January proved to be the most testing month that Sterling has experienced since the start of 2013. Down against all major currencies, we are essentially seeing the mirror opposite of the confidence which assisted Euro and Dollar buyers so profoundly in 2015.
Rather than reacting to the news, currency markets are now making it. All major news outlets in one form or another commented on how the surprising turnaround had effected the budgets of UK companies, retirees receiving their pensions abroad, and those at various stages of buying an overseas property.
However, it is not only the UK that had a difficult month. Opportunities may still present themselves to anyone considering purchasing a foreign currency in the run up to March and beyond. Due to the ongoing volatility in the markets, this month a premium will be put on being able to act quickly should tempting buying rates present themselves – I suggest contacting your account manager to make sure they are aware of any upcoming currency requirements.
We were already seeing the Pound weaken towards the back end of December, but quite a few planets aligned to see the sharper and visibly sustained drops at the start of January.
The first few weeks of each month see the release of figures for economic performance from the previous month for most countries (except in less transparent countries such as Russia and China). In December we were getting hints that UK growth was coming into question, the actual results seen by markets in the New Year were more alarming than expected.
Likely exacerbated by the recent flooding; industrial, manufacturing and retail sectors all saw severely poor profits for December. It was only the retail sector which didn’t see an outright contraction, but growth came in still at a fifth of what was expected.
The major question facing markets when assessing the value of any currency, in both the long and short term, is where the growth is coming from? The inability to give a solid answer due to the current uncertainty is why Sterling finds itself backed into the corner.
With the flooding having continued into January, performance stats to be released in February would carry no surprises with me if they translate into further pressure on the Pound.
The added dimension introduced during January is the further pressure on the financial services sector following recent global panics on the financial markets. With the financial sector arguably constituting the engine room of the British economy, any underwhelming figures would further contribute to the current cloud of anxiety around Sterling.
Frankly, the most positive data of note last month was public sector net-borrowing figures which saw a sharp decline. But an austerity-focussed government will not be enough to encourage a sustained rally for the Pound, particularly with George Osborne himself stating (now almost prophetically) that 2016 will likely be the toughest year for the UK since the financial crisis.
Those hoping for better exchange rates than what is currently on offer may face disappointment in February. At this point it seems that favourable movements will have to come from weakness in the currency you are looking to purchase.
To be kept up to date on specific international events which may affect your currency transfer, I strongly recommend contacting your account manager now to make sure he is aware of your requirements.
We’re currently seeing an eerily similar repeat of Euro strength following routs on global stock-markets. These were first seen in October when China caused the first panic and mass sell-off known as ‘Black Monday’, this came around again once more towards the end of January which would have been inescapable to many in news headlines.
In these situations when investors sell-off their assets they have to choose a currency to store their liquidity in. The Euro has now for the second time been the most popular due to its commitment to stability by avoiding a Grexit, and its relative cheapness. The sudden spike in demand for the single currency is what revised its value starkly upwards.
But, to the delight of Euro buyers, the man at the helm of the Eurozone's economy is most certainly your friend.
Mario Draghi, the President of the European Central Bank, has explicitly stated that the Eurozone recovery is dependent on a cheap Euro to make their exports more competitive to fuel growth through outside investment. As such, he has repeated his behaviour from October when the Euro gained too much strength in such a short space of time – paint a poorer picture of the European economy to make the Euro less attractive and therefore cheaper.
He did so in January which saw the GBP/EUR exchange rate gain almost two cents in a day’s trading, and he will have a fresh opportunity this week as he addresses the European Parliament.
However, Draghi only has a few opportunities each month to speak at high profile events and influence the currency markets. Some tempting opportunities may emerge for buying Euros as the week begins, I suggest contacting your account manager to avoid missing out on favourable movements.
The slide on the Pound in January, coupled with further positive news for the US, caused the US Dollar to reach its highest levels against the Pound since 2009.
Figures released last month showed the US added 292,000 jobs to its economy during December alone. The news resulted in the US Dollar gaining a full cent against the Pound, and the employment report itself also noted that further gains were expected as 2016 continues.
The US Dollar has also benefitted in the same way as the Euro from the recent panics in global financial markets sparked by China. Due to December’s historic interest rate rise, it’s a very attractive safe-haven currency in times of unrest, with the rise and demand translating instantaneously into strength against other currencies.
Will the upcoming election season do anything to change this current run on the Dollar? It’s unlikely.
The run-up to US elections will take more than half a year, and the fanfare over electing representatives for each party will have little sway when more concrete news is readily available to cause more serious swings on the markets.
Those with Dollars to buy should have a serious argument for waiting in this current climate. You can fix these available buying levels to avoid any future business or personal transfers becoming more expensive as the month progresses – contact your broker to gain a better understanding of your options in what can only be described as a very tough market.
USD selling should have a rosier disposition towards the markets, contact us for a free, no obligation quote now whilst rates are at multi-year highs.
GBP/AUD buying rates for the past few months have been the most volatile pairing on the currency markets by far. Daily swings of 3-4 Cents between the high and the low have been commonplace, yet still a net negative trend has emerged which has brought AUD buying rates to their lowest levels since June.
The sheer volatility reflects the complications inherent in the currency markets at the moment, with China being the source. Due to Australia’s close reliance on China as a trading partner, any poor news coming out of the region normally translates into Dollar weakness.
Yet compared to October, this news of China’s slowdown has caused more global concerns rather than regional panic. Stock and commodity prices nearly crashed, and due to the UK’s reliance on the financial services industry, it is now both the Pound and the Australian Dollar which have been hurt in recent weeks.
The decider for why the Australian Dollar is currently coming out on top is likely seasonal. The Australian summer attracts huge volumes of capital and fosters employment through the constant influx of tourists. This increases confidence in the Australian economy and therefore the Dollar, and normally lasts until the end of March.
Whilst rates are still falling, the non-linear way in which it falls is still creating opportunities for AUD buyers. If you have a target rate in mind, rate alerts and automatic buying orders are popular options for those with an upcoming Australian Dollar requirement.
Contact us now to hear all of the options available to you through a currency exchange specialist rather than your bank.
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