Charles's Thoughts: One of those weeks where a lot seemed to be happening but sterling marked time against the US$ and the €. But not when compared to the commodity backed currencies against which sterling lost significant ground. The Bank of England met on Thursday. This was against the background of poor industrial data for August and disappointing purchasing managers index for September, although the corresponding service managers index was positive. In the event they kept UK interest rates on hold and made no announcement on increasing the quantitative easing programme from its current level of £175bn [they have used £162bn so far]. The moment of truth will be their next meeting in early November when they will have further information on the UK economy and its recovery an d whether or not they will need to increase the quantitative easing programme. I suspect they will have to and this will more than likely to be sterling negative. In the US we had improving retail sales, a stronger than expected fall in jobless claims and good trading results from Alcoa, the US aluminium company. All positive, but by default, given the US$’s safe haven status, US$ negative which has slipped to a 14 month low on a trade weighted basis against a basket of the major currencies. During the week the Chairman of the Federal Reserve confirmed that low interest will be here for a while. No real surprise there. The results season for US corporates has now started and will set the scene for how the recovery is progressing in the US.
The euro is still top of the pile. The European Central Bank met this week and kept interest rates on hold. However the ECB would like the euro to weaken as its strength is making exports too expensive. And as a consequence they expect the current deflation to take a while to turn to inflation. Will sterling hit parity against the euro? Very difficult to tell but there seems little UK news to turn the current trend around.
The Australian Reserve Bank increased their interest rate this week which was earlier than expected and also acted as a trigger for the re rating of most commodity/high yield currencies.
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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