January has been an interesting month for the UK economy. The first few weeks reported:
- better than expected year-on-year sales growth to December (6%)
- positive unemployment data
- a key member of the Bank of England stating that the Bank would look to raise interest rates earlier than initially expected as the UK was well on the way to recovery
The shift from a very negative outlook for the UK was clear as data continued to come in better than expected. A relatively large jump in inflation cemented this and when data demonstrated that prices had risen by 2.9% over the last year, sterling strengthened to hit 5 month highs against the euro and rebounding to early December highs against the US dollar. This was supported further when the Bank of England put on hold their programme of pumping money into the UK economy (quantative easing).
But just when we thought there was a light at the end of the tunnel…we turn to face more darkness. Sadly – all the good news and positive feelings came to a halt when the UK’s GDP growth of 0.1% for the fourth quarter of 2009 was announced.
Let’s look more specifically now at the euro: One of the major issues over the last few weeks has been the crisis in Greece and the other so called ‘Club Med’ countries of Spain and Portugal. Theses countries have come under severe pressure from investors and the markets to bring borrowing down and cut their respective deficits. With the prospect of no external help (until very recent rumours have started to spread) the euro has suffered and risk aversion has returned to the markets with many investors moving their funds to safe haven currencies such as the US dollar and Japanese yen. What’s this mean for you – keep reading…
Whilst the euro zone problems have helped keep sterling and the UK as a relatively more attractive investment against the euro (and subsequently maintain prices in the €1.13-1.14/£1 region), a side effect of those issues is increased risk aversion that has seen investors flock to the US dollar from sterling and causing the price to head towards US$1.50£1. So far this year, analysts expectations of €1.15 – 1.20/£1 for sterling are still on track, as are the expectations of US$1.50 – 1.55/£1. But like last year, the possibility that the exact opposite happens is quite high because as can be seen from the disappointing fourth quarter UK growth figures, the path to recovery here in the UK is going to be long and hard.
Time to buy, sell or hold tight on euros/ US dollars?
So – what should you do if you need to make a euro payment? If you are willing to take risks, you may be able to afford to hold off a little on euro payments and see how things pan out in Greece as the UK is much closer to raising interest rates than the Euro zone (which would see sterling strengthen).
However, with US dollar payments the sensible approach seems to be to take advantage of anything at the top end of the US$1.50/£1’s, as the US recovery storms ahead and risk appetite/ aversion comes and goes, and the market expects sterling to weaken off against the US dollar.
For more information on the euro, US Dollar or any other currency, please call 0808 163 0102 or visit: http://www.SmartCurrencyExchange.com.
January 2010 – Smart Client saved over £8,000 in one transfer
My wife and I have just bought a large house in France and were astounded at the amount of money we saved on transferring our money to Euros. We dealt with James at Smart Currency Exchange who gave us excellent advice on watching the rate over the last few weeks. We decided to lock the rate in when the pound had gained a little in strength, which James did for us quickly and effortlessly.
I asked my bank for the rate they would have given me on the same day and worked out that we saved over £8,000 by using Smart, the price of our recently bought left-hand car!
I would not hesitate to recommend Smart to anyone. Not only is a large saving guaranteed, their service is second to none. In this age of waiting to be put through to the right person on the phone or having to press buttons, there was not one occasion when James did not answer straightaway and take the time to explain everything to me courteously and as if I was his most important client.
Jargon Buster - Volatility
The tendency of the price of a currency to move up and down by large amounts relative to other currencies. High volatility in the price of a currency means higher risk that the party making payments will lose large amounts as the exchange rate/price will have a tendency to make very quickly. E.g. John hated the current US dollar volatility as it meant he might not be able to afford his house in the USA.
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