Friday 12th August 2011
Good morning. Sterling had a choppy day in the markets yesterday, swinging up and down vs the Euro and other currencies as investors try to make sense of all the volatile data we have had this week. Today we’ll look at Pound vs Euro, Pound vs US Dollar, and the options available to help you achieve the best exchange rates, whatever your currency requirement.
Pound vs US Dollar
Sterling hovered near 3 week lows against the dollar yesterday, with the Pound struggling after the Bank of England downgraded its growth forecast earlier in the week, and also due to risks of further declines growing as the UK government’s fiscal cuts continue to bite. With the recent downgrading of the US, many expected the USD to weaken, however it remains a safe haven currency and this is keeping the dollar strong. Hard to call where this currency pair will move, but at the moment it remains around the $1.61 – $1.63 level.
Pound vs Euro
GBP/EUR rates fell this week as the Bank of England gave a gloomy outlook for economic growth. Rate then went back up on rumours that France was about to lose its AAA credit rating and that Societe Generale was in line for a government bailout. The rumours were denied by credit rating agencies, the French Treasury and Societe Generale. As such focus returned to poor UK figures, and this dragged rates back down again. The swings seem to be in line with markets deciding whether Sterling or the Euro is the best bet.
It was very choppy in the markets yesterday, with rates swinging between €1.1360 and €1.1445 as analysts tried to make sense of the growth figures and credit rating rumours.
In Europe, the concern centres on whether Spain and Italy will have to follow Greece, Portugal and the Republic of Ireland and require bailouts. The fear has since spread this week to whether other eurozone countries, and most notably France, can afford to put funds into an expanded European Financial Stability Facility that will pay towards any required future bailouts.
Swiss Franc has huge movements.
The GBP/CHF rate in the last week has moved between 1.1650 and 1.2700 in the last week. This is a huge movement, and caused by the Swiss National bank cutting the interest rate to try and weaken the currency. As the Swiss Franc (CHF) is a safe haven currency, it had become incredibly strong in the current market turmoil. As this was hurting the economy, the move was made to weaken the currency, and it’s certainly had an effect.
The Euro also rose against the CHF, boosted by talk the Swiss currency could be pegged against the euro. If this were to happen, it would be aimed at weakening the CHF. The speculation is that the euro/Swiss franc pair may be pegged at 1.15 francs.
What are your options?
Whether you are buying or selling currency, exchange rate movements at the moment are very volatile, and could move either way by some margin. This could of course work for or against you, depending which way the market moves.
So, you could simply leave it to chance and hope rates move your way, however hope is not a reliable economic tool. There are various ways to take control of the market to ensure you don’t get caught out by rates moving the wrong way.
Stop Loss and Limit Orders allow you to place an order to buy/sell currency if it goes up to a level not currently achievable, or below a pre-agreed level. In this way you take advantage of any gains in the rate, without leaving yourself open should things not move your way.
Alternatively you could fix the rate now with a Forward contract, and this is the best option for those of you that are risk averse. This give you the cost of your currency for up to 2 years, and you are protected against movements in any direction.
Whatever your currency requirement, don’t just leave it to chance. Contact us today to discuss the options available with an expert currency broker.