Charles's Thoughts: Sterling had a mixed week losing ground against most currencies but regaining a bit of ground on Friday. The Chancellor held his pre-budget report mid week which seemed to be lots of smoke and mirrors but little content. He noted that the UK economy will contract by 4.75% this year which is more than originally forecast and as such will increase the governments funding requirements which is already mind boggling huge. He announced that public sector pay increases would be capped, that national insurance would be increased and that banks would incur a “special” bonus tax. But the detail on how the government was going to reduce their spend and reduce the tax burden was sadly missing and with a general election mandatory in the first half of next year the government is likely keep on to prevaricating. The Bank of England met and announced that they were keeping interest rates on hold and not increasing the programme of quantitative easing.
The US$ benefited from the surprise better than expected unemployment figures last Friday and increasing risk aversion following the Greece government debt downgrade. A lot of investors were betting on continuing US$ weakness and the reversal meant that there was a rush for the exit which probably means that the US$ strengthened more than expected. The Chairman of the Federal Reserve highlighted yet again that interest rates were to be kept low for the foreseeable future. So the US$ will continue to be volatile.
The € lost a bit of ground following the down grade in the government debt for Greece but the loss was not as much as it might have been six months ago as the market seems to be more discerning and less worried about the dynamics between the different countries in the Euro zone. We also saw industrial output data for October for France and Germany come in under expectations which raises worries about the third quarter growth continuing into the final quarter. The ECB also highlighted that although they were starting to withdraw liquidity they would monitor this carefully and that interest rates like elsewhere were to be kept low for a while.
New Zealand announced that they were looking to raise their interest rates towards the end of the first quarter/start of the fourth quarter of next year. This proved to be a boost for the New Zealand dollar. We also had better than expected Australian unemployment figures which added further impetus to commodity backed currencies which all seemed to have a good week.
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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