What could you have gained with exchange rate movements?

With the currency markets moving every two seconds, it is vitally important to be aware of the factors driving exchange rates in or out of your favour.

Sterling value performing poorly this week

A faltering global stock market has caused Sterling to lose most of its recent gains against the Euro and the US Dollar, whilst only managing to make inroads against poorly performing commodity currencies which have held up worse. The FTSE 100 finally stopped its slide today and finished in the green by 0.2%, after losing £50bn in value yesterday.

Investors fleeing the stock-market have chosen the Euro due to its relative cheapness, and the US Dollar due it being the preferred currency for stock pricing globally (so investors will not lose out on currency conversion once they cash in their shares), over Sterling as a safe haven currency. GBP has not collapsed, but third place in this saga has little benefit for those looking to use the Pound as a buying currency.

What does this mean for UK interest rates?

Now that it seems global panic has receded and activity is returning to normal, analysts can begin to contemplate the more long-term repercussion for the UK economy, which will directly correlate to GBP value.

Mark Carney last week vehemently asserted that despite a rocky china and faltering global demand, this will not affect the timeline for our interest rate rise, which was expected to be sometime in February. Personally, this seems more like an effort to calm the markets rather than a point which holds up under scrutiny. With falling global demand the events of Sweden must be playing on his mind. Boldly, they raised their rate in 2010, and found the economy stalled and a deflationary spiral gripped the country. People were unwilling to spend unless the bank lent them funds at 0.05%.

So Carney’s attempts to calm markets have done little to bring back the strength Sterling enjoyed when it seemed an interest rate rise was on the horizon. We’ll need strong economic data from the UK to back up his rhetoric.

What does this mean for the Pound this week?

Recently housing data has been an outstanding performer for the UK economy. Monthly mortgage approvals for July on Tuesday came out better than expected, this indicates demand may be increasing and we’ll get a healthy reading for house price to be released this morning. We could see the Pound strengthen further after its gains yesterday as a result, and maybe these gains will be accelerated by further investors returning to the stock market. With financial services being the key engine for the UK economy, returning confidence in this area should translate to similar sentiments in GBP value.


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Exchange rates on this page are interbank rates and indicate where the market is trading to show the performance of a currency pair. They are not indicative of the rates which we offer. The information on this web site is provided free of charge for information purposes only. It does not constitute advice to any person on any matter. Foreign Currency Direct plc. ("FCD") makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.