Posted by Allison on 24 March 2009, 09:41
Life is getting rather interesting as far as the UK currency markets are going at the moment, which is why this UK market summary will now be produced weekly, to give you an even greater in depth look at how things are performing.
But while this first weekly report will mainly concentrate on last week – from the 16th to the 22nd June – it will also cover certain events that have occurred since the beginning of June, to cover the gap between this and the last report.
The format will still be much the same though, and with the predominant news still being on the side of doom and gloom, and uncertainty over the future, we can expect to see an interesting raft of reports to come over the next few weeks.
Let's see how the British pound has been holding up, shall we?
The pound had a turbulent week against the US dollar, starting off at 1.9635 on Monday 16th June. The very next day it slipped back to 1.9482 though, highlighting fears that the pound could be starting to weaken.
The following day saw it claw back some of that one day loss however, as it pulled back to 1.9529. Luckily for the British (but not so luckily for the Americans) Thursday saw another rise up in the region of 1.96, and by close of business on Friday we were looking at a pound that was worth 1.9768 against the dollar. This was better than the start it had made on Monday and hopefully something to build on in the week to come. But we'll have to wait until next week to see if the upward trend continues; there are simply too many factors at play at the moment to see whether that could happen or not.
The pound also weathered a choppy week against the Euro, although it didn't recover quite as well as it did against the dollar. It started the week at 1.2701 on the 16th, but as with the US dollar it slipped badly the next day, and ended on the Tuesday at just 1.2588 Euros.
Wednesday saw only a slight recovery as it managed to gain a little ground back into the region of 1.26 Euros – but only just. Thursday saw renewed strength though, with the pound claiming 1.2717 Euros by the end of the day. But unlike its battle against the dollar it didn't finish quite so strongly at the end of the trading week, and slipped back again to finish at 1.2663 by close of business on the Friday.
The pound's relationship with the Euro is always a little haphazard, and last week's performance certainly highlighted that fact. There is no reason to suppose that tussle won't continue long into the future, but on a week by week basis it's always interesting to see which currency comes out on top by each Friday.
The pound enjoyed a healthier week over in Hong Kong however, which must have boosted some Forex dealers' fortunes somewhat. But again if you look at the actual figures you can see that Tuesday was an all round bad day for the pound. But again you can make a similar comparison that it did manage to pull back and perform better in the second half of the week.
So we started at 15.339 Hong Kong dollars on the Monday, and then slipped into the tales of woe on Tuesday as it dropped rather badly to 15.213 the following day. While traders must have been sleeping uneasily in their beds that Tuesday night last week, they had a lot to be thankful for on Wednesday, and that went for the Hong Kong dollar as well. The rosier picture we had on Wednesday evening was marked at 15.244 dollars, which while it didn't look as good as Monday was a marked improvement.
Thursday saw better times yet, as it pulled back to claim a healthy 15.374 Hong Kong dollars, and the pound swept to a victorious close on the Friday at an impressive 15.431 dollars – much better than its opening performance on Monday.
By now we can see an all too familiar picture developing, but was this mirrored in other countries around the world?
The answer is – not entirely. You only need to travel around to New Zealand to see that the pound didn't have such a turbulent week (or such a pleasant ending to the week) there as it had elsewhere.
Starting at a respectable 2.6081 New Zealand dollars on the Monday, Tuesday brought a similar drop that we have seen elsewhere, with the pound slipping back to 2.5847 by the close of play. Wednesday saw only a slight improvement, as the pound managed to claw back only a tiny amount of that loss, struggling home at 2.5877 by the end of the day.
Now where other currencies have been concerned, the pound had managed to perform strongly in the second half of the week, often finishing at a higher level than it had started at on the Monday. But in New Zealand the picture was slightly different.
Thursday saw the pound ending on 2.5984 New Zealand dollars, which may have been a signal of better things to come on the Friday, but that was not to be. It finished by dropping back slightly and ending the week on 2.5895 dollars. So it seems that New Zealand at least had the power to fight back on Friday. Will it prove to be as strong next week?
It was a steadier picture over in Australia, but even there the pound finished worse off by Friday than it started the week. The beginning of the week saw the pound standing at 2.0873 Australian dollars, but by the end of trading on Tuesday the rot had set in and it stood a little lower at 2.0735. There was no dramatic fight back on Wednesday as we'd seen against other currencies however, as the pound stayed in the 2.07 region for the rest of the week. It managed to gain a little ground on Wednesday and Thursday, before dropping back to 2.0707 on Friday. Despite the housing problems and other concerns in Australia at the moment, it seems that the Aussie dollar is still a little stronger than the pound. The question is whether or not that picture will continue.
So it seems that if we can forget the dip that occurred on Tuesday, the week wasn't so bad in general for the British pound. Considering the worldwide events that are going on at the moment it will be interesting to see whether the turbulent trend continues into next week as far as the British pound and the world of currency in general is concerned.
It doesn't seem to matter how the pound performs against other countries when it comes to the currency markets and rates of exchange; one thing above all others is certain, and it was highlighted in news stories that hit the headlines last week.
Britain's rate of inflation is currently at 3.3%, way above its target of just 2%, and this is the news that made its way around the world last Tuesday – and is the reason why we saw all those dips in value when comparing the pound against a raft of other currencies on the very same day. It did recover somewhat as we saw, but it just shows how a piece of news like this can have an effect far beyond its own country.
But Britain wasn't alone in its woes. Canadian interest rates were also struggling to remain steady, and the reason for this was much the same as is being experienced all around the world.
The cost of food items and the price of petrol and diesel are continuing to climb, putting a lot of pressure on everyone's pockets and leading to unstable economies around the world, not just in the UK.
Perhaps the worst news is that we will come back to this column next week to see more of the same, as this is one news story which doesn't look as though it is going away anytime soon.
You may remember that back in April we were all looking at the possibility of an American recession. Last month the dollar had fought back strongly as Clinton and Obama went head to head for their chance to run for the presidency, and even as Obama won things were still looking up.
Not so for the UK though. The news about inflation last week didn't help matters, and wherever you look there is doom and gloom concerning house prices. One news story that was published last Tuesday (again, the very day that the pound sank miserably against a lot of different currencies) voiced the concerns of many when it said that a UK recession could well be on the cards. We have known for some time that the trend of getting deep into debt on credit cards has seemingly run out of control in the UK, and that a rise in interest rates would leave a lot of people in a lot of trouble, and it seems as though that possibility is fast turning into a reality.
We're not in the situation of talking about negative equity just yet, but the fact that UK house prices are still going in the wrong direction brings us ever closer to that becoming a reality.
It is news like this that does have a marked effect on currency trades all over the world, although last week Donald Trump buoyed up the feelings of the British somewhat by pointing out that when you compare the situation to that in America, the differences are big. Our own losses are but a fraction of those experienced in the US so far.
So is this good news for future weeks? Only time will tell.
A fresh week is just getting underway and by this time next week we will know how strong the pound stands against other major – and not so major – currencies all around the world.
One thing is certain though, as we can see from the way things are progressing in the UK at the moment – whether we end up going into a recession or not, we are in for troubled times ahead. There is no quick fix once inflation takes hold, and the pound will no doubt have a rough time of it in weeks to come.
Perhaps most interesting of all will be the performance it has against the Euro, which it has steadfastly refused to join ever since its inception several years ago. The British people are still standing firm against joining for the most part, but with an ever weakened position against the Euro over time will the pound finally disappear in years to come?
But it wasn't all bad news for the pound last week, as we saw from that boost in its performance against several currencies. This was due to UK retail sales going up by such a high amount that it took everyone by surprise, especially given the doom and gloom that is pervading the country at the moment. Maybe it was just a huge case of retail therapy, but the news is surely not that good in the long term since this should be a time when everyone is tightening their belts rather than spending more money.
It will be interesting to see how the UK performs in the coming week, and whether or not the pound can regain some strength against the Euro, as well as a number of other currencies. But even if the coming week proves to be a good one, there is a long way to go yet for the pound.