Problems in Ireland have been well documented for some time; however in the last couple of months the cost of borrowing for the Irish government has spiraled. This is a huge problem for the country and has caused investors to worry about the stability of the Euro. There have even been some reports that many countries could pull out of the Euro within 5 years.
We have repeatedly heard rumors that Ireland may need billions of Euros in rescue funds. From an exchange rate point of view this has caused the euro to weaken. Unfortunately the pound has also suffered. Investors have moved away from perceived risky currencies such as sterling into the safe haven US Dollar. If a bailout is required, this could cause further sterling weakness as the UK may have to provide 12% of the funds, potentially as much as £8bn.
However, looking ahead anyone holding Euro’s who needs to bring funds back to the UK, it may be worth keeping a close eye on the market as the single currency could weaken more than the pound if the Irish do need bailout funds from the EU.
Today we have Euro Zone current account data at 09:00. Last month showed a net outflow of funds from the EU which is not ideal for the single currency. A similar release this month could cause further euro weakness. For further information on how this could affect you funds you can speak to a currency specialist on 0800 328 5884.
QE and GBP USD exchange rates
The pound had gained ground on the US Dollar when rates spiked earlier this month following news that the Federal Reserve will be releasing USD 600bn into the economy to prevent a double dip recession. Since then we have also seen the likelihood of QE in the UK fall drastically, but the pound has failed to make further gains against the Dollar.
This does not bode well for clients who need to buy US Dollars, and if we do see further problems in Europe the dollar could become even more expensive for anyone holding sterling.
Today it is worth looking out for US jobless claims, out at 13:30. A positive figure from the states could lead to further USD strength. If you would like to be kept up to date with GBP USD exchange rates stay in close contact with your account manager and he will be able to contact you if there is any significant market movement.
UK Data that could affect sterling
Today we have a host of data out for the UK that could cause volatility on the currency markets.
We have four releases at 09:30, the most notable of which is Public Sector Net Borrowing data. With national debt and budget deficit a huge issue for the UK at present these figures are vital for the UK economy. Any rise above expectations for public borrowing could lead to significant sterling weakness and in my opinion to rates falling below the 1.14 mark vs. the euro.
Also at 09:30 UK mortgage approvals; considering the housing sector has been performing poorly recently, and banks are still reluctant to lend. I would not be surprised if we do see a lower figure than last month’s 47k. I think PSNB data will overshadow this release, but a double whammy of bad releases could result in significant sterling weakness. On the other hand, positive borrowing figures could prevent any impact of bad mortgage approvals.
The other two UK releases at 09:30 are M4 money supply figures and retail sales data. The later is most important for sterling as retail sales are vital to the economy in the lead up to Christmas. Expectations are for a strong figure which could offset negative news about mortgages and public borrowing. With such a busy morning it may be worth discussing your transaction with your account manager. There are various currency tools available to you to help reduce the effects of adverse market movement and maximise the rate you achieve.
Why is the Swiss Franc so strong?
The Swiss Franc has gained almost 8% against sterling in 2010, on a transfer of £200,000 to CHF that’s an incredible CHF26,000 less that your sterling will purchase. The main reason for this movement is that CHF has benefitted from speculators looking for an alternative ‘safe haven currency’ to the Dollar.
While the USD does still hold the number one position, the CHF is becoming more and more popular resulting in an increase in demand and subsequently a higher price for anyone who needs to buy Swiss Francs.
On the plus side, anyone holding CHF will currently receive an excellent return on funds. Up to 8% if you bought francs in 2010, so if you are looking at selling CHF and would like more information please call 01494 787 478.
If you are buying a property abroad and want the best exchange rates, just email ajm@currencies.co.uk / call 0800 328 5884 or visit www.currencies.co.uk and quote AJM Blog GBP Sterling USD Dollar EUR Euro NZD Kiwi AUD Aussie DKK Krona CAD Loonie CHF Swiss ZAR Rand THB Baht HKD Dollar CZK Krona TRY Lira SEK Krona NOK Krona
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