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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.
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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