Weekly Currency Note: 23rd September 2005

Weekly currency note: 23rd September 2005

Overview

The Euro vs. sterling movement following the election and
resultant hung parliament in Germany showed that it is
sometimes better to travel than arrive. Subsequent events
have resulted in the Euro strengthening. The US$ has
rebounded strongly following the interest rate rise at the
start of the week.

Why is currency management so important?

Significant losses can be made if your currency exposure
is not handled correctly. Say you bought a property for
Euros 300,000. If the exchange rate was 1.50, the sterling
cost would be £200,000. If the Euro strengthened to 1.44
the cost would be £208,333, a loss of £8,333. This
avoidable loss pays for a lot of flights, furniture, meal
outs, etc.

This exposure can be managed both for the short, medium and
long term.

If you had secured the Euros 300,000 at 1.50 and the Euro
had strengthened to 1.44, even if there had been no increase
in the price of the property, then you would have made a
profit [albeit a paper one until you sold] of £8,333.

I cannot stress highly enough the need to be in a position to
secure a preferential exchange rate quickly since events that
can move exchange rates both quickly and dramatically happen
more often than people realise.

The Euro vs. the £

The Euro started the week at 1.477ish and is currently 1.473ish.

Following the election result in Germany the Euro traded in a
range of 1.48 to 1.485. However this was short lived as poor
UK export data on Thursday led to the Euro strengthening by
over a cent.

There has been no clear trend in the Euro/sterling exchange
rate for the last few months - just a broad trading range of
1.44 to 1.50. We are currently right in the middle of this
trading range. If time allows you, you should try and secure
an exchange rate if buying Euros in the top half and if
selling Euros in the bottom half.

Just so you know, currencies such as the Cypriot £ and the
Hungarian Forint, which are planning to move to the Euro in
due course, are closely aligned to the Euro. Therefore they
tend to track the Euro. Sometimes they do have a life of
their own but they do tend to come back into line sooner
rather than later.

If you need to BUY or SELL EUROS now is a good time to
discuss your options, so call me on 0870 285 0364 or fill out
our online quotation form
at: http://www.smartcurrencyexchange.com/smartquotation.htm

The US$ vs. the £

Two weeks ago, post Hurricane Katrina, the US$ was 1.84 plus.
It is now 1.780. A strong rebound for the US$. We are now
back to pre Hurricane Katrina levels.

In the space of 3 weeks the US$ has lost 3.5% of its value
and then regained it.

The Fed raised interest rates on Tuesday. The hope/expectation
was that interest rate increases would be put on hold post
Hurricane Katrina, hence the weakness in the US$. This did not
happen. The originally planned increase happened and more are
on their way. The Fed sees inflation as a big problem.

Longer term we are still in a conflict between increasing inflation
and increasing interest rates vs. the twin deficits of budget and
balance of payments. Who will win? If history is to be repeated we
could be seeing the start of a strengthening phase for the US$.

As always I think the key is to work to a realistic budget price
and when this budget rate presents itself secure it either through
an immediate purchase of the currency or through a forward contract
[please call to discuss this option if you are unclear as to what
this means].

The Dirham and the US$ are closely tied. Therefore as the US$ moves
so does the Dirham.

If you need to BUY or SELL USD, call me on 0870 285 0364 to discuss
your options or fill out our online quotation form
at: http://www.smartcurrencyexchange.com/smartquotation.htm

The Aus $ vs. the £

The Aus$ is strengthening again. It has pulled back to just under
2.35 from around the 2.40 level. Being a higher yield currency it
has some benefits over sterling.

The Aus$ hit a high of 2.27ish late July. We have to be wary that
the recent weakness in the Aus$ may be a breather prior to further
strengthening. The commodity boom continues apace with Australia
benefiting accordingly.

If you need to BUY or SELL Australian Dollars, call me on 0870 285
0364 to discuss your options or or fill out our online quotation
form at: http://www.smartcurrencyexchange.com/smartquotation.htm

The Can$ vs. the £

The Can$ moved from 2.132 at the start of the week to 2.08 at the
end. The Can$ is very strong at the moment. Justifiably so as the
economy seems to be booming and its commodities are in much demand

Over the last few months the Can$ has strengthened by 10%. At the
end of April it was 2.35ish. The level of 2.10 is very significant
and for the Can$ to strengthen further will take some effort.
However, if it does so then we would more than likely see a very
rapid appreciation.

History would still favour a return in the Can$ to 2.20 plus but
timescales are difficult if not impossible to estimate!

If you need to BUY or SELL Canadian Dollars, call me on 0870 285
0364 to discuss your options or fill out our online quotation form
at: http://www.smartcurrencyexchange.com/smartquotation.htm

If you would like to discuss a currency not mentioned in this note,
the latest movements, secure an exchange rate or discuss your
particular situation, please feel free to contact me on 0870 285 0364

Lastly, we're always working to improve the service provided by Smart
Currency Exchange, so if I can produce information in a better format
or make it easier to understand, of if you want me to clarify what a
particular term means, please send me your questions, suggestions
and/or comments to mailto:Charles@SmartCurrencyExchange.com

Think Smart,

Charles Purdy
Director

Phone: 0870 285 0364
Fax: 0870 285 0365
http://www.SmartCurrencyExchange.com

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Disclaimer

As ever these are my musing as to how I see the various markets
going. They should not be taken as fact. The market does what it
wants to do. I have no crystal ball and as ever I recommend that if
an exchange rate works for your budget then don't try and wait for
an even better exchange rate, as Murphy's Law says the rate will
go against you and cause you maximum pain!