Pound Lower v Euro and Dollar but Gains Against New Zealand, Australian and Canadian Dollars

The pound sterling ended the week lower against the euro and dollar having failed once more at a key resistance level against the euro. But gains were seen against the Australian, New Zealand and Canadian dollars.

The British pound has suffered against the euro with markets capitulating at the all-important technical level of 1.41 once again - this is a line that many currency traders are happy to book profit and sell any exposure they have on the UK currency. It will take a strong run of data to build up the momentum needed to crack higher to a new 2015 best.

There are also signs that month-end rebalancing may be favouring the euro - indeed it is up across the board at the present time, "The euro pushed above one-month lows against the greenback, benefiting from month-end book balancing and hopes that Greece would eventually secure much needed rescue cash to keep fiscally afloat and a member of the euro bloc," says Joe Manimbo at Western Union.

Looking ahead to the new month, we see the trend remaining positive in the GBP/EUR and agree with those forecasters who suggest higher levels in the exchange rate lie ahead for 2015. Lloyds and Danske Banks have pencilled in a high of 1.44 for 2015 while Deutsche Bank see the potential for 1.47 to be achieved.

• At the time of writing the pound to euro exchange rate (GBPEUR) is trading 0.66 pc lower at 1.3898. We expect any dips in the currency pair to be shallow. That said we are also wary of the struggle to hold levels above 1.41. Perhaps sideways trade will dominate in coming days.

The US dollar has also made headway against the pound and we are now well off those best levels witnessed earlier in the month. There is a definite sense that the US dollar is back to its winning ways. We have a new month lying ahead of us and this means a fresh set of economic indicators to watch out for. The USD is particularly sensitive to data at present and if we see some disappointing figures the GBP could well make a comeback.

• At the time of writing the pound to dollar exchange rate (GBPUSD) is trading 0.33 pct lower on a day-to-day basis at 1.5265.

Be aware that any currency rate referenced in this piece refers to the wholesale market. When you make an international payment / transfer your bank will offer you a rate at their discretion. However, using an independent provider will get you closer to the market rates, in some instances this results in up to 5% more FX being delivered, find out how.

But, Gains Seen Against Australian, New Zealand and Australian Dollars

Sterling is having a better time against the so-called commodity currencies i.e those currencies who gain strength from the raw material exports that play a large part in their economies. The Canadian dollar, Australian dollar and New Zealand dollar are at the fore-front of this complex.

“The commodity currencies have suffered the most this week, with Aluminium leading the way in terms of a lower move in commodity prices and AUD, NOK and NZD the weakest currencies versus the USD,” says a note from Lloyds Bank.

AUD

Australia’s unit tumbled this week hitting its weakest level against the US dollar since mid-April while the pound reached its best level since 2009 against the currency. Driving the fall was the release of disappointing business spending data that crashed 6.5 percent in the first quarter, news that increased expectations for area interest rates to fall which contrasts expectations for U.S. rates to turn higher this year.

• The pound to Australian dollar exchange rate (GBPAUD) is back below 2.0 at the time of writing offering a conversion at 1.9986.

NZD

The last time those using pounds to buy New Zealand dollars had such a good exchange rate was back in 2011. This week we saw GBP/NZD reach a best of 2.1492.

In addition to commodity prices there were some domestic drivers of the weaker kiwi, “the RBNZ published a paper overnight indicating that NZ has weaker structural inflation, this came after Fonterra yesterday lowered its forecast pay out for this season,” says a note from New Zealand currency brokerage Tuatara.

The RBNZ paper concluded that whilst weak tradable inflation accounts for the majority of the lower headline inflation numbers in NZ, there is still structurally lower non-tradable inflation factors affecting the economy.

Traders have taken this as a sign that the Reserve Bank of New Zealand could be intent on cutting interest rates in 2015 by way of eliminating inflation as a reason to avoid making a cut. Lower interest rates = a lower exchange rate.

Institutional forecasters meanwhile continue to lower their expectations on NZD performance.

• The pound to New Zealand dollar exchange rate (GBPNZD) is converting at 2.1456 at the time of writing.

CAD

The pound to Canadian dollar exchange rate (GBPCAD) is meanwhile on target to register its fourth consecutive weekly gain. The move higher comes after the pair hit a low of 1.8149 back in April.

Canadian economic news has kept a headwind on the loonie as producer prices, a gauge of inflation around the bend, tumbled 2.4 percent in April, faster than its 1.8 percent fall in March. Canada’s current account balance, a broad measure of international trade, swelled to C$17.5 billion in the first quarter from a C$13.05 billion shortfall in the fourth quarter.

Regarding the forecast, Shaun Osborne at TD Securities in Canada says, “GBPCAD has been a fantastic technical story in the past couple of months; our view of the March/April decline was that the dip represented no more than a retest of the bigger and broader range break out that occurred at the start of the year, as the GBP broke out bullishly from the 2014 consolidation range.

“With long-term supports retested and intact (after a minor infraction), we think the broader bull trend is getting back on track; we targeted a push up to 1.90/1.92 as an initial objective from the bounce and the market has largely realized that gain. We think 2.00/2.02 is a reasonable objective in the next few months from here. Trend momentum is bullish across a range of timeframes; look to buy dips.”

• The pound to Canadian dollar exchange rate (GBPCAD) is converting at 1.9032 at the time of writing.