Charles's Thoughts: Sterling had a better second half to the week following the Bank of England meeting. The market was nervous following August’s meeting when they were surprised by the BoE increasing their programme of quantitative easing by £50bn. This surprise was then compounded when the minutes of the meeting were released and it was noted that the Governor of the BoE had voted for a £75bn increase rather than £50bn. So when the BoE announcement was released Thursday lunchtime and there had been no change to UK interest rates and no increase in the quantitative easing programme, sterling regained lost ground. Otherwise economic data was limited this week. Strong UK industrial production figures released on Tuesday probably means that the UK economy expanded in the three months to the end of August, the first increase for over a year. The US$ had a bad week losing ground against most currencies including sterling and hitting a 12 month low against a basket of major currencies. A mixture of reasons have been cited from the gold price passing through US$1,000, talk about finding an alternative to the US$ as the worlds reserve currency but the most significant reason seems to be on the rise in stock markets leading to increased risk appetite and the search by investors for higher yielding assets. A bit like the UK, economic performance is improving but interest rates will be kept low for a long time.
The euro has been the main beneficiary of the US$ weakness. The European Central Bank has been successful in maintaining liquidity and keeping interest rates low in an efficient manner by having a wide range of different funding mechanisms that are easy to access. This is in stark contracts to the UK and the programme of quantitative easing. Also the eurozone as a whole is emerging from recession with Germany seeming to lead the way with German industrial production data for July showing continued improvement. But these figures show an 18% fall over the prior year which just shows how big the hole is that has been dug and how it will take a long time to fill this spare capacity.The European Central Bank met this week and kept euro interest rates on hold which was expected. The accompanying announcement by the ECB president highlighted that the eurozone faced a very gradual recovery and that it was too soon to even consider raising interest rates. This latter statement undermined the euro. Otherwise as previously reported the eurozone as a whole is emerging from recession with Germany seeming to lead the way.
The high-yield and/or commodity backed currencies had a quiet week but still remain as the strongest currencies on the market at present being propped up by the Chinese demand for commodities and the greater return sought by investors who are leaving the safe-haven positions with little to no interest on offer.
Why is Currency Management So Important? Using a bank could cost you £3-4,000 per £100,000 transferred. Buying at the “wrong” time could cost you many £’000’s more as rates can move as much as 3% in a very short period of time. Then add in transfer costs that the banks charge for sending and receiving funds and you could be looking at additional costs of £10,000 per £100,000 transferred. By developing a currency strategy and by working with a specialist currency broker these losses could be minimised if not eliminated.
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How much will a Property Cost? To estimate the cost of a property simply DIVIDE the price of the property by the appropriate rate noted above. But note this is based on the inter bank rate so the actual cost will be slightly more.
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