Foreign Currency Exchange Report 29 June 2009

Sterling

The Sterling exchange rate finished last week on a positive note after a week of high volatility in the currency markets as it found support on an increase in risk appetite. The first decline in house prices in five months raised questions over the possibility of a U.K. recovery and led to Sterling currency weakness to start the week. The U.K. currency also fell versus the South African Rand and the Japanese Yen. There's still a lot of negative sentiment toward the fiscal and debt position of the U.K and the slump will be a long and hard slog because of the ailing banking system. The weaker Pound exchange rate is making UK assets more attractive to foreign investors.

Overall, Sterling has gained 13% against the US Dollar and 12% against the Euro so far this year as the global financial system has showed signs of stabilising. However, if we see the pace of the recovery slow then the downside risks could increase which may sink the Pound.

Euro

Euro currency volatility looks likely in the week ahead as the European Central Bank issues a highly contested interest rate decision. The central bank is facing mounting pressure to provide greater monetary stimulus, with the Organization for Economic Cooperation and Development (OECD) urging the central bank to cut borrowing costs toward zero and keep them there into 2010. Deepening expectations of deflation threatens to commit the Euro to a long-term period of stagnation as consumers and businesses are encouraged to wait for the best possible bargain and thus delay spending and investment.  Euro Zone Economic Confidence figures are expected to be up in June, though as we have seen before some recovery is to be expected as governments financial aid filters into the broad economy but the big question is whether growth is sustainable after borrowed cash dries up. We will keep a close eye on the European currency this week as press releases will have an impact on currency transfers.

US Dollar

The Dollar exchange rate declined the most against the Euro in a month (0.9%) and dropped versus the Yen after China repeated its call for a new global currency. The Swiss Franc declined against the Euro and Dollar last week as analysts said the central bank sold its currency three times to support the economy. The Dollar exchange rate fell against most currencies after the People's Bank of China said yesterday the International Monetary Fund should manage more of members' foreign exchange reserves.

Other currencies

Canada's Dollar was poised for a loss for June, reversing a record gain in May, as investors trimmed bets on risky assets. The Loonie, as the Canadian currency is known, registered its fourth straight weekly decline, the longest losing streak since March. It fell after reports suggested Canada's recession equaled the U.S. slump and as oil, the nation's biggest export, dropped below $70 a barrel.

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