Foreign Currency Report 28 August 2008

Sterling, much like our Olympic athletes seems to be breaking new ground on a fairly regular basis. This month alone we have seen a 10% decrease versus the US Dollar exchange rate as the Interbank encroached on the 1.82 level in early US trading yesterday. When analysts predicted that Sterling as a currency was overvalued by some 15-20% last year we all seemed to splutter into our coffee, however the bookworms seem to have had the last laugh.  

GBP 

The UK interest rates are likely to be reduced by the end of the year according to Steven Barrow, currency strategist at Standard Bank. Indicating "It's likely that the only major central bank to lower rates will be the Bank of England and that gives the market something to focus on and I think that's what hurting sterling is at the moment," he said. "A lot of what Charles Bean had to say was already common knowledge but he sounded very downbeat in general so I don't think it's helped sterling's cause," said Mr Barrow. More doom and gloom was seen in a survey indicating more than one in 10 British workers fear the economic slowdown means they will lose their job in the next year, according to union body the TUC. A survey of almost 3,000 employees across Britain suggested those in Wales and Scotland felt most vulnerable. Workers in east England were most optimistic about employment, followed by those in London, it said. Replicated nationwide, the survey would mean about 3.3m people, or 13% of the workforce, feel their jobs are at risk.  

EUR 

The Euro was holding onto some of its early gains yesterday, having recovered from a six-month low against the US Dollar seen after weak German business and consumer confidence data the previous day. Dealers said fresh US and German indicators yesterday were broadly supportive for the Dollar, which appears to have turned the corner against the Euro after years of sustained weakness. The latest German inflation figures-showing a fall to 3.1 percent in August from 3.3 percent in July-suggested the European Central Bank could soon look at cutting interest rates, they noted. At the same time, better-than-expected US July durable goods orders-up 1.3pc-combined with Tuesday's more positive US consumer data were good news for the Dollar. 

USD 

The Dollar's rally against the British Pound has been rampant: It took $2 to buy one pound on July 15. Now currency traders are paying $1.82 for a Pound, down 8% in six weeks alone and the cheapest the British currency has been in two years. The driving force behind the Dollar's comeback, after six years spent mostly in decline: the perception that, even though the U.S. economy is struggling, things are rapidly getting much worse in other countries. Currencies tend to reflect the strength of their home economies, so the buck is gaining at its rivals' expense. "The market is just coming to realise that the fundamental outlook for the rest of the world is getting grimmer by the day," said Win Thin, a currency strategist at Brown Bros. Harriman & Co. in New York.  

Conclusion 

Money has to be somewhere, so investors and traders always have to be favouring some currencies over others. It's the Dollar's turn again. Try and relieve yourself of the sinking ship today before you become a mere statistic.  At times like these the best thing to do is to reduce the risk exposure your currency exchange is open to.

Speak to one of our experienced currency brokers today to see how best we can assist with your specific requirements.  For information on how to protect your budget why not drop me a line or call me, James Croft on +44 (0) 20 7989 0000 or email jrc@fcexchange.co.uk