This week’s currency movements
Posted by markharrison on June 15, 2008
For some while, I’ve been getting Smart Currency Exchange’s weekly updates on currency movements.Smart is a company I’ve used to transfer money to a company I’m setting up in Canada, and specialises in transfers for business and property-purchase purchases. (Basically, they don’t do small amounts, but have rather better rather than, say, my bank, for sending a few tens of thousands of pounds or more.) This is their weekly newsletter, reproduced with their permission.The rates given are the “inter-bank” rates, for comparison, not the “client rates for sending, by the way”.
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Charles’s Thoughts: Sterling continues to be “steady as she goes”. Over the last few weeks there has been little downward movement which suggests that sterling has found a base from which it may strengthen. The only worry is if we have another shock such as a Northern Rock. UK inflation is the major concern. Not just here in the UK but worldwide. There is even talk that the Bank of England may have to increase UK interest rates sometime soon as a counter to UK inflation. I must admit my feeling is that this is unlikely given the parlous state of the UK economy but the BOE might be “forced” to do a one off increase of 0.25%. I suspect “more steady as she goes” until we see a pick up in the UK economy.
The US$ has gained a bit of ground on the back of high level rhetoric and, if I was to be honest, wishful thinking. The US retail figures for May were better than expected. However US inflation rose sharply in May. Both these events have helped support the market view that we have seen the last reduction in US interest rates for a while. I think this is probably correct but I suspect we won’t see any increases in US interest rates for a while given the level of US personal debt and an already weak economy.
The € has lost a bit of ground against the US$. This is on the back of rhetoric from both sides of the Atlantic with the US talking up the US$ and Euro land talking down the €. This included the European Central Bank trying to make it clear that we will not see a raft of Euro land interest rate increases in the coming months, in fact probably just one. This rhetoric has been successful in the short term and it has to be remembered that Euro land does have some significant problems of its own with some areas suffering very badly from the strong €.
The main mover in the other currencies was the South African rand which lost ground. This was on the back of a less than convincing increase in South African interest rates of 0.5%. The market believed it should have been more, a lot more, so as to counter inflation.
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