Forex Weekly Round Up 16 March 2015 – 20 March 2015

The Office for National Statistics said British construction output unexpectedly fell in January at the sharpest monthly rate since late 2013, pulled down by a decline in house building. Construction output shrank by 2.6% in January after rising by 0.6% in December.

Bank of England policymakers are concerned a further rise in sterling, particularly against the euro could leave inflation below target for longer. A higher exchange rate could effect inflation because it makes it harder for companies to sell overseas due to a rise in the cost of their goods. Exporters then may choose to cut their prices to make their goods more attractive to overseas buyers.

ECB President Mario Draghi spoke in an upbeat tone saying the Eurozone economy is steadily recovering. He cited the decision to begin printing money to buy sovereign bonds; lower oil prices and structural reforms in the Eurozone economies were helping to support growth.

As part of the Eurozone’s stimulus package banks took 97.8 billion euros in the so-called TLTROs, which are tied to lending to the smaller firms that are the eurozone’s economic backbone. Banks took more than twice the expected amount of long-term loans from the European Central Bank on Thursday, loading up on the cheap credit is a fresh sign that this lending will help to spur the recovery.

Our analysis of the coming week is further weakness in the euro and continued strengthening of the dollar. Weakness in the Euro is good for those who are buying euros and dollar strength is better for those who are selling dollars into pounds. The currency markets are liquid and volatile, however, so we may see movements outside this pattern.

Those looking to buy Dollars and sell Euros should consider a Forward Contract to hedge against adverse movements in the long term. Please contact us to get more information on how we can help you do this.