Here's your present from Smart...

Dear Charles,

How are you doing? With Christmas in 8 days, I wanted to do three things for you:

1. Send you my holiday greetings (on behalf of me and the whole Smart Team)…So, I and the team, wish you and your family a very happy Christmas and an excellent New Years celebration. We genuinely hope that 2010 brings many good things for you.

2. Give you a present. Considering that we have over 10,145 clients I couldn't afford to buy something for everyone, so I've decided to send you an update as to what we're looking at for 2010.

I'm hoping that the information will provide you with more knowledge and with that knowledge you'll have more power to make sure that you minimise your risks of financial loss. If nothing else, it might provide you with conversation material for some of those less exciting Xmas parties you may have to attend.

3. Update you with some announcements – Below are our festive opening hours along with some exciting things to come in the New Year.

Without any further ado…

Sadly, things are not looking good if you need to use sterling to buy a foreign currency. HOWEVER we're here to help you…so let me explain what the situation is:

The good news is that a global recovery from the credit crunch is under way.

We have seen economies around the world posting figures that prove they are coming out of a recession – Australia has even seen fit to raise interest rates. Data suggests that consumer confidence is up from the lows of last year and stock markets globally have increased by 40% since the March 2009 bottom. Furthermore, central banks are starting to look at how to safely put an end to pumping money into the system without putting us back into recession.

The bad news is that we're not out of the woods yet…as the problem of the banks has simply shifted to a problem for the governments.

Bailouts by governments have allowed banks to repair their balance sheets but have left governments taking on huge levels of borrowing and the associated risks. In other words – the problem of the banks has now shifted to being the problem of the government, but it's the same problem!

Since the panic over possible debt default in Dubai, the focus has shifted to government debt and the ability of countries to repay the bailout debt.

Greece had its credit rating downgraded recently and Standard and Poor's (a credit rating agency) revised their outlook on Spain and Portugal's prospects to negative.

Standard Bank is speculating that Ireland and Greece may even need to pull out of the Euro as a result of their struggling economies.

Focussing on the UK, Moody's (another rating agency) said that the country's top credit rating may be severely tested in the coming months. With government borrowing at close to 12% of the entire output of the economy and the Chancellor predicting that the UK economy will contract by 4.75%, the prospect of the UK credit rating being downgraded seems more and more likely.

What needs to happen for the government to solve the problem? They need a solid plan…but we haven't seen anything that looks remotely solid.

The sheer scale of spending cuts and tax hikes required to bring the UK's spending back in line means that the market needs to see a clear policy framework for recovery before confidence in sterling can return. The Chancellor's pre-budget report did not do much to convince the market that the money raised will be used to pay off the debt.

The report focussed more on measures such as higher taxes on the rich and bank bonuses but no clear plan on how we're going to get out of the mess. Analysts at ING Capital Markets said that the lack of clarity in the pre-budget report would cause ratings agencies to pay even closer attention to the state of the UK's finances.

It's important to understand that markets thrive on certainty. And in the run up to an election what we have is far from that.

What else needs to happen for the government to solve the problem? They need a parliament where one party has an outright majority so that actions can be taken…but are we possibly heading for a hung parliament (a coalition government)?

The conservatives are ahead in the polls at the moment, but the margin has been reducing over the last few months and a coalition government (traditionally seen as weak) could make it difficult for any party to push hard for the necessary tax hikes and spending cuts for fear of losing out in a subsequent re-election!

Interest rates to stay on hold?

From an interest rate perspective, the Bank of England is expected to keep interest rates on hold well into next year and this is likely to put pressure on sterling as other economies raise interest rates and become more attractive destinations for investors.

So…what does this mean for you and any future purchases with sterling?

The investment bank JP Morgan have recently stated that the "prevailing negative tone" in the UK will see the £/$ exchange rate drop off to below $1.5985 in the coming months.

In the summer, BNP Paribas pointed towards £1=€1 (called parity) by Christmas and whilst that hasn't happened, we have seen £/€ drop considerably down from the €1.19 highs we saw in the summer and it has stabilised at around the €1.08 - €1.11 range.

As a result of the UK's growing deficit and slow pace of recovery relative to the rest of the globe, the outlook for sterling remains negative going into the New Year.

We may see some upward movement off the back of positive news, but fundamentally the UK economy needs to start dealing with the deficit and have a clear plan in place before we start seeing any kind of long term recovery for sterling. With the focus shifting from bank debt problems to government debt problems and an election due within six months, the UK will come under close scrutiny and there is little to suggest that we are likely to see any significant good news for sterling in the first half of 2010.

There are always possibilities that things will improve!
And that's why it's so important to make sure you have an active Smart Currency account. If your trader sees a positive change in the market (for any currency) and knows you're particular needs, they will be able to contact you and let you know the options available.

Like I said in the beginning – Knowledge is power if you use it. Currently, things are not looking too good for sterling, but no one is ever certain where the markets will take us. Your best bet is to keep reading the information we provide (starting next month we'll be sending out regular newsletters), make sure you have a Smart account and keep your trader updated as to what you need to do. We're here to help so give us a ring on 0207 898 0541!

ANNOUNCEMENTS

- Office Hours during the festive period: We are open every working day 8-6pm as usual apart from Christmas eve we will close at 2pm and on New years eve we will close at 5pm.

- New websites: Have you seen our new websites yet? If not, please check them out as we're getting a fantastic amount of positive feedback from them:
o Private individuals: http://www.SmartCurrencyExchange.com
o Companies: http://www.SmartCurrencyBusiness.com

- Future plans: In addition to our new websites, we've also invested in a special client relationship management system that is eventually going to allow you to log-on to your account and view your transaction details on-line. I won't say too much about this now, but we're working hard to increase the level of service we can provide!

- More future plans: Starting in January we'll be sending out a regular monthly newsletter that will be aimed to tell you what the markets are doing and whether you should consider buying, selling or doing nothing when it comes to currency transactions. Furthermore, we're looking into video, podcasts and supplying the information you want, when you want it and in the format you want it in. Watch this space!

- Recruitment on the rise: When the year started, we decided to do everything we could to ensure we avoided redundancies and I'm very pleased to announce that not only have we avoided them, we've actually taken on quite a few more team members throughout the year! Thanks to all the incredible Smarties and amazing Clients, Smart continues to go from strength to strength!

To conclude, once again…I and the Smart team wish you a fantastic holiday season. Please let us know if there's anything we can help you with.

Kind regards & merry Christmas,

Charles Purdy
Director

Tel: 44 (0) 207 898 0541
Fax: 0870 285 0365
http://www.SmartCurrencyExchange.com

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Exclusively to Overseas Property Buyers"

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