December was one of the most volatile periods in 2015, which is certainly saying a lot in a year which involved a potential 'Grexit', the UK going into negative inflation for the first time since records began, and regular near-collapses in the stock and commodity markets.
The US were the first country to raise interest rates since the 2007/8 Financial Crisis. A monumental move which has had repercussions not just for the US Dollar, but for all major currencies which are still being seen in the first week of 2016.
The wettest month on record in the UK has also proven that the currency markets do not only move on financial or political developments, but that sudden and unpredictable natural disasters can bring harmful effects on a country’s economy and therefore currency. As a result, clients looking to purchase their currency may have to depend on some weakness in your currency of interest to see exchange rates move in your favour.
Opportunities may still present themselves which is why it is imperative to stay in contact with your broker here to stay up to date with the latest developments.
At the tail end of last month some concerning figures emerged about UK debt. Official estimates stated that UK household debt had risen by more than £34 billion in less than three years, and is currently up to £1.47 trillion, the highest ever recorded.
Lingering fears following the financial crisis seem to still remain, as the near 8 cent drop on GBP/EUR exchange rates last month was hardly justified - as a comparison we saw similar movements when Greece was leaving the Eurozone.
Part of this excessive fall can be explained by the recent and tragic flooding in the UK. Public sector borrowing last month had already doubled before the flooding had even commenced, and the expected damages in the hundreds of millions are set to hurt the public purse even more. With flooding set to continue, this will continue to weigh on Sterling's value as the month progresses.
Unemployment figures have hit record lows, and the financial service sector (the engine room of the British economy) is still highlighting the UK as a global leader in the field. So key data releases on economic performance in the first few weeks of this month could give Sterling the helping hand it has been searching for.
The most serious event this month will be the UK interest rate decision and monetary policy statement released by the Bank of England on Thursday next week. After the US's recent hike, the first of its kind in the Western world since the financial crisis, markets will be watching to see if this brings forward the UK's timeline to raise rates at all.
Mark Carney, the Governor of the Bank of England, has attempted to be very open about his current plans whilst he has been at the helm of the UK economy. But the looming decision on Britain’s membership of the EU and a potential Brexit clouding any long-term plans in suspense, I feel it is unlikely he will provide any solid timeline for when the UK’s own interest rate rise may take place. As such Sterling may find difficulty locating much purchasing power on the markets this month.
So, if you need to buy Euros, Dollars or any other of the major currency speak with one of our experienced team of currency brokers today on 01494 725353 to discuss a strategy for how to maximise your currency return over the coming months. Compared to this time last year, buying levels for Euros, Australian Dollars, New Zealand Dollars, and South African Rand are all still drastically higher.
Between Monday and the close of play on Tuesday this week the Euro fell by a full two cents against Sterling to recover some of the significant losses seen in December. This was due to poor inflation figures for the Eurozone as a whole, and Germany in particular.
However, the Eurozone has actually performed well recently in other sectors which has fed the recent Euro rally against Sterling. Their own employment figures are rising and a year of a cheap Euro has fuelled an export boom, in-turn feeding the growth necessary to keep the economy above the threat of recession.
In a year where serious problems in the Eurozone were addressed, such as the potential Grexit and the introduction of emergency financial stimulus in the form of Quantitative Easing, 2016 is off to a much stronger start for the Euro.
Terror threats and a migrant crisis are not enough to severely impact the value of the single-currency to the same degree that Euro buyers enjoyed last year, when the repeated stumbling blocks propelled GBP/EUR rates to 8 year highs.
Compared to the same time last year, GBP/EUR exchange rates are still almost 10 Cents higher. Positive movements from last year should be seen as gifts in the current climate. Exchange rates can be fixed if you do not require your Euros until later in the year to avoid any negative movements effecting your transfer, speak to your account manager here for more information about this simple process.
The US Dollar is continuing to dominate the currency markets since raising their interest rates last month. The attraction of higher capital returns has meant investors are clamouring for Dollars, which is why we had seen USD rates gradually strengthen since December.
However, the minutes from the meeting itself where rates were raised were only released on Wednesday this week. These put a dent in the current image surrounding the US Dollar. Whilst the FED decided to hike rates, previous expectations of a further four incremental rises in 2016 now seem incredibly unlikely.
The FED outlined their fears concerning low inflation, the economically stiffling effects of a strong Dollar, and slow global growth as severely limiting factors for the prospect of further hikes.
USD sellers who have seen rates hit multi-year highs may be wise at looking to seize the six-cent gains in your favour since December now that the momentum from the rate hike has been removed. We have already been down well below 1.50 this year, and 1.56 was reached only 4 weeks later.
We're seeing a similar pattern for Australian Dollar buyers that we saw last October, where the AUD rates cheapened following sudden and negative developments in the Chinese economy.
Due to Australias reliance on China as a regular customer for their exports, negative news over there has previously resulted regularly in Dollar weakness in the past. Shares in the mining industry are down for the fifth day in a row as the recent slide on the Chinese stock market sparks global panic.
Whilst irregular drops in Australian Dollar value in the future wouldn't be surprising, what has been characteristic recently has actually been steady and almost continual strength over the past few months against the Pound.
Jobs are recently being added at the fastest rate in the Western world, and the high tourist season which began in November has been bringing with it a yearly rally for the Australian Dollar which mutes the impact of any poor news assisting anyone with a GBP/AUD buying requirement.
For anyone looking to buy Australian Dollars over the next few months, the poor news out of China has created some excellent buying opportunities. In October these same movements evaporated rapidly so and these beneficial movements are rarely around for long. Therefore, even if you were not planning to buy your currency until a later date, these current levels can be fixed using a forward contract allowing you to benefit from the current levels using just a small deposit.
To be kept informed of all the latest currency news and the options available please call our currency brokers on 01494 725353.
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