Posted by Allison on 24 March 2009, 10:18
If you have been reading our regular insight into the world of the currency markets, you will know that the previous two weeks we have looked at have given us cause to celebrate.
Perhaps we haven't quite got back the strength of the British pound that we have seen in the past, but nonetheless we have seen some very good results against many of the major currencies. These have included the US dollar, the Australian dollar and many others besides.
So where do we stand now? What happened last week? Did we manage to continue to strengthen our position, or did we let things slide somewhat? We have as usual looked at the exchange rates and we have a lot of news to share with you.
We would say just one thing in advance of diving into this week's report. If you have been looking at a currency converter with the thought of putting together some ideas for your summer holiday, you might want to hold off until you have read what we have to report.
So with that in mind, let's get started…
Our usual first port of call is to America, where new President Barack Obama was inaugurated on the 20th. But how did the week go for the pound?
Last time we were left with an exchange rate of 1.4921, so ideally we were looking to get back above the $1.50 mark again this time around. But the gap between what we wanted and what we actually got would turn out to be rather larger than we might have wished for.
Monday certainly didn't get us off to a good start, because by the time the markets closed for the day a single pound could only claim 1.4570 US dollars. That represented a drop of three and a half cents in just a day's worth of trading. This also meant we were on the back foot right from the start – it was clear we were in for a fight this week.
But while the Americans were celebrating the inauguration of their new President the following day, we were nursing our losses. Perhaps this event had something to do with how far the pound fell on the 20th January, but if we thought the drop on Monday was bad enough, we hadn't seen anything yet.
Because on Tuesday the ending exchange rate had fallen to an atrocious 1.3886. This meant we had lost almost seven more cents against the US dollar. What on earth would happen next? After a great start to the New Year in those first couple of weeks, the pound had clearly gone into freefall. And the worst part was the nagging feeling that it wasn't over yet.
It would have been good to dismiss this feeling as being nothing more than just fear, but unfortunately we weren't able to do that. By the time the markets closed on Wednesday we had experienced another slight drop in the rate against the dollar, leaving us teetering on 1.3754 for the day. Could things get any worse?
We were clearly looking at a situation that was in danger of getting far worse. Luckily – if you can call it that – the penultimate day of the week saw a closing figure which was held at 1.3752. The drop of 0.0002 was the smallest one we would see all week.
Because by the time the markets closed on Friday, the exchange rate between the British pound and the US dollar had fallen still further to 1.3630. This makes the two dollar pound we saw last year feel like something of a daydream. And we are clearly a long way off from seeing this again.
In total then, we lost ground by an alarming thirteen cents during the course of a single week. This was unlucky for some, clearly – and definitely unlucky for the UK. Those who had predicted a pound worth $1.25 may not be so far off the mark after all.
So did we manage to shore things up against the Euro last week, or did we have just as bad an experience there as we had in the US?
We had finished on an exchange rate of 1.1244, so we were clearly looking to improve on that and move further away from reaching parity with the European single currency. But how well did we do?
Once again we didn't get a good start. By the close of play on Monday, we were facing an exchange rate of 1.1053, and a horribly familiar feeling was starting to make itself known. Tuesday would see the biggest drop of the week though, as the pound became even weaker and ended the day limping home with an exchange rate of 1.0739. That point of parity was starting to become something of a problem once more.
Wednesday saw a smaller drop that was still significant, with the pound claiming just 1.0654 Euros by the end of the day. The pound is clearly in trouble at the moment, that much is clear – but the real question is just how much trouble it is in, and how long it will last. The end is certainly not in sight anytime soon.
So how did the last two days of the week proceed? Well, Thursday gave us a smaller drop to 1.0592, which almost made us feel as if the brakes were being put on to try and rectify some of the damage. All we could hope for now was a slight reversal of fortune to take us into the weekend. It was too much, surely, to think that we could regain what we had already lost this week?
That much certainly turned out to be true. By the time everyone packed up for the weekend the pound was claiming an exchange rate against the Euro of 1.0653. But while this was a tiny piece of good news, we had still managed to lose a lot of ground over the week. The pound was now worth 0.0591 less in Europe than it had been just a week before.
We can only hope that things start to improve – or at the very least stay at around the same rate – for the foreseeable future. One wonders what would happen if the pound lost much more ground against the world's strongest currencies in these times of turmoil. We will have to wait and see.
Hong Kong was the stronger of the two currencies last week, although not by a large margin. By the end of the week the pound stood at 11.578 Hong Kong dollars, so let's take a look at what happened next.
Well it probably won't come as much of a surprise to learn that the pound lost ground on the very first day of the week. By the end of those first few hours we had slipped back to claim 11.304 Hong Kong dollars per pound. Was this the start of another disastrous performance which seems to mark what was happening during last week?
One look at the finishing figure for Tuesday and we seem to have this suspicion confirmed. We slid back even further on that day, until we finished up on 10.775 for the day. So we had already lost 0.803 from our position the Friday before. What would happen next? Would that slippery slope cause more disaster before the week was out?
Wednesday confirmed this was true by giving us a figure of 10.671 by the end of the day. And it didn't get any better from here on in. Thursday finished up with an exchange rate of 10.670 – only marginally worse, thankfully – and Friday saw a closing exchange rate of 10.571. This meant we had lost a total of 1.007 against the Hong Kong dollar last week – which merely added to our woes so far.
Let's see whether we could pull a better result out of the bag for New Zealand now. Last time we finished on 2.7192 after bagging an increase of thirteen cents during the week. Did this mean we were in for a rough time and a big loss here too?
We certainly seemed to get that impression when we ended up on 2.6774 at the close of play on Monday. Perhaps here we could at least keep some of the massive gain we had put together the previous week? At least that would temper any losses we did make.
Tuesday saw another massive plummet downwards however, as we finished with an exchange rate of 2.6293 by the end of the day. But there was good news to come on Wednesday as we lifted ourselves back up and claimed a decent increase, leaving us on 2.6509 as the markets closed. Could we hang on to this strength to get us through the week?
Thursday gave the answer as no, however. By the end of the day we had dropped back once more to claim just 2.6037 New Zealand dollars to the pound. And while we managed to pull back a little more on Friday, to close on 2.6197 for the week, we still weren't in as strong a position as we had been the week before. In total our losses this time around mounted up to 0.0995 – leaving us just a few cents from the fourteen we had gained previously.
So finally we stop off in Australia, to see whether this would prove to be the one good result we could claim for this time period. It seemed a little too much to hope for, but it could happen – couldn't it?
The week before, we had ended on 2.2052, after gaining some four cents overall. If the picture in New Zealand was anything to go by though, we could expect to lose that and more this time around. Let's see what actually happened.
As we should have expected, the week started badly with a closing rate of 2.1695 on the Monday. And things didn't get any better the following day, as the pound nosedived to 2.1116. What's more, the slight gain we achieved on Wednesday – to 2.1241 – was soon forgotten the very next day as we lost more ground. By the close of play on that day we were looking at a figure of 2.0971.
By the time everyone headed home for the weekend we had managed to regain a little ground by finishing on 2.1131. But this wasn't anywhere near enough to ensure that we had a good week. In fact we had lost a total of just over nine cents for the week. Best forgotten, we feel, in the midst of all the other bad results we had ended up with.
So we can just hope that we regain some of the significant amount of ground that we lost in the weeks to come.
The above results confirm that the British pound is at its weakest in a long time. In fact it hasn't reached depths like this against the US dollar for well over twenty years. How much longer will it be before it bounces back – and how much lower can it go in the meantime?
Regardless of whether the Presidential inauguration had any effect on the strength of the dollar at the moment or not, it certainly had a good week against many currencies.
The US dollar has performed well against the Euro too, going from 0.7586 at close of play on Monday to 0.7815 on the Friday evening.
One area worth watching at the moment is the situation regarding the Chinese currency, the yuan.
There has been talk of the possibility of them manipulating their currency, which they strongly deny. Keep an eye out for more news and speculation regarding this in the future.
We have recommended a few blogs recently which concentrate on currency issues, and one in particular has come to our attention which hasn't been going for very long.
However it shows great promise so it is well worth taking a look at. With in depth blog posts and a lot of information on all types of currencies, the Euro Currency News blog is definitely worth reading.
So there we have it for another week. Let us hope that next week's results are rather better than we have seen this time around. We'll be here to tell you exactly what happens and when, so stay tuned.