Currency News

Sterling Overview March 2009

Okay so we are all aware the UK is currently in recession, the question everyone wants to know is how bad and long it will be? If we are to believe the International Monetary Fund (IMF) then out of the main G7 nations the UK will be in recession longer than most. However certain politicians are saying the UK is ideally placed to deal with the Global recession.
 
Cutting through the plethora of economic data Lloyds TSB are forecasting UK output in line with or worse than the 1980’s rather than 1990’s. With this in mind UK growth ought to bottom out towards the end of 2009. As I write this commentary London is building towards hosting the G20 summit, where Prime Minister Brown is likely to engage in “lively” debates about further fiscal stimulus.
 
All of this is playing havoc with currency markets and exchange rates, where we now see more price movement on the back of comments by politicians than economic data releases. This brings me onto the latest mortgage data indicating an increase in mortgage approvals for the fourth consecutive month, the highest figure since last year. Now I don’t think anyone is suggesting for a second that one piece of data means the worm is turning, however once the credit market returns to normal we should begin to see more encouraging signs.
 
Whilst sterling is likely to remain under pressure in the short-term we are predicting a stronger pound towards the end of the year. 
 
GBPEUR
The European Central Bank will announce the latest interest rate decision on Thursday, with a 50bps cut to 1% on the cards. What will be more interesting is whether they announce new measures to improve liquidity in euro zone economies following some very negative data from a number of member states, including German unemployment rising to 8.6%. If they do decide extra measures then we could see euro lose value against both sterling and US dollar.
 
GBPUSD (Cable)
The US Government have effectively told General Motors their rescue plan is not good enough, forced the CEO to resign and to report back with a more aggressive 60 day turnaround strategy. Continuing worries about the US car industry is weighing on American stock markets and as a consequence also the dollar. Having said this risk appetite remains low and as such investors are still, for the short term at least, purchasing US dollars.
 
GBPCAD (Loonie)
No one likes saying I told you so, however recent data in Canada indicates the economy is likely to fair better than most during this Global downturn. Inflation data was much stronger than expected, limiting the Central Bank’s need/desire to cut interest rates further. We did say something similar a few weeks ago.
 
GBPZAR (South African rand)
The South African Reserve Bank made a surprise announcement that it is rescheduling its MPC meetings from bi-monthly to monthly. There was a question over the timing and sure enough at the subsequent meeting MPC cut interest rates by 100bps to 9.5%.
 
GBPAUD (Australian dollar)
Like many developed economies Australian treasury have launched a new $75bn loan scheme designed to slow the rate of home repossessions and help homeowners revise terms of existing loans. The cost of this initiative and deterioration of public finances could begin to drag down AUD gains.
 
GBPNZD (New Zealand dollar)
Investors are the most bullish about New Zealand dollar since 2003, forecasting that as other central banks print massive amounts of extra money New Zealand dollar could benefit. Also, home building approvals rose 11.6% from a decline of 13% in January.

 

Sterling Overview February 2009

As expected the BoE (Bank of England) reduced interest rates by 50 basis points early February and many economists predict a further reduction of 25-50 basis points in the coming months. The base rate is now at 1%, a new record low.

RBS (Royal Bank of Scotland) announced the biggest loss in corporate history last week recording an annual loss of £24.1bn. This was attributed by Chairman Philip Hampton to “unprecedented turbulence” in the finance markets. The scale of the loss had been factored into the markets and although sterling weakened on the day this was mainly due to negative comments voiced by dovish MPC (Monetary Policy Committee) member David Blanchflower.

Elsewhere Nationwide UK house prices slumped 1.8% in February, a record drop. This equates to a year-on-year fall of 17.6% and raises the probability that house prices could face further declines throughout 2009. The continuing fall in house prices has a direct link to mortgage lending and although lending increased in December it was £5.8bn down year-on-year, with mortgage approvals less than half.

On a more positive note, both Northern Rock and RBS have agreed to lend billions of pounds over the next two years in mortgages and loans. Whilst sterling is likely to remain under pressure in the short-term we are predicting a stronger pound towards the end of the year.

GBPEUR

With economic prospects in the euro zone deteriorating the ECB (European Central Bank) seems almost certain to cut interest rates in March. However, according to some reports there is increasing pressure on the ECB to employ conventional measures, including asset purchases and quantitative easing (printing money). Markets will watch closely and analyse comments from ECB members who are scheduled to speak at various events.

GBPUSD (Cable)

Despite a series of negative economic data releases the US dollar has rallied against both the pound and euro. Last week alone durable goods fell 5.2% for January, jobless claims soared to 667,000 and housing data released was very weak. However this has only helped to strengthen the dollar as it has been viewed as a safe haven during these turbulent times although easing of this safe haven could put pressure on the dollar in the short-term. The dollar was also boosted by President Obama’s economic plan to half US debt from $1.3 trillion using a series of measures.

GBPCAD (Loonie)

The Bank of Canada chose to keep interest rates on hold at February’s meeting following a 50 basis point cut towards the end of January. The base rate remains at 1%, the same as the UK.

GBPZAR (South African rand)

The South African Reserve Bank reduced interest rates by 1% early February reducing the base rate to 10.5%. We expect the rand to have a broad trading range in the short-term.

GBPAUD (Australian dollar)

The Reserve Bank of Australia slashed interest rates a further 1% in February reducing the base rate to 3.5%. Higher yielding currencies such as the Aussie dollar are likely to remain under most pressure as global interest rates fall, in fact the Australian dollar was one of the worst G10 performers against the US$ last month.

GBPNZD (New Zealand dollar)

Interest rates remained at 3.5% in February although like the Australian the Kiwi dollar is also a higher yielding currency and therefore more likely to remain under pressure as global interest rates fall. The New Zealand dollar was also among one of the worst G10 performers against the US$ last month.
 

Sterling Overview January 2009

Writing these reports does sometimes feel like déjà vu in the sense that the Bank of England (BoE) made history again last month. This time cutting the base rate by 50bps to 1.5%, which is the lowest level since the Bank was established 315 years ago. BoE Governor Mervyn King said that now the UK is officially in recession, after Q4 2008 GDP showed a 1.5% contraction, we are likely to see more economic stimulus. Although we are not expecting the Monetary Policy Committee to reduce interest rates much more than 50-75bps.

Generally speaking the Bank of England have been largely supported by the City, which is welcoming the various measures being announced to free up credit markets. This is in contrast to a few months ago when many analysts were calling for the Bank to be more proactive in their approach to the global credit crunch.

It goes without saying that much of the economic data being released in the UK is poor, however what does antagonise me a little is the media’s continuous appetite for sensationalising bad news. I am not talking about “spin” but in my view it would be nice to have more balanced / objective reporting.

Whilst I do not want to sound repetitive it is likely sterling will remain under pressure in the short term. Our medium term outlook hasn’t changed much and we expect sterling to recover once economic data begins to improve. As always for a more detailed opinion please contact us directly.

GBPEUR
The impact of cutting interest rates would normally weaken a currency, but markets were expecting a cut in UK interest rates and since hitting an all time low on New Years Eve sterling has gained about 12% on the euro. Unlike the Bank of England, the European Central Bank (ECB) has been slower to react to the credit crunch. Only time will tell what impact this will have but many analysts suggest the recession in Eurozone will be longer, albeit not as deep so are expecting the euro to lose value.

GBPUSD (Cable)
All leading economic indictors in the US point towards negative growth for 2009. Unemployment reached a 15 year high of 7.2% and Q4 2008 GDP contracted by 3.8% on an annualised basis. It would not be unreasonable to expect dollar weakness. However massive fiscal stimulus packages, near zero interest rates and continued expansion of Government spending will support the economy and therefore the US dollar in short term.

GBPCAD (Loonie)
After further reductions in official interest rates and rising unemployment the loonie is expected to come under pressure. However pressure is likely to be from US dollar only as appetite for sterling is very limited.

GBPZAR (South African rand)
With general trend for risk aversion and a move back to quality, emerging currencies like the South African rand are likely to come under pressure. Furthermore analysts are expecting a 100bps reduction in interest rates as output falls alongside world economies.

GBPAUD (Australian dollar)
Despite massive cuts in interest rates by the Reserve Bank of Australia, recent Government data shows house prices falling sharply. Analysts have priced in another 100bps cut, which in the short-term could have a negative impact for the value of Australian dollar.

GBPNZD (New Zealand dollar)
According to the New Zealand Treasury department the economy will remain in recession until at least Q2 2009 and the worsening global outlook could make for a steeper slowdown. This coupled with a 150bps cut in interest rates the kiwi dollar has come under intense selling pressure recently.

Sterling Overview December 2008

As expected the Bank of England (BoE) slashed interest rates again in December following a 1.5% cut in November. The Monetary Policy Committee (MPC) agreed on a further 1% cut reducing the UK base rate to 2%.

Sterling suffered some big losses following the cut recording new lows against both euro and US dollar and with the expectation of lower interest rates to come in 2009 it seems the pound will remain under pressure in the short-term. Sterling has fallen sharply in the past year against the dollar and euro with depreciation of 28%, and 17% respectively. This is having a big impact for importers, however the export market is showing robust growth. With this in mind we expect 2009 to be a bumper year for inward investment and tourism as foreigners take advantage of the cheep pound. This is similar to what happened in the early nineties and helped the UK to accelerate out of recession.

Retail sales evidence suggested that spending may have been firm over Christmas, but overall sentiment remained extremely weak due to a lack of confidence with expectations of further economic weakness to come.

In our view the pound is likely to remain weak in the short-term, although we have been saying for a while that sterling is undervalued and it is only a matter of time before a correction takes place.

GBPEUR

Like the BoE the European Central Bank (ECB) slashed interest rates by 0.75% at December’s meeting reducing the base rate to 2.5% in the eurozone. The ECB maybe reluctant to push interest rates much lower however further cuts are likely to be necessary as the economic slowdown intensifies.

GBPUSD (Cable)

Interest rates in the US are now at 0% following a 1% cut in December leaving few monetary policy options available for the Fed. The UK currency dipped to a fresh low of just below 1.44 against the dollar, the lowest reading since 2002. Further falls could also be likely as we expect the dollar to remain strong against most of its main trading counterparts including the pound.

GBPCAD (Loonie)

The Canadian dollar strengthened significantly against the pound last month. Although the Canadian economy is not boasting good economic figures, it is widely viewed to be in a much better position to cope with the global economic crisis.

GBPZAR (South African rand)

Unlike November we saw some big movements with the rand last month as the unwinding of carry trades took affect on the South African currency. Interest rates remain at 12% and we expect volatility to remain high although it appears to now be trading at a more natural level.

GBPAUD (Australian dollar)

The Reserve Bank of Australia cut interest rates again in December, this time by 1% reducing the base rate to 4.25%. Following depreciation of the Aussie dollar against the pound on previous rate cuts the dollar made gains against the pound on this occasion following the gloomy outlook for the UK economy.

GBPNZD (New Zealand dollar)

Like most other Central banks, New Zealand cut interest rates in December. The Kiwi base rate now sits at 5% following a 1.5% reduction last month and despite this made gains against the pound due to the lack of support for sterling.
 

Sterling Overview November 2008

In our commentary last month we indicated that the Bank of England may cut the base interest rate more aggressively than the 50bps forecast and indeed they did. However what we did not see coming was the announcement of a 150bps cut, and I hasten to add nor did the majority of market analysts. This pushed UK interest rates to 3%, their lowest level since 1955 and the largest single reduction since the ERM crisis in 1992.

What effect did this have on the exchange rate? Well normally you would expect to see a currency weaken considerably after such a large cut in interest rates. However sterling actually gained in value against both euro and US dollar. Mainly in our view due to the market seeing the step as a positive move by the BoE to stimulate growth in the UK economy and make any recession as painless as possible. Unfortunately these gains were short lived, and following the Bank of England quarterly inflation report a few days later sterling lost significant value against the euro reaching an all time low.

In the Chancellor’s pre-budget report a host of measures have been introduced aimed at helping small businesses and households weather the current economic climate, including an immediate 2.5% cut in VAT. Clearly only time will tell if the measures have any affect and in any case the Chancellor cannot really lose in the sense that if UK economy recovers quickly it will be down to him, and if it doesn’t, then surely it would have been worse if these measures weren’t introduced?

As I write this report sterling has finished the best week since October after making positive gains against both US dollar and euro as we build up to the interest rate decision on Thursday. Without wanting to sound repetitive our opinion hasn’t changed much and we expect the pound to remain under pressure given the strong possibility of another large interest rate reduction. With this in mind markets are likely to remain volatile with potentially some quite large daily swings.

GBPEUR

Pressure is building in the eurozone for the ECB to cut interest rates as recent GDP figures show the eurozone is officially in recession after two consecutive quarters of negative growth. A large increase in the unemployment rate in France along with significantly lower inflation has given the ECB room to cut interest rates even more aggressively, which could devalue what has recently been viewed as a safe haven currency.

GBPUSD (Cable)

Despite the turmoil in financial markets the US dollar has gained in value against a number of currencies including sterling and euro. Was this due to Obama being elected as the next President? Only time will tell but for the moment at least whilst investors and institutions are buying US bonds in large volumes, and with certain commentators talking about a recovery in the second half of 2009 the dollar could maintain its appeal.

GBPCAD (Loonie)

Canada is a massive oil exporter and with falling oil prices you would normally expect the dollar to weaken. However, consensus at the moment would suggest the Canadian economy will be one of the few major nations to avoid a recession, hence why the loonie has remained strong.

GBPZAR (South African rand)

Regular readers will be aware the South African rand is one of the more volatile currencies, although whilst there has been turmoil in stock markets it has been a relatively quiet month for the rand with exchange rates ranging between 15 and 16 to the pound.

GBPAUD (Australian dollar)

Another 75bps cut in interest rates by Reserve Bank of Australia to 5.25% led to the dollar weakening against sterling. The dollar is heavily influenced by commodity prices so we expect exchange rates to remain volatile.

GBPNZD (New Zealand dollar)

The kiwi dollar is not linked to the Australian dollar, however it is influenced by similar factors hence why we have seen exchange rates against sterling remain in favour of the pound.
 

Sterling Overview October 2008

It has been another roller-coaster month for sterling as GDP data released showed that the UK economy contracted by 0.5% in Q3 compared with the previous quarter. This is the first contraction since Q2 1992 and the biggest quarterly fall since Q4 1990. The market consensus had been for a 0.2% decline and the pound weakened significantly following this data release. Although the UK is not technically in recession (2 quarters of negative growth) both Gordon Brown and Mervyn King, Governor of the BoE (Bank of England) have now spoken about the possibility of a recession, something they had been reluctant to do.

The BoE’s MPC (Monetary Policy Committee) coordinated a rate cut along with 5 other central banks including the ECB (European Central Bank) and Fed (US Federal Reserve) and interest rates were reduced by 0.5%. It is now expected that the BoE will reduce interest rates further when they meet later this week, most likely by 0.5% although there have been a number of calls for a larger cut.

Recent consumer confidence data has been published at its lowest level since 1974 as households worry about the financial turmoil and the outlook for employment. On a more positive note mortgage approvals recently hit a twelve month high, which indicates lenders are finally opening their mortgage books again.

In the short-term we expect the pound to remain under pressure given the strong possibility of an interest rate reduction, although many issues facing the UK also face the euro zone and US. With this in mind markets are likely to remain volatile with potentially some quite large daily swings.

GBPEUR

The ECB meet later this week to announce their decision on interest rates, although it is anticipated that they will cut rates again following a 0.5% cut last month. ECB members will be scrutinised for hints of the likelihood and magnitude of future rate cuts. President Trichet last Monday signalled the possibility of a cut this week, an outcome that seems even more likely given the recent series of very weak confidence data and the fall in euro zone CPI inflation.

GBPUSD (Cable)

The Fed slashed interest rates last week to 1% and whether more rate cuts are on the cards before year-end may depend on the outcome of the October employment report on Friday. Despite a reduction in the US base rate, which would normally devalue a currency, the fall in oil prices coincided with huge purchases of dollar-denominated assets has seen the dollar rally in recent weeks against both the pound and euro.

GBPCAD (Loonie)

The BoC (Bank of Canada) was one of 6 central banks that opted for a coordinated rate cut of 50 basis points last month bringing the Canadian base rate to 2.25%. We have seen some favourable buying opportunities as oil prices have reduced devaluing the loonie, although GBPCAD still remains within a very broad trading range.

GBPZAR (South African rand)

Interest rates remain at 12% in South Africa although October has seen a huge movement on GBPZAR currency pairing with buying levels above 18.00 and selling levels below 15.00.

GBPAUD (Australian dollar)

A surprise 100bps cut in interest rates led to 5% fall in value versus GBP early last month. The surprise move coincided with a massive sell off of Aussie dollars as unwinding of carry trades meant the dollar saw losses of more than 10% on some days.

GBPNZD (New Zealand dollar)

Following the 1% reduction in interest rates by the RBA (Reserve Bank of Australia), the RBNZ (Reserve Bank of New Zealand) also acted and slashed their base rate to 6.50%, a 1% reduction. Also, like the Aussie dollar the Kiwi dollar lost much value on the unwinding of carry trades and at one stage hit 3 dollars to the pound. The market has since fallen back but levels still remain favourable for UK buyers.

Foreign exchange market commentary - September 2008

Sterling Overview
The Bank of England has a tough task to steer the UK economy through these choppy waters. This month the Monetary Policy Committee (MPC) felt that despite high inflation, interest rates should remain at 5%. The minutes of the meeting show this was not a straight forward decision, with one member voting for an immediate cut in the base rate and another voting for an increase. This split in sentiment is down to the fact that inflation remains stubbornly high, primarily due to high energy and food prices, hence the call for a rise. However the economy is slowing, so one member of the MPC voted for a cut to stimulate growth.

On balance despite numerous media reports of gloom the majority of economic indicators show the UK is slowing in line with forecast. With this in mind over the last few weeks we have seen sterling remain resilient against most currencies, and whilst markets are still quite volatile the pound seems to have found support. Well, for the moment at least.

In the short term our view is that sterling will remain under pressure and probably for the next few months. Clearly for more detailed information please contact your Currency Dealer.


GBPEUR
In our commentary last month we said the European Central Bank (ECB) may raise interest rates following President Jean-Claude Trichet aggressive stance towards inflation. We can now confirm the ECB have raised rates 25 basis points to 4.25%. Normally when interest rates are increased the currency appreciates in value, however for most of July we have seen the euro under pressure. This is due to the fact that most recent data from the eurozone suggests the credit crunch and global inflation is finally having an affect.


GBPUSD (Cable)
Whilst financial markets are still coming to terms with the rescue of the largest mortgage lenders Freddie Mac and Fannie Mae the US dollar remains under pressure. However analysts expect Q2 GDP to show the US economy rebounding with consumer confidence resilient. Therefore it is highly unlikely the Fed will cut interest rates, and as the economy recovers they will probably begin to raise rates in order to curb inflation pressures. This will tend to support the dollar and make it more expensive.

GBPCAD (Loonie)
The Canadian central bank surprised the markets by increasing interest rates last month, this along with high oil prices has seen the dollar remain expensive. However, these gains are beginning to be eroded since oil prices have fallen from record highs earlier in July.

GBPZAR (South African rand)
Pressure remains on the rand as markets attempt to establish medium term economic prospects. Some speculators are forecasting robust growth, however the rand is one of the more volatile currencies so we expect quite large movements in the exchange rate.

GBPAUD (Australian dollar)
Although the RBA kept interest rates on hold in their latest meeting, expectations are for economic tightening. However, the Australian dollar tends to follow commodity prices and with a correction in these markets we could see the dollar come under pressure.

GBPNZD (New Zealand dollar)
The markets were not expecting any change in interest rates. So following Julys cut of 25 points to 8.00% the New Zealand dollar has been under pressure and lost value against sterling.

 

Foreign exchange market commentary - June 2008

We are pleased to be able to provide you with our latest currency newsletter, which offers a useful insight into the main foreign exchange headlines over the last few weeks.

Sterling Overview

The Bank of England (BoE) is in a difficult position with inflation set to accelerate towards 4% in the coming months, and economic growth slowing. Rising inflation would usually lead to the BoE increasing interest rates whilst they would normally be cut to stimulate economic growth.

However, it seems unlikely the BoE will do anything in the short term although continued inflationary pressure could mean higher rates are not far away. With inflation rising, there is a risk the BoE’s Monetary Policy Committee (MPC) may be forced to raise interest rates sooner than they would like. This is a big turnaround from a few months ago when the next move looked certain to be a cut.

UK consumers seem immune to the pressure from rising inflation, higher mortgage borrowing costs and falling house prices. Instead retail spending rose 3.5% in May to stand 8.1% higher in volume terms than in 2007.

Once again our view is that sterling will remain under pressure in the short term and probably for the next few months at least, although for more information please contact your Currency Dealer.


GBPEUR

European Central Bank (ECB) president Jean-Claude Trichet has hinted strongly that the ECB may hike interest rates at this Thursday’s meeting. A 25 basis point rise has been priced into the market with some economists forecasting a further hike later this year, to cope with rising inflation. In the short term the euro is likely to gain support from speculation of higher interest rates although weaker growth prospects could weigh on the currency further out and provide better buying levels for euro purchasers.


GBPUSD (Cable)

Recent economic data suggest the US is likely to avoid a technical recession in 2008, however significant risks remain to the outlook. Whilst we expect the dollar to strengthen over the next 6-18 months, we do not expect it to stage a sustainable recovery until next year, when growth prospects should improve. Signs of faster growth could lead to aggressive tightening in the US with the Fed raising interest rates, which would tend to strengthen the dollar.


GBPCAD (Loonie)

The Canadian dollar has lost some of the gains previously made against the pound, providing more favourable buying levels to loonie purchasers. The Bank of Canada (BoC) kept interest rates on hold at 3% at Junes meeting.


GBPZAR (South African rand)

The South African rand has weakened despite higher interest rates and commodity prices, suggesting factors beyond yield differentials are weighing on the currency. This may relate to weaker economic growth prospects and the generalised rise seen in investor risk aversion.


GBPAUD (Australian dollar)

The Australian dollar rose to a 25yr high against the dollar and made ground against the pound on speculation that the Reserve Bank of Australia (RBA) will raise interest rates in the coming months, although rates were kept on hold at 7.25% earlier this month.

 

Foreign Exchange Market Overview - May 2008

Foreign Exchange Market Overview - April 2008

Foreign Exchange Market Overview - March 2008

Sterling Overview

GBPEUR

GBPUSD (Cable)

GBPCAD (Loonie)

GBPZAR (South African rand)

GBPAUD (Australian dollar)

Sterling Overview

GBPEUR

GBPUSD (Cable)

GBPCAD (Loonie)

GBPZAR (South African rand)

GBPAUD (Australian dollar)

Foreign Exchange Market Overview - January 2008 

We are pleased to be able to provide you with our latest currency newsletter, which offers a useful insight into the main foreign exchange headlines over the last few weeks.

 Sterling Overview

It has been an interesting month for economic news and since Christmas sterling has been under pressure, caused mainly by the credit crunch in the US, continuing issues with Northern Rock and whether the wider UK economy will begin to suffer as a consequence. One of the first main economic indicators for the New Year was news that the Bank of England decided to keep interest rates on hold. Subsequent data releases indicate the economy is stable and broadly speaking growth is falling in line with expectations. Clearly there are pressures in the housing market and on the high street; although after 18 months of interest rate increases by the Bank of England we should not be surprised the economy is now cooling down.

 What does all this mean? Looking ahead, whilst the financial markets are still dealing with the credit crunch it is likely to mean tighter lending criteria both in the private and corporate sector. Therefore the general market consensus is for sterling to remain under pressure for the coming months.

 We have options available that can eliminate any exposure to the currency markets. Please contact us to discuss further.

 GB Pounds - Euro

In contrast to the anticipated interest rate cuts for the UK and US, in the eurozone the view is for interest rates to be increased, caused by inflation running at 3.1% well over the target of 2%. If interest rates are increased, we might see exchange rates move making the euro more expensive. In January we saw both Malta and Cyprus adopt the euro, taking the number of countries using the single currency to 15.

 GB Pounds US Dollars (Cable)

With growing uncertainty over whether the wider US economy is starting to feel the effects of the credit crunch, the dollar has been losing value to a host of currencies including sterling. With the Federal Reserve making an emergency interest rate cut of 0.75% and an expectation of another cut to follow shortly, it is likely the dollar will remain under pressure.

 GB Pounds Canadian Dollars (Loonie)

Like most other major economies, Canada is keeping a close eye on data to spot any fallout from the US credit crunch. With this in mind the last interest rate decision saw the Central bank reduce borrowing costs by 0.25%. Having said that, with oil prices at all time highs and the economy doing well, we could see the Canadian dollar exchange rate remain at current levels.

 GBP - ZAR (South African rand)

The rand is certainly one of the more volatile currencies, caused mainly by the close link to commodities (copper, minerals, gold). With interest rates currently at 11% and high commodity prices we could see an appreciation in the value of South African rand over the coming months.

 GB Pounds - AUD (Australian dollar)

With the prospect of increasing interest rates in the coming months, along with the continued appetite for carry trades (A carry trade is when someone borrows currencies with a low interest rate such as the Yen and invests that money in higher rate currencies such as the Australian dollar) it is likely we will see the dollar maintain its value for the time being.

Foreign Exchange Market Overview - December 2007

We wish all our readers a very Merry Christmas and a happy New Year.

Sterling Overview
The Bank of England (BoE) cut rates earlier this month with a unanimous 9-0 vote by members of the Monetary Policy Committee (MPC). As a result sterling lost gains made in previous days and drifted lower during trading. Interest rates are now at 5.5% and the unanimous decision has added to speculation that a second rate cut is just around the corner. Mervyn King, Governor of the BoE has already indicated that he expects the UK economy to slow next year and interest rates to reduce. This month’s cut had been widely expected to take place in February but given the lack of liquidity in the credit markets, the decision was taken sooner.

December has been a difficult month for sterling, struggling to find support and dipping to 4 ½ year lows against the euro. The run on Northern Rock Bank and current credit crisis are still widely blamed for the lack of confidence in the pound and low trading levels against major currencies.

The consensus is for sterling to remain under pressure into 2008. There are options available that can eliminate currency risk such as securing exchange rates now, which removes any chance of the purchase becoming more expensive. Please contact us to discuss further.

GBPEUR / GBPCYP / GBPMTL (The Cyprus pound and Maltese lire are influenced by the euro)
Until more normality returns to the markets it seems the European Central Bank (ECB) is unlikely to move on interest rates. ECB president Trichet’s comments at the press conference following the decision to leave the repo rate at 4% in December suggest the most likely direction is still up and economists predict a hike to 4.25% by March 2008, with another 0.25% hike later in the year to 4.5%, possibly by end-Q3. A rise in euro zone interest rates could lead to a more expensive euro, especially if the BoE decide to cut rates in the UK.

GBPUSD (Cable)
Stronger than consensus US economic growth and reduced speculation of interest rate cuts is expected to underpin a rebound in the dollar in 2008. The dollar has already made significant gains against both sterling and euro in recent days and many city analysts predict further dollar strength.

GBPCAD (Loonie)
The improved general economic outlook for Canada has reduced market speculation of lower interest rates and enabled the loonie to regain losses sustained earlier this month. Buying levels are now back below $2 and given current economic conditions you may see further CAD strength.

GBPZAR (South African rand)
Following a 0.5% hike in interest rates earlier this month, the rand rebounded after a series of losses. Interest rates are now 11% in South Africa although the rand has been hit by the reduction of carry-trade (A carry trade is when someone borrows currencies with a low interest rate such as the Yen and invests that money in higher rate currencies such as the rand) based trading strategies.

Foreign Exchange Market Overview - November 2007

Sterling Overview
During the last few weeks Northern Rock and the “credit crunch” have been dominating headlines. As a consequence of this sterling has been under considerable pressure as the market watches to see if the wider UK economy starts to feel the strain. Early indications would suggest not, in the sense that generally speaking the economy is stable albeit slowing down slightly; inflation is broadly inline with expectations, as were retail sales but the main surprise was a decrease in wage inflation. This could be down to the fact companies are more willing to hold onto staff and employees are more willing to accept lower pay increases in return for job security. Nationwide Building Society released its latest house price report indicating house prices fell last month by 0.8%, the sharpest fall since February 1995. In contrast the latest CBI trade survey shows that retail and business sentiment are still strong.

What does all this mean for sterling? For the moment we will continue to see sterling under pressure as the market waits to see if there are any more signs of a slow-down. Also, it is generally accepted that the Bank of England will have to cut interest rates at some point. The timing of this cut could have a major impact on exchange rates. A cut in December would probably mean sterling weakens, but if they wait until next year then we may not see sterling lose much value.

There are options available that can eliminate currency risk such as buying currency on a forward contract. This allows clients to secure exchange rates today and remove any chance of the purchase becoming more expensive. Please contact us to discuss further.

GBPEUR / GBPCYP / GBPMTL (The Cyprus pound and Maltese lire are influenced by the euro)
The main benefactor to the recent credit crunch has been the euro, which is trading at four year highs against sterling and also all time highs against the US dollar. Inflation in the eurozone remains stubbornly high and as such the European Central Bank is likely to have to raise interest rates in 2008, which would tend to make the euro more expensive.

GBPUSD (Cable)
Clearly attention in the US financial markets has been focused on the fallout of the sub-prime mortgage sector. Recent data shows that the real economy has not been hit by the credit crisis so far with quarter 3 GDP at 3.9%, the fastest growth for 18 months. Having said that the Federal Reserve is still likely to cut interest rates again, therefore it is unlikely the dollar will recover in the short term.

GBPCAD (Loonie)
The gains against sterling made by the Canadian dollar last month have been cut back this month. Despite high oil and commodity prices, economic data in Canada has suggested that the rise in interest rates already priced into the market may not happen. As such the loonie has lost value recently.

GBPZAR (South African rand)
Like the Canadian dollar, the rand has benefited from high commodity prices, although most recently these gains have been wiped out following some questions over the continued raising of interest rates in South Africa.

Foreign Exchange Market Overview - October 2007

Sterling Overview
The financial markets are still moving irregularly following the credit crisis last month and associated problems with the Northern Rock bank. Sterling has struggled to find support since, leaving slim trading ranges against most currencies. Last month new mortgages in the UK fell to their lowest level since 2000 and a series of data suggests the housing market may be slowing. Despite this, interest rates remained on hold during October with members of the Bank of England’s (BoE’s) Monetary Policy Committee (MPC) voting 8-1 in favour of keeping rates on hold, with only David Blanchflower who is widely seen as the most dovish member of the MPC voting for a cut. Interest rates look likely to remain on hold for November as well, although many economists are still forecasting a 25 basis point cut at some point in the next 3 months. Further speculation about a rate cut may lead to the pound devaluing and foreign currency becoming more expensive.

With this in mind, there are options available that can remove this risk such as buying your currency on a forward contract. This allows clients to secure exchange rates today and remove any chance of the purchase becoming more expensive. Please contact us to discuss further.

GBPEUR / GBPCYP / GBPMTL (The Cyprus pound and Maltese lire are influenced by the euro)
The pound has remained range-bound against the euro as both currencies have struggled to break key resistance levels. Sterling has made gains recently following losses last week, although the focus will now turn towards the BoE and European Central Bank (ECB) interest rate decisions next Thursday. Both Banks are expected to keep rates on hold although if they don’t it could lead to market movement.

GBPUSD (Cable)
Following another interest rate cut by the Federal Reserve, this time by 0.25%, sterling hit fresh 28 year highs against the greenback (USD). The US is clearly suffering from the recent credit crisis and many expect it to get worse before any recovery. This could lead to even better buying levels for dollar purchases.

GBPCAD (Loonie)
The Canadian dollar has rallied recently following oil prices hitting record highs. Oil prices have now touched $93 per barrel and experts are predicting that $100 per barrel may not be far away. Oil makes up around 17% of Canada’s exports and has added value to the loonie pushing buying levels for UK clients to the most expensive for 18 months.

GBPZAR (South African rand)
The South African rand benefited from the carry trade (A carry trade is when someone borrows currencies with a low interest rate such as the Yen and invests that money in higher rate currencies such as the rand) and rising commodity prices also helped push the rand stronger against the pound last month. This, coupled with the recent problems in the UK has meant the South African rand has become more expensive.
 

Foreign Exchange Market Overview - September 2007

Sterling Overview
As regular readers of our market reports will know the currency market can be very unpredictable. September has been no exception and sterling lost over 3% in value against most currencies in a little over two weeks. The main cause of the problems was news that Northern Rock (one of the largest mortgage providers in the UK) had to turn to the Bank of England in order to borrow money because the availability of loans in the wholesale market had dried up. This in itself shouldn’t have caused the problems that ensued but unfortunately it created a lack of confidence in the wider UK economy and the interest rate hike which was expected later in the year has all but disappeared. Despite relatively positive data releases in the retail and housing sector I feel sterling is still undervalued and this could continue until confidence in the UK financial market returns.

It is times like these when the value of fixing exchange rates becomes invaluable and by securing exchange rates today it removes any chance of the purchase becoming more expensive if sterling continues to fall in value. We are happy to discuss this with you or your clients in more detail.

GBPEUR / GBPCYP / GBPMTL (The Cyprus pound and Maltese lire are influenced by the euro)
You might think the “credit crunch” has passed by the eurozone but you would be mistaken. Luckily for the euro other countries (USA, UK) have suffered more, although a strong euro is hurting exports as indicated in the trade surplus figures. Furthermore growth figures would indicate a slowdown in the eurozone economy sparking calls from some member countries for interest rates to be cut.

GBPUSD (Cable)
If you think sterling is having a tough time, it is nothing compared to the USD, which has lost significant value after the Fed cut interest rates by 0.5%. Most welcomed the move and hopefully the slowdown in US the housing market will not spread to the broader economy. Only time will tell if this is the case but most recent data would indicate that the US economy is holding up.

GBPCAD (Loonie)
Despite slightly lower than forecast retail sales and CPI data the loonie has made significant gains against sterling. The loonie is heavily influenced by oil price and with oil breaking $80 per barrel along with the issues in the UK financial markets we have seen sterling fall 4.5% to 18 month lows. With firmer commodity prices we would expect the loonie to remain strong.

GBPZAR (South African rand)
One of the major winners following the Fed interest rate cut has been the rand. Surging commodity prices along with a regained appetite for carry-trades has seen the rand increase in value. However the most recent data would suggest that higher interest rates are beginning to have a dampening effect on growth and we could see sterling recover these losses.

GBPAUD/NZD
Both antipodean currencies have made gains against sterling following the Fed interest rate cut. AUD being helped by rising commodity prices and NZD on the back of investors prepared to bet on carry trades. Consensus forecast is for continued antipodean strength, which is not so good for sterling.
 

Foreign Exchange Market Overview - August 2007

Sterling Overview
The financial markets have stabilized returning confidence to the markets this week following volatility earlier in the month. As global stock and credit markets seem to have stabilized, confidence and support for carry trades has boosted once again (A carry trade is simply when someone borrows currencies with a low interest rate such as the Yen and invests that money in higher rate currencies such as the Aussie dollar). It was the unwinding of carry trades that caused some currencies to move more than 8% in just a matter of days and creating some fantastic buying opportunities. Sterling has held strong against most currencies this month although has seen big movements against the US, Aussie, Kiwi dollar, and Japanese yen. GDP figures revealed that the UK economy is growing strongly for the 6th straight quarter, growing by 0.5% on the quarter or 3% on the year, and CBI industrial survey data which reached its highest level since May 1995. With the recent plunge in markets and the risk of its impact on economic activity, the Bank of England (BoE) should continue to hold interest rates steady at 5.75%, especially with inflation now seeming to be under control.

GBPEUR / GBPCYP / GBPMTL (The Cyprus pound and Maltese lire are influenced by the euro)
Sterling has remained range bound against the euro this month as both zones seem to be at, or near to their interest rate peak. Interest rates currently stand at 4.25% and 5.75% in the euro zone and UK respectively, although rates are expected to stay on hold in the UK whereas uncertainty surrounds the euro zone decision. In the euro zone, rates had been expected to rise 0.25% although given recent instability in the financial markets and economic data suggesting the euro zone inflation levels are under control this is now seeming less likely.

GBPUSD (Cable)
The USD has seen big gains against a basket of currencies this month including sterling and euro following the volatile conditions earlier in the month. Due to the high demand for dollars central banks injected funds into the markets to ease liquidity problems. This provided some much needed support for the greenback (USD), which subsequently rallied against a whole host of currencies including sterling where gains of around 3% were made. Talk of an interest rate cut has since caused the US dollar to weaken slightly although buying levels remain significantly lower than 3 weeks ago.

GBPCAD (Loonie)
Economic data has fallen inline with market expectations this month and strong fundamentals suggest Canada is still operating at above optimal capacity, which could justify a rate hike. Although it is likely the Bank of Canada (BoC) will see how this credit fiasco which has caused turmoil in the markets play out first. Despite this they will have to raise rates to avoid prolonged inflation and traders are expecting a hike before the year is out which could lead to increased strength of the CAD and so therefore a more expensive loonie.

GBPZAR (South African rand)
Interest rates have risen 3% in the last year although the South African Reserve Bank (SARB) still believe rates need to rise further to correct South Africa’s spending problem and bring inflation lower. Others believe that the impact from previous rate rises has not filtered through to the economy yet and continued rate increases could hamper long term economic growth. However this month the rand has been dominated by global market confidence and this is likely to remain until the credit crisis is under control.

GBPAUD/NZD
Both antipodean currencies saw movements in excess of 8% as carry trades unwound and traders sold off Aussie and kiwi dollars. This created some fantastic buying opportunities for both currencies and purchasers buying property in either of these two countries could have seen more than 8% wiped off the cost of their dream property by buying at these levels. Exchange rates have dropped but still remain favourable and it seems conditions may remain that way until investors regain confidence in carry trades.

Foreign Exchange Market Overview - July 2007

Sterling Overview
I feel that I am repeating myself from last month in the sense that sterling has once again performed well against the majority of currencies. The major data releases influencing this performance were higher than expected quarterly GDP, which indicted the UK economy growing faster that predicted and also inflation data for June still above the target level of 2%. This is despite the Bank of England’s best efforts in trying to keep a lid on inflation by increasing interest rates at the beginning of July to 5.75%. So, with the UK having the highest interest rate of all G7 countries and a growing economy makes sterling very attractive. However, there is a “but” to all of this good news, which is the most recent Nationwide house price index showed prices were virtually static in June, the weakest since April 2006 and the British Bankers Association reported that mortgage approvals fell in June. Maybe the recent spate of interest rate hikes in the UK are finally starting to take effect, although only time will tell whether the Bank of England is still required raise rates further.

GBPEUR / GBPCYP / GBPMTL (The Cyprus pound and Maltese lire are influenced by the euro)
Sterling trading levels in July have gradually improved culminating in them hitting highs not seen for 6 months. This is very good news for if you need to purchase euros, although not so good if you are selling them into sterling. The eurozone economic forecast is robust with continued strong money supply, strong credit growth and exports growing faster than imports, which may result in the sterling gains being short lived.

GBPUSD (Cable)
The US dollar has struggled this month and cable exchange rate has reached twenty six year highs. It does not seem long ago that we were talking about the psychological $2 barrier but this has been smashed and sterling could continue to trade above this. Despite US data releases falling in line with expectations there is real concern about the sub-prime mortgage market and whether this will begin to affect the rest of the American economy.

GBPCAD (Loonie)
As you will know sterling has struggled recently against the loonie dropping considerably since January, although in July sterling did make some gains. Broadly speaking the Canadian economic data has disappointed the market hence why sterling has made ground, however given the increase in oil prices these gains have been pegged.

GBPZAR (South African rand)
It is a little unusual to report about volatile retail sales data but that is the situation in SA with May retail sales bouncing back 9% up from a 20 month low of 5.4% in April. This, along with rising metal prices makes the prospect of further interest rates rises likely, which may increase the value of ZAR making it more expensive to purchase.

Foreign Exchange Market Overview - June 2007

Sterling Overview
Sterling made significant gains against most major currencies following the close 5-4 vote at June’s Bank of England (BOE) Monetary Policy Committee (MPC) meeting. The decision was in favor of keeping rates on hold at 5.5% but the close vote added to growing speculation that we will see further hikes this year with economists predicting as soon as next month. Mervyn King, governor of the BOE, was one of the four who voted in favor of the rise and this has only added to the possibility that interest rates will increase by 0.25% next month. June was the first month Mervyn King had not been in the majority since becoming MPC governor and Mr. King’s bullish speech at the end of last week did little to alleviate the possibility of a hike next month. A rise in UK interest rates increases the strength of the pound and its value against other currencies making foreign currency purchases cheaper, so a good sign for clients looking to invest in the overseas property market.

GBPEUR / GBPCYP / GBPMTL (The Cyprus pound and Maltese lire are influenced by the euro)
The euro came under downward pressure as indicators suggested that the euro zone economic growth may be peaking. Key data releases indicate that growth is slowing although there are still strong concerns over inflation and we are still expecting the European Central Bank (ECB) to increase rates further following Jean-Claude Trichet’s (President of the ECB) hawkish analysis. Interest rates in the euro zone currently stand at 4.0% and a rate hike by the ECB may cancel out gains made by sterling.

GBPUSD (Cable)
The dollar has had a volatile month with buying levels now 2% more favourable than two weeks ago. The greenback had made gains earlier in the month following a series of upbeat data in the US, however like many other currencies lost ground to sterling strength when the MPC released the minutes. Interbank levels for GBPUSD remain around the $2 mark and close to 25 year highs. Interest rates remained at 5.25% for the eighth consecutive meeting and it seems the possibility of a rate cut is less and less likely.

GBPCAD (Loonie)
The loonie has provided some good opportunities for both buyers and sellers this month as the GBPCAD has provided more than a 3% range between the high and low. Inflation remains just above the Bank of Canada’s 2% target and there has been much talk about the possibility of a rate hike because of the recent rise in oil prices which has caused concern over inflation levels.

GBPZAR (South African rand)
GBPZAR has remained range bound following a series of mixed data and fluctuation in commodity prices. The prospect of a 0.5% rate rise in August has also aided the strength of the rand against a recently strong pound.

GBPAUD
The aussie made gains early in the month when investor’s renewed interest in carry trades was even stronger than previous. Despite poor retails sales, the Reserve Bank of Australia (RBA) maintained its hawkish stance on strong economic growth which may signify a strengthening and more expensive dollar. A carry trade is simply when someone borrows currencies with a low interest rate such as the Yen and invests that money in higher rate currencies such as the aussie dollar.

GBPNZD
Like the aussie, the kiwi dollar benefited from an increase in carry trades. With interest rates rising 0.25% to 8% at the beginning of the month, New Zealand is a very attractive place to hold reserves and assets. The Reserve Bank had to intervene for the first time since the currency floated in March 1985 and sell dollars in order to bring about a more sustainable trading level. This reduced the value of the kiwi dollar, although the economy still looks robust.

Foreign Exchange Market Overview - May 2007

Sterling Overview
The last few weeks have been very mixed for sterling in the sense we have seen some short-term gains against various currencies but unfortunately they have been quickly eradicated by negative data releases. Despite the Bank of England’s (BOE) decision to increase interest rates at the beginning of the month this rise was already priced in and we actually saw sterling fall in value after the announcement. These losses were limited because of better than expected house price data indicating prices are increasing at the fastest rate this year. The pendulum swings the other way after the BOE quarterly inflation report hinted only one more rate rise is needed this year before inflation falls back to their target of 2%. Even though the data has been poor, on balance sterling has managed to hold its ground, although we cannot be sure if this trend will continue and a weaker sterling will make any currency purchase more expensive.

GBPEUR / GBPCYP / GBPMTL (The Cyprus pound and Maltese lire are influenced by the euro)
The opposite has to be said for data being released from the eurozone and during May we saw better than expected data in; industrial production, GDP and consumer inflation. EU interest rates are expected to rise, possibly next week although we are not sure if they will go beyond this and the recent figures have not helped to clarify the issue, especially as inflation is still in line with the ECB’s target of 2%.

GBPUSD (Cable)
I am sure you will remember our last report announcing that for the first in many years sterling broke the $2 trading level. Since then the dollar has recovered but recent US data has been negative and there is an outside chance that interest rates could begin to fall. We are not sure whether you will see sterling break $2 again soon but the favourable exchange rates should continue.

GBPCAD (Loonie)
There is a myth the Canadian dollar is linked in some way to the US dollar, which I can assure you is not the case, if anything the CAD is more influenced by oil prices. Following some very positive economic data and increasing prices in oil, we have seen sterling lose considerable value against the CAD over the last few weeks. If you add to this that the Bank of Canada is likely to raise interest rates as well, we would expect this CAD strength to continue in the short-term.

GBPZAR (South African rand)
Sterling has performed well against the rand although this is probably not down to UK data, but rather the changes in US sentiment and a drop in gold prices. To back this opinion up, over the last few weeks the South African central bank has released positive inflation and retail data but despite this the rand weakened. On balance the falling commodity prices and a drop in emerging market sentiment has made the ZAR cheaper to buyers from the UK.

Foreign Exchange Market Overview - April 2007

We are delighted to provide you with our latest currency newsletter, which offers a useful insight into the main FX headlines over the last few weeks and will hopefully answer some questions as to why a certain currency has moved recently.

Sterling Overview
For the first time ever The Bank of England Governor Mervyn King was forced to write to the Chancellor of the Exchequer Gordon Brown explaining why inflation was more than 1% away from the Bank’s 2% target rate following Consumer Price Inflation coming in at 3.1%. This has made a 25 basis point interest rate rise in May look highly likely with many analysts predicting another rate rise later this year. Rising interest rates will attract foreign investment increasing the strength of the pound making foreign currency purchases less expensive. With a growth in UK wage acceleration, robust housing data, better than expected UK core output price growth and high inflation, sterling is in a strong position and this could prove good for overseas property buyers.

GBPEUR / GBPCYP (The Cyprus pound is influenced by the euro)
In the eurozone the economy is growing at a steady pace and interest rates are set to remain on hold for a while as inflation is currently at 1.9% which is within the European Central Bank (ECB) target of 2% and other economic data also seems to be falling in line with expectations. Despite this, the eurozone economy looks healthy and there is a good chance of another rate rise later this year, although sterling still appears the stronger of the two currencies and any sterling strength may lead to gains, and therefore cheaper euros and Cyprus pounds.

GBPUSD (Cable)
This month it has all been about the pound versus the dollar as the big $2 dollar level was finally breached. A series of strong economic data ending with higher than expected inflation data here in the UK was enough to push the dollar to the highest buying levels since 1992 and hit the highest point for 26 years creating some fantastic buying opportunities for those in need of US dollars and making the US property market very attractive. It seems clear the US economy is in trouble at the moment and with the interest rates likely to rise in the UK and drop later on in the year in the US, cable seems to have a lot of potential on the upside.

GBPCAD (Loonie)
A series of mixed economic data has meant the Canadian dollar has fluctuated a lot this month creating some good buying and selling opportunities. Despite higher than expected inflation data it seems interest rates will remain at 4.25% for the time being. The CAD has finished the month strong against the pound meaning the loonie is now more expensive, although economists expect the CAD to remain rangebound, unless the Bank of Canada unexpectedly raise interest rates this week. In doing so, we could see the loonie strengthen increasing the price of the Canadian dollar.

GBPMTL (The Maltese lira is influenced by the euro)
The intervention rate remains at 4% following the Monetary Policy Advisory Council meeting last week. The Governor considered that developments since the previous meeting did not justify a change in the monetary policy stance. The Governor pointed out, however, that given the evolving scenario of rising interest rates abroad and its implications for the relative attractiveness of domestic assets, a revision of the monetary policy stance may be required in the near term. The Monetary Policy Advisory Council is due to meet again on 29 May 2007.

Foreign Exchange Market Overview - March 2007

Sterling Overview
Sterling has had a mixed performance during March. Cast your mind back a few weeks and we saw sterling lose considerable value against most major currencies following a big fall in the global stock markets. Sterling was affected because investors were quick to close their sterling “carry trades” and because of this sell-off we saw considerable sterling weakness. A carry trade is simply when someone borrows currencies with a low interest rate such as the Yen and invests that money in higher rate currencies such as the UK pound.

However, the good news is since then we have seen positive economic data from the UK and Chancellor Gordon Brown was quick to highlight this during his budget. Key inflation data suggests that despite the rise in interest rates in January our economy is still growing faster than the Bank of England would like and we could well see further interest rate rises soon. Most analysts are predicting a rate rise although recently doubt has been cast following the news that a member of the Bank of England rate setting committee actually voted to cut interest rates last month.

GBPEUR / GBPCYP (The Cyprus pound is influenced by the euro)
Although the exchange rate has fallen from the highs of January this year, trading levels are still favourable and on average you would have to go back as far as 2005 to get the same value for money. Clearly no one can be sure how long this will last for UK buyers and the most recent economic data from Europe would indicate that we could see exchange rates worsen as the euro strengthens.

GBPUSD
Even though sterling lost value against the US dollar at the beginning of March on the back of the stock market losses, the exchange rate has bounced back to record highs and you have to go back many years to find more favourable trading conditions for buying US dollars. Economic data from the US is mixed and despite rising house prices analysts are predicting a tough time for the worlds largest economy. We could hear talk again of $2 to the pound?

GBPCAD (Loonie)
The Canadian dollar is heavily influenced by oil prices and following recent rises in the price of oil, we have seen the dollar strengthen against many currencies including sterling. Furthermore, stronger than expected inflation data has silenced any talk about interest rate cuts. Conversely if economic indicators continue to be higher than expected we could see the loonie strengthen and the current favourable trading levels disappear.

GBPMTL (The Maltese lira is influenced by the euro)
Although the lira is heavily influenced by the euro, Malta’s economy is strong and despite the Central bank keeping interest rates on hold in March, we could see rates rise in the future resulting in the Maltese lira becoming more expensive.

Foreign Exchange Market Overview - February 2007

Sterling Overview
Sterling fell by more than 1.5% against most major currencies following the release of three key pieces of economic data at the beginning of February. The Bank of England’s decision to keep interest rates on hold at 5.25% was not good for sterling and when the announcement was made the pound weakened against most major currencies. The pound was dented further during trading as the UK announced a record high trade deficit confirming that the UK trade deficit was in excess of a whopping £7bn for January. To round-off the bad week was confirmation that the housing market was cooling and mortgage approvals were down lessening the expectation of a further rate hike in the UK.

GBPEUR / GBPCYP (The Cyprus pound is influenced by the euro)
Buying levels have fallen below 1.50 and 0.87 on the euro and Cyprus pound respectively for the first time in the 3 weeks, although despite this adverse movement of more than 1.5% buying levels still remain close to two year highs. The focus will now be on both the Bank of England (BOE) and European Central Bank (ECB) as to the future direction of interest rates, and so the likely direction of these currencies.

GBPUSD
The dollar is another major currency that has made significant gains on the pound following a recent string of negative economic data here in the UK. The pound has drifted back into the mid 1.90’s and talk of $2 to the pound seems to be fizzling out. US interest rates remain at 5.25% from last year and economists are forecasting that the next rate move will be down, although this is not predicted until later this year. This forecast rate move has been put back following upbeat US housing data suggesting that the property market may be returning to better levels of growth.

GBPCAD (Loonie)
The Canadian dollar is one that has made some of the bigger gains against the pound recently. Loonie purchasers have seen some very attractive buying levels of well above 2.30 slip back into the late 2.20’s. This has been largely due to the pounds poor performance but also some Canadian dollar strength following the recent rise in oil prices to above $60 per barrel. Having said that buying levels are still the highest they have been for well over a year so we shouldn’t be too negative.

GBPMTL (The Maltese lira is influenced by the euro)
The Maltese Central bank has recently raised interest rates by 25 basis points, taking the Maltese base rate to 4.25% and narrowing the rate differential between that of the UK. This has given the lira some much needed support following a period of strong UK data. The lira has also made considerable gains on sterling following the pounds poor performance. Again, buying levels remain very close to 2-year highs, and economists will now be looking to see what affect the interest rate hike has on the Maltese economy.

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