Foreign Currency Exchange Report 26 June 2009

Sterling

The Sterling exchange rate was weighed down yesterday as stock markets declined and the Bank of England governor Mervyn King saying that Britain's road to economic recovery will be slow. The Pound exchange rate fell 0.9 per cent against the US Dollar and was down 0.9 per cent against the Euro. The British currency also fell versus the Swiss Franc and the Australian Dollar as U.K. shares slipped as much as 1.1 percent.  It's not all doom and gloom as UK foreign investors could take advantage of weakened Sterling figures especially during current market conditions.

The Sterling exchange rate, however, has risen on average more than 11 percent against the Dollar this year, rebounding from a 26 percent decline in 2008. A revival in the British economy is being held back as financial conditions facing consumers and businesses after the credit crunch remain very tight, despite some improvement. Economic recovery will require restoration of the financial system and the supply of credit. Recovery in the UK is also set to be hampered by further falls in house prices, only very weak growth in the incomes of workers and the overall continuing weakness of the world economy.

Euro

The Euro exchange rate remained relatively unchanged from opening levels but the price action is somewhat misleading with the single currency showing some relative strength across the board. A €90 billion (£76.9 billion) bailout fund for healthy as well as struggling Spanish financial institutions is expected to be approved today. The fund, to help banks to restructure, is likely to be supported by the Spanish Cabinet at one of its regular meetings. Spain's Government has been forced to launch a rescue fund to save its ailing savings banks, whose bad loans have risen after the collapse of Spain's decade-long building boom. This could have a negative effect on the Euro exchange rate and will raise concerns amongst the huge amounts of foreign property investors in Spain.

US Dollar

The Dollar exchange rate gained against all major currencies earlier yesterday with the biggest gains seen against Sterling and the Yen. However, during later trading the Dollar lost most of its gains due to bets that the Central Banks will yield higher demands. US jobless claims for the week ended June 20 rose to 627K from a revised higher 612K in the previous week. Economists had expected the figure to drop to 600K, the lowest since the data rose above 600,000 at the end of January. Consumer spending has risen in May for the first time in three months as Americans gained confidence the recession was easing. This shows signs that the US economy is showing signs of revival and could lead to the Dollar currency strengthening quite quickly.

Please contact Foreign Currency Exchange on +44 (0) 20 7989 0000 to discuss your currency exchange requirements.