Posted by Allison on 24 March 2009, 09:44
If you remember from last week's summary, the pound was doing rather well against a raft of other currencies from all over the world. Considering the rather lacklustre performance it had put in over the course of the previous weeks, you would have been forgiven for thinking that the trend was going to continue.
But it clearly proved us wrong in our last summary. The question is did it manage to continue that winning streak?
Elsewhere last time we saw that the US dollar was struggling to stay strong and the Eurozone was struggling with inflation. While the week to week picture may not seem to change much on occasion, it can be very illuminating too – so let's see what has been happening in the last seven days to change the above picture.
So how did the British pound, with its renewed strength, stand up to the somewhat weaker US dollar after its previous week's performance?
Last week we saw the pound claim more US dollars than it had the previous week, so we were eager to see whether it could maintain that level. And it was good news. We didn't see the highs and lows that were so indicative of the previous week, when it finished on 1.9875 US dollars, but it certainly held its own.
On The Monday the pound finished at 1.9897 against the dollar, recording a slight increase from the previous Friday and certainly re-establishing itself and reasserting its authority at the same time. Tuesday saw the pound finishing slightly higher still, breaking through the 1.99 US dollars barrier and ending the day on a successful 1.9945.
Wednesday saw a slight drop and by the end of the week the pound finished slightly lower at 1.9816 against the dollar, but we still had a lot to celebrate considering the woes we had to put up with in previous weeks. Hopefully the pound will continue to build on this strength and take advantage of the less than ideal conditions that are going on in America right now, with the struggle against talk of a recession and housing prices coming under pressure, much as they are in the UK.
You would have been forgiven for wanting to change your holiday plans last week as news of the pound's increased strength against the Euro came in. You certainly wouldn't be getting a lot of value for your money with the performance, so those considering a holiday would have been keeping a close eye on whether things would change in the short term.
And did they? Well the pound had to find some ground after finishing at 1.2620 Euros the previous week, and Monday saw only a slight improvement at 1.2622 by the end of the day. Tuesday was little better, although it did recover a tiny amount of ground by crawling its way up to 1.2643.
Any mild amount of enjoyment at seeing that figure would have been short lived as by mid-week the exchange rate had dropped to 1.2575 Euros. This made it clear that any gains at all would have to be fought hard for – and even if we got them we couldn't guarantee that they would stay in our favour.
That was clear to see because the very next day saw a further dip, this time down to 1.2512 Euros. Could we see even just a small improvement by the end of the week?
As it happens we could, and it actually left us with a better exchange rate than we had finished the previous week with. The pound managed to claim 1.2645 Euros to its name by the end of Friday – not a huge improvement on last week's finishing post, but any gain is a good one and in the current climate we should be grateful for that.
Let's leave Europe for now and go across the world to Hong Kong to see whether the pound had any better luck with the Hong Kong dollar. Last week saw great news as a British pound showing renewed strength and vitality continued to come out on top when going head to head in Hong Kong. But could it continue its dominance in this country?
The previous Friday had seen the pound claiming 15.505 Hong Kong dollars, a resoundingly strong result and a sign of the continued ability of the British pound to hang in there when the going got tough for the economy and other major factors – all of which can have a real effect on the way currencies behave and stand up to each other.
So how did the week begin? Well, the pound ended the first day of the week at 15.518 against the Hong Kong dollar, so it seemed as if the upward trend could possibly still continue still further. You would have been forgiven for celebrating on Tuesday as things got even better – the pound finished strongly at 15.554 and already memories of the delights of the previous week were foremost in the mind.
But pride comes before a fall, and Wednesday was the day when that fall happened. Well, at least it was the start of a fall, because it seemed as though the Hong Kong dollar had almost had enough of being pummelled as it had been by the British pound for a good couple of weeks.
Wednesday saw a drop of 0.053 as the pound finished at 15.501against the dollar, which certainly made quite a few people sit up and take notice, wondering what would happen next. As it turned out, the news was good for the Hong Kong dollar, but not so good for the British pound.
The pound actually dipped below the 15.50 barrier the next day, even if only by the tiniest of amounts, slumping to 15.499 Hong Kong dollars by the close of play on Thursday. Those hoping for a reprieve to go into the weekend with were bitterly disappointed though, because the biggest slump was being saved for the final day of the working week.
The Hong Kong dollar obviously had a bit of momentum going, because by the end of Friday the pound could only muster up an exchange rate of 15.453, leaving Forex investors something to think about for the coming days.
On that slightly less than savoury note, it's time to see how the pound was doing in other areas of the world. The pound finished at 2.6171 against the New Zealand dollar the week before, having enjoyed a strong week against it, and although it did have its good points and bad points the previous week it did on the whole come out stronger than the New Zealand dollar did.
Monday of last week saw a slight dip in performance as the New Zealand dollar regained some ground, finishing the day at 2.6042. The real question was whether it would go on an upward or downward trend from that point on.
Tuesday certainly brought encouraging news as the pound showed some strength, ending the day up on 2.6223 against the New Zealand dollar. It slipped the following day but only slightly, going down to 2.6198. The downward trend didn't continue though, because the pound regained some strength by the end of Thursday, breaking through the 2.62 barrier again to end on 2.6202.
Friday saw a slight step backwards but in the end the pound only stood slightly lower than it had this time the previous week, at 2.6167. Considering what could have happened, this is a relatively good result to be confident about. Only next week will tell whether or not we could keep up the pressure.
Elsewhere in Australia, an exchange rate of 2.0676 carried over from the previous week dropped slightly and went in favour of the dollar on the Monday, as the day ended at 2.0663. The question now was which of the two currencies would be the stronger one by the end of the week.
Tuesday saw first blood go to the pound, with an exchange rate of 2.0886 in favour of the pound by the close of play. The Australian dollar recovered quickly though, and managed to erase those gains the very next day, as it clawed back its advantage and ended the day standing at 2.0671.
What's more, the Australian dollar continued to pile on the pressure as the pound could only muster up an exchange rate of 2.0656 by the end of Thursday, but there was an even weaker finish to come by the time the weekend arrived. The pound ended up finishing with an exchange rate of 2.0586 against the Australian dollar by the end of the week, so it seemed that for now at least the Australian dollar was finding some strength. It will be interesting to see if this particular trend continues.
So it was an interesting week for the pound when compared to other major currencies around the world, and it certainly gave people a lot to think about when using their currency converter to figure out how far their money would go in various countries. We know the picture can change day on day, let alone week on week, but for now the pound is at least still holding its own, even if it doesn't quite display the same level of strength as it did last week.
We saw last week that the Eurozone – which once seemed virtually untouchable as far as its economic strength was concerned – was struggling to deal with rising inflation.
That shouldn't come as much of a surprise really given the fact that most of the world is struggling with similar issues at the moment. And yet when inflation broke the 4% barrier on Monday 30th June, you could almost hear the sharp intake of breath going on all around the world.
Will things get worse before they get better? Or will the Eurozone be able to draw on some reserve of strength to get themselves out of this pickle sooner than some expect?
New month, fresh start certainly wasn't the case for the US dollar last Tuesday, as the first day of the month saw bad news as the dollar slipped against a raft of different currencies.
This is all tied up with the price of oil as well as other factors, and it certainly seems as if even the smallest gain is only short lived, as the dollar continues to look rather weak overall.
Could next week bring similar news – or will things get even worse still?
This unsavoury fact was still very much in the news last week, as the constant struggle with consumer confidence and rising inflation continued to march onwards.
It certainly doesn't seem as if there is going to be any quick fix or magic plaster that is going to solve the woes that we are currently going through in Britain; even the Governor of the Bank of England, Mervyn King, doesn't seem too optimistic that things are going to get better anytime soon.
It would be nice to point towards the possibility of good news in this area next week, but with rising food prices (among other things) and falling house prices the chances of that happening are slim.
So it was certainly an interesting week in the currency markets last week, especially where the British pound was concerned. It is good news that it seems to be holding up well against other currencies at the moment, even if it didn't display quite as much strength as it did the previous week.
But with the economic picture in the UK looking far from rosy, will this trend of standing up well to other major currencies continue? It could be that the slightly different performance we saw of the pound last week is just the first step towards other currencies starting to fight back.
But in any case, we will be back here next week to see the next chapter in this instalment play itself out. See you then.