Charles's Thoughts: Some ups and downs for sterling this week. We had a slight revision upwards of the growth figures for the UK economy in the third quarter. But instead of growth we were still seeing the UK economy contract. The belief is that we will see the economy grow in the current quarter and the Bank of England has forecast growth of 2.2% in 2010 and 4.1% in 2011. But as highlighted by the Chairman of the BoE this is off a low base and the current recovery was not particularly strong and is subject to some profound challenges ongoing. Also the BoE will at some point in time have to sell the bonds that it has bought as part of its quantitative easing programme back to the market and raise interest rates. But given the current problems this will not be for quite a while.
Sometimes people don’t realise how quickly exchange rates can move and how far they can move in a short period of time. This week the US$ gave a very good demonstration of what can happen. If you look at the table above the US$/£ exchange rate is very close at the end of the week to where it started the week. But at the start of the week on the back of positive market sentiment the US$ weakened and reached US$1.67/£1 inter bank. Then we had the problems in Dubai and their six month moratorium on the huge debts they owe and risk aversion came to the fore. In the space of a day we saw the US$ strengthen to US$1.63/£1. A 2.5% movement in 24 hours. We still live in volatile times where anything can happen and often does.
The euro zone continues to see its economy recover. Both the purchasing managers indices for manufacturing and services for the euro zone continue to increase and are running well ahead of the level seen in the third quarter. Sterling lost value on the back of the problems in Dubai and the increase in risk aversion. But the €/£ exchange rate continues to move in a fairly narrow arrange so we wait to see a clear direction.
A mixed week for the commodity backed currencies. At the start of the week we saw them strengthen as Russia announced it was going to diversify part of its currency reserves into Canadian $’s. This of course strengthened the Canadian $ but also had a knock on affect on other commodity backed currencies. However the Dubai debt problem led a flight to safe haven assets and saw them fall back.
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.
Smart Client Testimonial: "Thank you for making our transactions go so smoothly. As promised, our account was opened within hours. Your traders were pleasant and efficient, and each transaction was very much at the exchange rate I expected...ie not a million miles away from the inter-bank rates and certainly much better than my high street bank could quote. All in all, an easy experience and we will have absolutely no hesitation in recommending your services to any of our friends buying property abroad.” Ian Pritchard If you haven't opened a Smart account yet, call me on freephone 0808 163 0102 (+44 0207 898 0541) or fill out our online Account Form at: http://www.SmartCurrencyExchange.com/application.htm
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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