Monday 14th October 2013
Good afternoon all. Well what a difference a week can make! The change in the weather in the UK has been mirrored by a change in the fortunes of the Pound. In Britain we seem to have very quickly entered autumn, and as the leaves started falling, so did the Pound, after a raft of poor economic data.
This has pulled exchange rates lower and away from the all year highs seen just recently. In today’s report I’ll look at what has happened to cause the fall, and what else may happen with exchange rates in the coming weeks and months:
- UK Retail Sales drop
- Industrial and Manufacturing production fall
- Trade balance in the UK widens.
- IMF warn world could enter recession again
Poor economic figures cause the Pound to fall
It’s only been a little over a week since my last post, and at that time the GBP/EUR rate and the GBP/USD rate were both around the highest we’ve seen all year. Things can change very quickly in the currency markets however, and that’s exactly what we’ve seen.
In the last week we have seen some poor UK economic numbers. Industrial and Manufacturing production was worse than expected, coupled with lower than forecast Retail Sales. More worrying was the fact the UK’s trade deficit has widened, meaning we’re importing more and exporting less. All of this had the effect of weakening the Pound and bringing exchange rates into the €1.17’s against the Euro, and back to the $1.60 mark against the US Dollar.
In recent posts I have pointed out that the market seemed to have peaked, and indeed that now seems to have held true. Those that booked their currency on a Forward contract will be pleased at buying at the peak and will have been protected against the drop we have seen.
If you are buying or selling currency, the market is very volatile at the moment. Simply hoping the rate will move in your direction is no more than a gamble, and could end up costing you dearly. The best strategy is to get in touch and discuss all the options we can offer you. In this way you can have a detailed chat with me regarding what might move the exchange rate, and make an informed decision on what to do.
Is the world about to be plunged back into recession?
The head of the International Monetary Fund, Christine Lagarde, has warned that a US default could tip the world into recession, saying that a default would result in “massive disruption the world over”.
So what’s happening in the states? The US Treasury will start to run short of funds on Thursday if no agreement is reached for it to raise its debt limit. The president of the World Bank, Jim Yong Kim, has also expressed his concern over the situation.
He warned that the United States is just “days away from a very dangerous moment” because of the government’s borrowing crisis.
He warned this could be a “disastrous event” for the world. To explain what has been happening, the US government has been in partial shutdown since Congress missed a 1 October deadline to pass a budget, with politicians being unable to agree funding for current spending.
This has resulted in hundreds of thousands of federal employees being sent home and government offices closing. Republicans refused to approve the new budget unless President Obama agreed to delay or eliminate the funding of the healthcare reform law of 2010.
On Saturday, Jamie Dimon, boss of the American bank JP Morgan said the possible repercussions did not bear thinking about. “You don’t want to know what would happen,” he said. “It would ripple through the world economy in a way that you couldn’t possibly understand.”
What might this all mean for exchange rates?
So we’re at a crossroads in terms of the global economic recovery at the moment, and this may well have serious implications for exchange rates. The value of one countries currency against another is usually finely balanced, and uncertainty in the global markets could seriously affect exchange rates.
If you need to covert one currency to another, perhaps to buy property abroad or maybe you buy or sell goods in a foreign currency, exchange rates can have a big impact on your costs.
How can you get the best rates and protect against adverse currency movements?
The first step is to get in touch with me to discuss your options. As a specialist foreign exchange broker, the rates that I can achieve are significantly better than banks can offer, by as much as 5%. So if you need to convert funds then the savings can be considerable. In addition to our great rates, we also have expert market knowledge that can help you decide when to fix your rate.
This combined with the various range of FX contracts we offer mean that you could save thousands of pounds on your exchange.