volatile developments in the rate during the weeks before the elections in particular.
Note: This list contains only the strongest trading ideas for the markets that we cover. Therefore not every market forecast that implies a buy recommendation is also listed as a trading idea! Trading ideas may also differ from our quarterly forecasts, as the time horizon can be different. The time horizon of the trade is at least two weeks, but not more than 3 months.
EUR/USD: 1.348-1.42 (June)
At EUR/USD 1.348, the euro was trading some 2 cents lower to the US dollar compared to one week ago. The trading range extended from EUR/USD 1.345 to 1.37. Initially, the euro came under pressure on the heels of a string of disappointing economic data. For example, the German ifo business sentiment indicator dropped in a surprise move and consumer confidence in the USA also slumped. Furthermore, the situation on the US real estate market is now apparently considerably worse than previously thought. Despite all of this, however, the single currency regained some strength again towards the end of the week. The trigger for this was renewed rumours about possible aid for Greece. Apparently, one of the options being considered is that the German state-owned development bank KfW could make major purchases of Greek government securities, thereby at least guaranteeing the country’s short-term financing viability. On Monday, however, the euro dived again. This time it was news of the takeover of AIG’s Asian operations by the UK insurer Prudential. This triggered weakening for the pound, which also affected the euro as well. Secondly, German Chancellor Merkel again refused any kind of financial support for Greece. Although the euro has been stuckaround EUR/USD 1.35 recently, we do not expect to see a sustained recovery in euro in the months ahead, as the single currency is much more likely to remain trapped at around the current levels. In early summer, when the tensions involving Greece subside and the US economy begins to visibly cool off again, we should see a temporary phase of strength for the euro. We expect to see the rate go well higher than EUR/USD 1.40 again during that phase.
