Monthly Archives: August 2011
Euro Rate Remains Firm
The Euro rate remains firm and we have seen the pound weaken. Trading levels are now back down in the 1.12-1.13 range, a result of the poor outlook for the pound and an abatement in the pressure of the Eurozone crisis.
Make no mistake the Eurozone crisis is one of, if not the biggest threat to the global recovery. But there are a many other factors which are affecting the global economy and consequently exchange rates. Take the US for example. Last night the Federal Reserve met in the US to discuss economic policy and there were signs we may yet see more Quantitative Easing in the future. The effect of this is basically to increase money in the financial system by the government, the idea being to give a boost to the economy. The US has already undertaken two rounds of QE and the economy is still suffering. The prospect of a further round has caused funds to leave the dollar, some of which will have been moved to the Euro because it is seen in a similair risk bracket by investors.
This week we do have some important Eurozone releases. Notably today we have German Unemployment and Retail Sales, then German GDP figures tomorrow. With many eyes on global growth tomorrow’s GDP figures could be key and provide a short term spike for anyone with a Euro currency requirement.
If you have any pending or upcoming currency exchanges why not speak to us to find out if there is a better solution. We are experienced currency brokers who have won awards for our rates and levels of customer service. We can be your eyes and ears in the market and ensure you benefit from volatility not suffer. Feel free to call me direct on 00 44 1494 787 458 or email jmw@currencies.co.uk
Italian Austerity Measures could break or bolster Euro
Italy’s deficit is 120% of GDP. To put that in context if Italy was a person earning £100,000 a year, that person would have £120,000 worth of debt. Now imagine all the interest payments on that debt and all the normal costs that ‘person’ would have as well. Rent / Mortgage, utility bills, insurance, travel costs… the list is exhaustive. Quite a task for even the most prudent and economical in balancing this particular persons books!
Well the measures have been agreed and should be passed in their parliament today. The question is will the measures be enough to tackle this deficit? The only higher deficit in the Euro is Greece! And we know the state they are in! Italy’s scary debt scenario is not the sole reason, but certainy one of the most prominent reasons for the recent volatility on financial markets across the world. Basically the Euro stability funds cannot afford to bail them like Greece, Ireland and Portugal have been.
With a relatively quiet week on the data release front keep an eye out for the UK’s Nationwide housing data and the Conferation of Business and Industry’s trends survey, all with some potential to move the market.
Later in the week we have US and UK GDP (Gross Domestic Product) figures which will give us some insight into how the respective economies are faring. Recent indication on both sides of the Atlantic have shown major hurdles lie ahead in the recoveries, with some predicting a slip back to recession. How does this affect the Euro rate? Well any sterling strength or weakness will obviously affect the GBPEUR rate and the dollar, seen in a similair risk bracket to investors could affect the Euro rate as funds are moved in and out of the dollar.
The last two weeks have been exceptionally volatile with some daily swings of over 2 cents on the GBPEUR rate. If you have any currency transfers to make, whether it be Euro or any other currency, speak to us to find out if you could be getting a better deal. The authors of this blog are specialist FX brokers who can help both commercial and private clients manage their currency requirements in the most effective way. For a free no obligation discussion of all the issues that right now are making your exchanges more or less expensive fill in the contact form or call 00 44 1494 787458 / e-mail jmw@currencies.co.uk. Please quote ‘JMW ERF’ to ensure your call / e-mail is correctly handled.
When will the Euro weaken?
The Euro has been under huge pressure recently as a result of the debt crisis. Despite this the Euro remains very strong as a currency which often has clients asking me when will the Euro weaken?
This is normally in relation to the GBPEUR rate. With the well publicised nature of the debt crisis this is a good question to be asking. After all this time last year the rate was in the 1.20′s.. We are now a year later and the debt crisis has only got worse. Why are we still at 1.13-1.15 and not 1.20 or even 1.30?
Interest Rates – With the Eurozone offering investors a 1.5% return on their investment in the Euro, the currency is attractive to buy which keeps it strong. The higher a countries interest rate, the more investment it receives, and hence the stronger it grows. The raising of interest rates is a sign to the wider world that the Eurozone economy is expanding and can allow an interest rate hike. Compare this to the UK or USA who have 0.5% and 0-0.25% interest rates respectively. Looking specifically at the GBPEUR rate the sterling side is weak due to low interest rates. You only need to look at the weakness of the pound against most other currencies to understand why it is also weak against the Euro. The prospect of an interest rate hike is again being pushed into 2012 for the UK, and the Federal Reserve have said rates could be on hold until 2013! Can your currency transfer wait a year or even two in the hope things ‘might’ improve?
Germany – When investors look to the Euro they look at the whole economy and not just individual nations. So the poor state of the PIIGS, whilst a major concern is not the whole story. Despite some worse than expected GDP figures coming out today for Germany, Germany has a very healthy economy with very strong exports. The long term expectations are that this will continue. Contrast this to the UK with a Manufaturing and Industrial sector in decline, and a financial sector tarred by the global financial crisis.
Economic and Political Will – There is a massive political and economic will behind the Euro. The backdrop to the current arrangement is a long bloody history and the original idea behind the economic union was to prevent the countries going to war again. To get to where we are today has taken decades of negotiation and concensus which I cannot see being undone quickly. Whilst coming under immense pressure for not acting decisively enough, the Eurozone leaders also have provided the financial back up to deal with the crisis. There are current questions over whether the bailout funds will manage Italy, hence the recent volatility, but the ECB have tools to dampen the volatility. Just last week they bought up €22bn worth of bonds, one of the reasons the GBPEUR rate has come back to 1.13. Today Merkel and Sarkozy are meeting in Paris and this could further help the Euro.
Eurobonds – Presently each Eurozone member issues bonds themselves. Bonds are used by governments to finance the day to day running of the country. By auctioning off debt on a promise to pay back in the future, investors provide credit and liquidity to keep the governments functioning. The idea of a Eurobond would be to consolidate the members borrowing, thereby reducing the amount of interest on bonds weaker nations have to pay because they are weak. Germany have said they will not back a Eurobond but only because they feel the indebted nations (PIIGS) don’t have their house in order. It is forseeable that Germany would back the Eurobonds if the PIIGS can show themselves to be able to benefit from the Eurobond scheme. I personally cannot see how the weaker nations can manage long term in the current state. I feel the Eurobond is one answer to Europe’s problems and if announced down the line will further help the Euro.
Despite the huge uncertainty in the market the Euro remains strong. Europe is the UK’s biggest trading partner and we have invested heavily in their debt. For better or for worse we are part of Europe. If you believe the Eurozone will collapse, or even hope that it will because you feel suddenly the GBPEUR rate will improve, I would advise caution. The collapse of the Eurozone or further major shocks will hurt the UK economy which is already under huge strain.
In my opinion getting the best rate is about setting realistic expectations over your time frame and being ready to pounce when things are favourable. Part of our service is to not only offer award winning exchange rates, but also keep clients informed and updated so that they have all the information to make informed decisions.
If you have any currency requirements for the future – even months or years away, I can help offer assistance in making sure you benefit from market movements not suffer. Why take the risk of gambling on exchange rates moving in your favour? We are specialist currency brokers who have won awards for not only our rates, but also customer service. Whether you are an experienced market analyst or don’t know your Peso from your Lira, I can help advise all the ins and outs of safely moving money abroad. Feel free to contact me direct on 00 44 1494 787 458 or e-mail me jmw@currencies.co.uk
Is the Euro an unsustainable currency?
A few weeks after Spain and Italy have hit the headlines the Euro has really begun to be questioned as a credible currency, and now France have hit the headlines and Germany seems unwilling to entirely back the Euro following a series of mixed messages. Difficulties regarding fiscal policy in Europe have been mooted for some time and you can find them well discussed on this site.
Put very simply the Eurozone seems unsure whether they are entirely together or not. The European Central Bank would suggest that they are, single economic policy for all in the zone is certainly a statement of togetherness, but then why is there no European policy for Bank solvency? Why is there no common Euro Bond? It is a very strange conglomerate where countries are left very much to fend for themselves simply without the power to control their own fiscal strategy in terms of interest rates. Ask any Greek, Irish or Portuguese how they feel about interest rates rising in Europe and you will catch my drift.
While people are questioning the concept of the Euro (and prematurely so, in my book) it has fundamental flaws which will make it very difficult to survive in the long term. However too much depends on the viability of the Euro as a currency to simply collapse it and start over. It is a lot more trouble than it’s worth and so I can’t imagine it likely that the Euro will dissolve anytime soon.
This doesn’t mean that the Euro will not lose ground. It is probable the Euro will struggle as speculators worry about the uncertain market and about sovereign debt considering muddled economic policy. If I was investing in currency, with the possible exception to Dollar and Sterling, I wouldn’t want my funds in Euros until this has been resolved.
If you have your funds in Euros or are looking to purchase and are worried about the Eurozone and the single currency then do not hesitate to get in touch to discuss how this may effect your transfer and what may happen in the unlikely event of a Euro collapse. You can contact me (James Matthews) directly by phone or email – 01494 787 451 or jfm@currencies.co.uk.
French economy next in the spotlight as European turmoil continues
European problems continue to expand and have now for the first time hit the French. Although most people that reside in France will tell you that there economy is far from the shining light that others in the Eurozone try to make it out to be, it is still (along with Germany) considered a strong point of the Eurozone. What then when one of the two frontrunning Eurozone economies now comes under pressure?
French stocks, (in particular Banks) took a very tough hit yesterday. Societe Generale stocks were at one point down 23% yesterday (though they finished the day only 15% lower), after suggestions that they themselves would be downgraded. Although S & Ps and Moodys have both issued statements to state that France’s AAA status is not under threat many consider that there credibility is already shot and many more that this is a ‘vote of confidence’ before turmoil continues and inevitably the French are downgraded.
Whether they do or not to me is unlikely to radically effect exchange rates, but simply this is just yet more pressure piling on the vulnerable Euro. I see the Euro as someone trying to bench a weight, at the moment he can more than handle the extra 5 kilos being added each side, but as soon as the weight becomes too much it is going to come crashing down, and violently so.
If you have a Euro requirement to buy or sell you can email the author directly today, to discuss what contract type will be of the most use for yourself and indeed to get a live quote in the market today. Contact James Matthews on jfm@currencies.co.uk.
UK riots dampening spirits affecting Pound against Euro rates
It will come as no surprise that the riots witnessed across the UK over the last 3 nights appear to have put an end to the Pounds latest rally. On the surface it is easy to see how the costs of repairing many of Britain’s major cities is going to have an effect on our already fragile economy but the underlying impact could be much worse as investors from all corners of the globe make the decision to invest in more stable economies.
As a result we have already seen GBPEUR rates drop by nearly 3 cents from the highs seen only last Friday and at the time I write this the downward trend seems to be continuing. The impact of a 3 cent movement on a €200,000 transfer could be in excess of £4,500!
This negative movement could be further enforced next week as we await the minutes from the latest meeting of the Bank of England’s Monetary Policy Committee where it is unlikely that we will see any change in the voting pattern of the members in regard to interest rate movements but we could see that there was a more “lively” discussion surrounding quantitative easing and the potential possibility of the Bank of England printing more money to boost our thriving economy.
To find out more about the Sterling Euro rates whether you are buying or selling feel free to contact me directly at sah@currencies.co.uk.
US Shocking downgrade + Euro bond buying – “FX market’s day of reckoning”
After the unsurprising downgrade of the US investors and the confirmation that European bonds will be purchased by the ECB investors are again trying to judge where the losses will be seen. On the US news markets have already lost out as the cable (GBPUSD) moves up over a cent over the weekend. Sterling seems to already started on a loss as the euro plan to buy bonds adds some confidence to the euro.
Many investors have been calling for such a move from the ECB with requests for a European Bond. This story will continue to be speculated on as the wide sell off continues today on the markets. Also watch out for the NZD/AUD/ZAR as all have large gains due to the closing of Carry Trades. A Carr trade is a tool used by a number of financial institutes, they borrow money in a low yielding currency in invest in a high to take the benefit on the difference of the exchange rate. For example borrow in the UK for 1% and invest in South Africa with a 8% return. The only issue is as the market are wary of risk these positions are being closed and brought back.
For more information on the markets stories and how it could affect you contact me through HSE@Currencies.co.uk
The Euro vs the three ‘safe havens’
EUR/USD
The Euro has had a tipsy turvy week against the Greenback, falling around two and a half cents on Monday after the US agreed their debt deal. Although this was as most speculators expected the threat of the US potentially defaulting was so severe we still saw a movement that was this sharp.
Over the last few days speculation has continued that the US may still suffer a credit downgrade and yesterday Fitch put their credit rating up for review. Again I would say this is unlikely but another very notable threat to the USD. Certainly I would argue that the Dollar is quickly (if only temporarily) losing it’s safe haven status.
Expect serious volatility between this currency pair as both economies deal with potentially crippling issues. The EUR/USD currently sits at 1.4276 and I foresee the outlook for the US to be more bearish towards the end of this week and I could see EUR/USD retrace towards 1.44 by the Close of Business on Friday.
EUR/CHF
The Swiss Franc has been the ‘safe haven’ of choice over the last few months as American problems continue to escalate. However finally the SNB (Swiss National Bank) have decided that enough is enough and have put their foot down to artificially weaken the Franc by slashing their interest rates.
If the SNB are going to stand by this decision then they may well be prepared to sell off some of their own assets if rates start to climb back. If this is the case then the Franc will struggle to make much further gains against all majors as they are fighting the Swiss Bank who are trying to keep Swiss imports more affordable.
EUR/JPY
Following the lead of the Swiss Franc the Japanese Yen has today also artificially weakened their currency by selling off their own assets. They have sold off around $127 billion worth of JPY and this has meant EUR/JPY has gained around 3% already this morning and is now trading at 113.91.
This now begs the question that with the US economy potentially facing a downgrade, QE3 on the cards and the Swiss & Japanese both artificially weakening their currency where will be the preferred safe haven going forward? Safe options will generally do well in times of uncertainty and it seems we are facing a time of extreme uncertainty.
If you are looking to purchase Yen or Francs from Euros then it is an ideal opportunity after the initial effect of governemental efforts have set in. Normally after the initial effect these sort of currencies will go back to gaining. I think this will certainly be the case with the Swiss Franc as it had very little reliance on it’s interest rate to keep it’s exchange rate strong.
You can contact the author directly in order to discuss your requirement and receive a live quote in the market on 0044 1494 725 353.
Debt deal day in the US, what will happen to my Euros?
So all the talk today in the markets is about the debt deal in the US and the agreement finally being agreed between the Republicans and the Democrats. With this expected to be passed through Congress what is the effect likely to have on the EUR/USD and the Euro as a whole?
The natural assumption is that the Dollar is likely to gain back ground against all currencies in the wake of this debt deal as they will now avoid a default, but you know what they say about assumptions. My own instinct is that with the USA still not certain to avoid a credit downgrade the Dollar is still under some threat and with vastly revised GDP figures (cut from 1.9% to 0.4%) this seems to be more potent than you may have last week, despite the debt deal. If you are watching anything to do with the US economy at the moment it seems that there is a massive lack of confidence in the States regarding economic growth and this is likely to underpin EUR/USD rates. With such huge problems both in the States and in Europe I would expect to see very drastic swings in the world’s most heavily traded currency pair over the next few months and I wouldn’t be surprised to see EUR/USD pick up to 1.46 / 1.47 in the next few weeks before stuttering later in the year.
But what is the impact of the debt deal on the Euro in general? Well personally I feel it may help. The Euro can not be descibed as anything other than risky at the moment and this added global certainty (remember the importance of the US economy as a sign of global economic health) is likely to help push Euro rates up on a broader spectrum.
If you have a Euro requirement you should make sure that you know the economies concerned in your Currency pair inside out, but make sure that you are aware of how other important international events may impact your transfer. If you would like to discuss your specific currency transaction then feel free to contact the author – James Matthews, directly on 0044 1494 787 451.
