Charles's Thoughts: At the start of the week, sterling performed poorly due to a rather gloomy outlook going into the New Year over concerns over the UK economy and rising public debt. However, UK economic data came in better than expected towards the end of the week as the Nationwide Building Society announced that the average house price has increased by 0.4% compared with November. This was more than analysts expected and as a result indicates that the UK may be starting to pull out of the longest recession on record, as this is the largest rise in house prices for 2 years. Whilst this certainly doesn’t spell the end to the UK’s troubles, it is a welcome piece of positive news that has been noticeably absent over the last few months. This news prompted a sterling rally against the US$ and the Euro as many analysts said what we have all been thinking for a while – that sterling is far too undervalued against those currencies. The next major event on the hori zon for sterling is the Bank of England meeting on the 7th January where all eyes will be glued on the policy report to see when the Bank is likely to scale back the programme of quantitative easing – any sign of this and we will see strengthening of the pound.
The US$ reached $1.623/£1 after sterling recovered from $1.583/£1 – the lowest price for 11 weeks. The low point for sterling was as a result of the feeling early in the week that the Fed will start to scale back the US bailout facility earlier than expected as unemployment unexpectedly fell in the USA. However, the movement against sterling was reversed by the positive UK house price data and many analysts stating that the US$ was overvalued against sterling.
The Euro reached €1.1277/£1 in trading on Thursday. This poor performance against sterling was as a result of data released that showed that loans to households and companies had fallen for a third straight year and clearly demonstrates the fragility still prevalent in the Eurozone recovery. Whilst Europe’s economy emerged from recession in the third quarter, this data shows that the banks are still reluctant to lend despite being pumped full of cash by the European Central Bank and suggests that a return to sustained growth and recovery may take longer than was first envisaged.
The Australian and New Zealand Dollar started the week positively as prices rose for the commodities that form the backbone of countries’ exports driven by surging demand from China. Over the last few months we have seen interest rate rises from the Reserve Bank of Australia as a result of this export led recovery. However, with Australian government emergency stimulus coming to an end and data released that the private lending market grew at its slowest level for 17 years, many analysts feel that the pace of recovery is cooling off and we are unlikely to see the rampant strengthening that we have seen continue into 2010.
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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