Foreign Currency Report 04 September 2008

There are some big changes afoot in the currency market at the moment which will effect how much you are going to end up paying for that 2nd Yacht (I wish), or maybe the dream property in the French countryside you have searched the last year for! So let's have a look at the current situation and think about what to do.
As those of you who watch the news will know that most things to do with the economy are negative and it is the same with the value of the pound. Sterling fell to new lows yesterday but later rebounded after UK services sector data lifted some of the gloom surrounding the economy and prompted traders to move ahead of Thursday's interest rate decision. The fall is for the eighth straight day to a 12-year low and hit its lowest level against the dollar since April 2006.

US Dollar

Everyone (who deals with commodities) has been talking about oil and gold recently but let us not forget the invaluable coffee bean! Coffee has fallen for the fourth straight trading day as the dollars rally spurred a drop in commodities prices and the dollar has climbed against six major currencies, reducing the appeal of raw materials as a hedge against inflation and making U.S. contracts more expensive for overseas buyers. Coffee dropped 2.5 % in the previous three sessions. So hopefully you can go to "Mrs Miggins Coffee Emporium" or any other well known coffee distributor, get a triple latte for £1 and not worry about your bigger purchase. I think not.
I mentioned above UK service sector purchasing managers' index (PMI) bounced back to 49.2 in August from 47.4 in July. Analysts had expected a decline to 47.0, and this unexpected improvement served to keep the greenbacks surge on hold but only temporarily. By mid afternoon the dollar was up only 0.1 percent on the day against the dollar, having earlier traded at its lowest since a few years ago. Flabbergasting seeing as the pound was flirting with $2 barely a month ago.

The latter point is very important if you are looking to buy or sell dollars this year, as there could be more big movements to come. Brokers at FCE are relishing the prospect of working on your requirements to make sure you make the right move at the right time; - it is too easy to jump and make an ill informed decision, so get us to do the brainwork for you.

Euro

Sterling was steady against the euro for the best part of the day but weakened off further in the early hours of the evening, a new record low being hit.

The euro looks like there is room for further strengthening as concerns over the bleak outlook for the UK economy have not gone away, with the recent downbeat assessments of the UK economy from finance minister Alistair Darling. Darling said in a newspaper interview that economic conditions were their most challenging in 60 years. If only he was a mute!

On top of these negative babblings, the Organisation for Economic Co-operation and Development said the UK is the only one in a Group of Seven industrialised nations likely to slip into recession this year.

Today the Bank of England's (BoE) Monetary Policy Committee meets to set interest rates. It is almost certain to leave them at 5 %, which means very little to be honest, just that the inevitable cut is another month away. Market analysts are not fully ruling out the possibility of a cut, but the PMI data suggests any policy easing won't be forthcoming for at least another month. Some economist and my self for what my opinion is worth expect the BoE to cut rates ¼% point by February if not ½%.

Getting the best value for your pounds against the euro at the moment leaves you with a very daunting decision, but there are always expectations about what the market will do, good and bad. So the best I can offer is to get myself or one of our brokers to utilise his market knowledge, experience and the tools available to us, and completely endeavour to put the market in your control. So that whatever happens you have got the best price available in the time you have to act. Nothing pleases us more than to save our clients money due to our guidance.

To find out about the market tools we have available for your benefit. Dial +44 (0) 20 7989 0000 and ask for John Flynn or alternatively email me on jtf@fcexchange.co.uk