Posted by Allison on 24 March 2009, 10:00
If there has been one thing that has been worth looking at in the past few weeks from our point of view, it has undoubtedly been the strength of the British pound.
If you have been following our weekly reports for some time, you will know that the pound claimed two US dollars for an exchange rate (albeit briefly) a while back. But then it started to drop and amid the worries about a recession and the credit crunch, some people started to predict that it wouldn't be long before we saw a pound that was worth just one dollar fifty. Suddenly the idea of working out how much something was going to cost you on a shopping spree, with the help of a currency converter, wasn't quite so appealing.
But could that really happen? After all it's a bit of a drop to expect a two dollar pound to go that low. However things have been looking increasingly worrying for the pound in recent weeks, and as you will see very shortly, the crisis is far from being over just yet.
So let's dive in once more and see how things panned out during the last full week of trading.
Well we've certainly had something of a rollercoaster ride with the US dollar of late. The British pound finished off last week by claiming 1.7293 dollars to the pound – even though that week was a lot better than the alarming performance of the week before.
So what happened this time around? Let's take a look and see if the $1.50 prophecies got any closer to coming true.
Well it began in a similar vein to last week, when Monday actually saw a slight rise in the exchange rate. By the close of trading it had gone up slightly to 1.7396. Not much, but at least it was heading in the right direction.
But that direction was about to change. By the end of trading on Tuesday, the pound had started to weaken again, dropping back to 1.6967. Was this going to be the start of another bad week that we would want to forget?
It certainly looked like it was. The drop we saw the following day was even bigger. There is no doubt that the financial and economic news coming out of the UK at the moment isn't good, and that certainly didn't help to make things any better when it came to the exchange rate. The dollar pushed back and exerted even more pressure midweek, resulting in a pound that could only manage to claim 1.6295 by the close of play on Wednesday. That's a drop of well over six cents in a single day. How much worse could this get?
That's not a question we like to ask, because it tends to get a lot worse – and as it turned out the pound had a lot more falling to do by the time it reached the end of the week.
Thursday brought little news to be proud of, as the pound fell further to 1.6180. There comes a time when things look so bleak that you begin to wonder where the fall will end, and with one day left before trading quit for the weekend, there was still time to either pull things back or drop even further.
And perhaps not surprisingly, the latter of those two events came true. By the time everyone finished for the day and went home for the weekend, the exchange rate was left at 1.5625. That represents a drop of nearly seventeen cents in the space of a week. Suddenly that idea of a pound that is only worth $1.50 doesn't seem so crazy anymore. And in fact, some people are predicting that it could go even lower than that.
Whatever happens, one thing is certain. We don't believe that we have seen the pound hit rock bottom yet, and it may be a week or two – perhaps longer – before that happens. The only question is this - just what figure will prove to be rock bottom? We dare not even guess now.
So on that alarming news, let's flee America and take a look at what happened last week against the Euro. The last exchange rate we had was 1.2901, but this represented a good performance from the pound. When we take a look at the pound versus the Euro, it's not often that we see a huge swing either way, since both currencies are tending to struggle at the moment.
So let's see what happened last week. Well as it happened there was little movement on Monday, as the pound managed to gain a tiny piece of ground and push the exchange rate to 1.2959. But that was going to turn out to be the best news we would have all week, as by the time Tuesday's trading ended, the pound was definitely on the ropes.
By then it had dropped back to 1.2870, and things didn't improve the following day either. The midweek rate was firmly going in favour of the Euro, as the pound could only muster up an exchange rate of 1.2687. Was this going to be a similar pattern to the American situation, only perhaps not quite so severe?
It seemed as if it would be. Thursday's slip was less pronounced, but it still didn't do anything to bolster confidence in the British pound. We finished on 1.2631 that day, but by the time Friday had finished up trading and everyone had gone home for the weekend, the pound had crawled to the finishing line claiming a measly 1.2405 Euros.
In total that's a drop of 0.0496 – nearly five cents less than the week before. This wasn't turning into a particularly good week for the pound, so could we do any better in Hong Kong?
The previous week had been a good one against the Hong Kong dollar – no huge rises but we did gain an advantage and that was better than the losses we were becoming used to elsewhere.
13.413 was the figure we were starting from, and any improvement on that would have been a blessing. But it wasn't improvements that we were about to get.
By the end of the day's trading on the Monday, the pound was already struggling with an exchange rate of 13.304. That was a drop that gave you a feeling there was more to come – and there was. It wasn't good news either.
Just twenty four hours the pound had dropped below the 13.0 barrier, and it finished the day on 12.950. Was there more of the same to come for the rest of the week, or could we hope to try and do better as the days went on?
Well the midweek rate didn't bode well, as by the end of Wednesday we were looking at an even lower rate, which finished at 12.610. We haven't seen anything in the region of an exchange rate at around 11.0 for a long time, but could we be about to head in that direction here?
Thursday provided another small drop and finished at 12.574 for the day, giving us little hope of coming out on top as far as the Hong Kong dollar was concerned. This certainly wasn't shaping up to be a good week for the pound in any country. The threat of an impending recession getting stronger wasn't helping our cause at all.
And so Friday ended with an exchange rate of 12.285 – an even bigger drop than perhaps we were expecting. That meant the pound had lost a total of 1.128 during the course of the week, adding to our woes for the time being.
So did we do any better in New Zealand? The last couple of weeks have been something of an eyebrow raiser, giving us a minor loss last week and a huge gain the week before.
On the previous Friday we ended up with an exchange rate of 2.8192, but by the close of play on Monday that had dropped significantly to 2.7530. Was this going to be another week of ups and downs?
It seemed as if it was. Tuesday saw a miniscule rise back up to 2.7597, while the following day went in favour of New Zealand, as the rate changed to 2.7475. But if it looked as if we were in for nothing but small changes for the rest of the week, we would have been mistaken.
While it was true that Thursday didn't bring a lot in the way of big news – dropping back slightly as we did to 2.7307 – it seemed as if the markets were saving it all for a big finish on Friday.
Because by the end of the week as the markets closed for the weekend, the exchange rate had leaped up to an amazing 2.8324. That's an increase of just over ten cents in 24 hours, although after the losses we had earlier in the week it meant we only gained 0.0132 over the course of the week.
So with that experience fresh in our minds, what would we achieve over in Australia?
2.5308 Australian dollars to the pound was the position we were in by the end of the week before. But Monday was not going to bring a good start to the week, as we dropped by a huge amount to start with, ending the day on 2.4356. It looked as if we were in for another up and down time here, too.
That was certainly proved to be the case on Tuesday, as the pound sought to redress the balance. After some work we pulled back some ground and finished the day on 2.4903.
But after that it was back down to 2.4161 on Wednesday, leaving us all wondering where we were going to finish up on Friday. Would the pound get the upper hand and manage to pull clear? Or would the exceedingly shaky Australian dollar find something in reserve to fight back with?
Thursday brought little change, as the pound sought to re-establish itself marginally and finished with an exchange rate of 2.4244. The biggest swing was reserved for the end of the week, as we pushed back in a big way to claim an increase that left us standing at 2.5310. That meant we had gained 0.1066 cents overnight, although the difference in the exchange rate since the previous week was just 0.0002 in our favour. So, this was a big week of drama that left very little change since last week in the end.
So it seems that although some of our regular head to heads have left the pound somewhat wounded, others have seen it manage to hold its ground. And quite often, it is as a result of being up against a weaker currency, rather than having any real strength in itself.
Amid all the trouble and strife on the world currency markets at the moment, the US dollar is staying pretty strong against many other currencies.
This is perhaps ironic, since America was just about the first country to experience trouble in the subprime market. However this just goes to show how strong the dollar is when it is up against difficult circumstances.
There is no doubt that some currencies are really going through the mill at the moment. But if we thought the British pound was having problems, the Australian dollar is even worse off.
It closed the week with its worst performance in 30 years. So is the only way to go up? Or is there more bad news to come?
If Australia was having a hard time of it, the Indian rupee wasn't far behind. And for the rupee, it wasn't a case of claiming the worst exchange rate for years either – it claimed the worst one ever.
There is confidence that things will improve, but that gives little to hang on to for the time being.
It can sometimes be difficult to understand how certain countries operate with regard to currencies. That's why it's worth taking a look at various websites which reveal more information.
One very good example is to take a look at the website of the Federal Reserve Bank of New York. There is a very good section on markets in particular which is very enlightening. You can find the website at http://newyorkfed.org.
So there we are for another week – more drama and more ups and downs to take heed of. Who knows what we will be reporting on in a week from now? Will the pound finally have reached that unbelievable $1.50 level? Will it go even lower than that?
Whatever happens, we will have all the answers for you right here. So with that in mind, we will see you again next week.