Posted by Allison on 24 March 2009, 09:42
During the week of June 16th to June 22nd we saw plenty of ups and downs in the currency market. Much like any normal week then, you might think, but in the case of the pound we certainly did see a lot of activity and it went on something of a rollercoaster ride throughout those few days on the markets.
But was last week any different? There is certainly still a lot going on in the currency field at the moment, and that is a trend that looks set to continue in the coming weeks and months. The talk of further falls in housing prices and continued negativity regarding the possibility of recession isn't exactly helping the situation, so it will be interesting to see whether or not the pound was able to weather the storm last week.
Let's take a look at how it stood up against some other currencies.
In the previous week we saw the pound really struggle against the US dollar, peaking and falling as the week went on. Last week saw a very different picture, and the good news was that it finished strongly.
On June 23rd the pound was worth 1.9608 US dollars – still down on the heady two dollar heights we saw a while back but better than it could have been. Luckily there was more good news on the way, and we started to get a feel for this the very next day as the pound finished slightly up on the dollar at 1.9682. But could it go any higher?
The good news for the Brits was that it could. On the 25th it broke through the 1.97 barrier and that growth continued as it broke through the 1.98 barrier the very next day. By the end of the week it finished on a healthy 1.9875, remarkably higher than it had started the week.
The very fact that the pound took on the dollar last week and won was good news for the British, especially considering that rollercoaster ride it took the previous week. Anyone heading there on holiday would have been rather more pleased at the results they got from their currency converter. But did the pound do so well elsewhere?
The bad news was definitely coming in if you were planning a holiday anywhere in Euroland. While the Europeans have had their own money problems to contend with it was clearly a case of the Euro getting the better of the pound last week, so you might want to wait if you are thinking of getting your money's worth over on the continent.
The pound started the week at 1.2633 against the Euro, and while it climbed slightly in value over the next two days (going up to 1.2643 and 1.2647 respectively) it experienced a drop on Thursday to 1.2627, which was consolidated somewhat by falling further to 1.2620 by the end of the week. Not the disastrous and choppy week it had last week and it was worth more than it finished at that week, but we can still hope for better things to come. Next week, perhaps? Until then we should probably mark these results down as a draw for now.
The pound did well in Hong Kong last week, pointing out the fact that it almost seemed like the further you went from home with the currency, the better it did. The Hong Kong dollar certainly had some ground to make up after the performance of those last few days, so it will be interesting to see what results the pound gained between the 23rd and the 29th.
The previous week saw the pound recovering after a nasty fall in the middle of the week, ending up at 15.431 Hong Kong dollars – the point at which it started the following week. Buoyed by the rousing conclusion you might have been lulled into a false sense of security when the new week began, although that would soon have been lost by the reality that the pound nosedived to 15.308 Hong Kong dollars by the end of the first day of the week.
Forex dealers might well have been worried by this, but luckily for the pound the downfall was short lived. On the 24th the pound managed to regain some ground and was worth 15.366 Hong Kong dollars. Great news for those working out on their currency converter how much their money was going to be worth in Hong Kong dollars, but you would have been wise to hang on until the end of the week to change up your money, because there was more good news to come.
The very next day saw the pound worth 15.400 dollars, and it broke through an even bigger barrier the day after that, reaching the heady heights of 15.503 dollars before settling at 15.505 Hong Kong dollars by the end of the week.
You would be forgiven for celebrating such good news for the pound given its topsy turvy week the week before, but it's also interesting to carry on looking round the world at some other major countries to see if the pound did as well in other places as it did in Hong Kong.
Last week we saw that the pound didn't have the best time of it when it came to New Zealand. While it clawed back its midweek losses in many places New Zealand wasn't one of those places. Would it be any different the following week?
That week the pound ended on 2.5895 New Zealand dollars, and Monday's trading saw only a slight drop on that by the end of the day, recording a finishing figure of 2.5858. But where would it go from there – up or down?
Again it was good news for the pound and bad news for the New Zealand dollar. The pound broke through the 2.60 ceiling on the following day, and continued to climb to a healthy 2.6213 against the dollar on the Thursday. Although it slipped slightly to finish the week on 2.6171, this was still a healthy improvement on the previous week.
So there was much to celebrate for a strengthened pound last week all in all. Things were slightly choppier over in Australia, but the highs and lows were not so profound and after starting the week on 2.0707 from the week before, an initial drop to 2.0598 was replaced by an eventual climb up to 2.0676 by the end of the Friday.
While there was obviously a lot to be relieved about last week, the big question is whether this renewed buoyancy of the pound will be a staple feature of the currency markets for the weeks to come. While we don't want to be pessimistic, it is perhaps more realistic to say that there will be dips and troughs as well as high points, because the situation with the economy won't improve overnight. If the best we can hope for at present is an improvement in the overall picture then perhaps we should take that as an encouraging sign.
There is no denying that the effects of the credit crunch are having far reaching effects and having an impact on the stability of many world currencies at the moment. While we in Britain are struggling with a troubled economy and falling housing prices, we are by no means alone in our woes.
But rather than being in the midst of those struggles, some people think we could be only at the very beginning of the problems caused by the credit crunch. We have already started to see that our currency is not going as far as it used to even several months (and in some cases weeks) ago, and this brings its own series of problems forward that we have to deal with.
So while we see certain currencies rising and falling against each other depending on how things are in each country at any particular moment, we can also see that the wider picture can have a big influence on those currencies. It seems almost inevitable that the weeks to come will be just as turbulent as recent times have been.
It's funny just how much things can change in the space of no more than a week. In last week's report we saw the pound struggling against the dollar after the American currency had spent a while in the doldrums, and yet this week we can report that it is the United States dollar that is struggling.
It had a bad week against the pound as we have seen, but losses among the American stock market pointed up the fact that the dollar was going to lose out as a result. The yen and the Euro both took advantage of this and really capitalised on it, sending the dollar sliding as a result.
A while back the dollar was in a similarly sticky position and managed to get itself out of it. But can it do the same again this time? Join us next week to find out.
For a long time the Euro (and the countries that have chosen to adopt it) almost seemed immune to the problems occurring in the rest of the world with regard to inflation and the economy.
But it seems as if those problems have finally caught up with them. Last week contained a lot of news about the prospect of rising inflation in the Euro countries, and the European Central Bank is now having to look at possibly raising interest rates to try and regain control of the situation.
It will be interesting to monitor this situation in future weeks, and to see how the Euro performs against other currencies in the process.
Well it certainly has been the past couple of weeks. Among all the major currencies it's arguably been the yen that has performed the best out of all of them. This is mainly because the dollar has had a bad time, and the Eurozone is currently struggling with the prospect of inflationary pressures.
Considering the way things are going around the world at the moment any kind of positive activity is a good thing when it comes to a country's currency, so the Japanese must surely be counting their blessings at the moment. Whether it will continue is another thing.
So this is the second of our weekly looks at how the currency market is doing, and as we have seen already, even in such a short time things can change remarkably.
This does of course make it much harder for Forex traders to make their money out of trading currencies, since the rapid rises and falls we have seen on occasion can lead to triumph or disaster respectively.
But it's clear that currencies around the world are affected by what is going on globally, and with interest rates, the economy and inflation all playing a role in the current climate – perhaps more so than has happened during the boom years of the past that now seem to be long gone – the rises and falls can happen on a daily basis, and they can be quite pronounced at present.
So what will we be reporting next week? Will things still be good for the yen or will the dollar have regained some of its previous strength to fight another day? And will the pound be able to continue to capitalise on its current strong position?
We have learned already that the world of currencies is constantly in flux, and whether you are taking an interest because you are a trader, or you are simply keeping an eye on them with a view to going on holiday later in the year there is nothing more exciting than wondering what is going to happen next.
See you next week.