Posted by Allison on 24 March 2009, 09:58
Well it's been quite a dramatic week, with bank rescues going on right, left and centre. And of course the effects of all this have been profound, as shares and currency markets have been going up and down with alarming regularity.
But it's the currency markets we are interested in here, so we will be looking at whether the British pound has been performing well or badly over the last seven days. The prospects have looked gloomy of late, and that was before the world banking crisis reached its current levels. What do we have to report this week, I wonder?
Well, there's plenty of news to tell you as always, but it may not all be good. So let's start as we usually do by taking a look at the currency markets themselves, before exploring some of the news headlines we were treated to last week.
Well there is plenty to report this week. Our exploration of the currency markets starts as usual with the British pound's attempt at an assault against the US dollar. Although as we all know, it has been worth less in US dollars over the past few weeks. Anyone using a currency converter to figure out how far their money will go in the US will continue to be disappointed for some time to come.
If past weeks have shown ups and downs of varying proportions, last week could only be described as a nosedive. And unfortunately for us the pound was in the worst position.
Last week we ended with an exchange rate against the dollar of 1.7655. And let's not forget that over the course of that week, as September turned into October, the exchange rate had dropped by over seven and a half cents.
So what did Monday 6th bring? Well, there was a slight drop on that first day of the week, but it was only a slight one, bringing the exchange rate down to 1.7642. Nothing too much to worry about there, but it did end up signalling the start of a falling rate that would set in for much of the week.
Tuesday brought another fall which took the US dollar to below 1.76, leaving it at 1.7538 overnight. Unbelievably there was a slight improvement on Wednesday, as the pound found enough energy to fight back and claw back a very small amount, pegging it at 1.7583.
But even then you had the distinct feeling that this wasn't going to be a time to celebrate. And indeed it wasn't.
Thursday saw the start of a two day drop that would leave the pound lower than ever by the time the weekend arrived. The fact that no one seemed very surprised by this news just goes to show how bad and how worrying the global economy and financial situation is at the moment.
By the close of play on Thursday the exchange rate had sunk to 1.7329, giving us the feeling that this wasn't going to end well.
And it didn't – because by the time the markets closed for the week on Friday evening, the exchange rate had sunk even lower. The British pound ended up claiming just 1.7016 US dollars by then. That meant it was 0.0639 lower than it was this time the week before.
What's more, it totalled a loss of over fourteen cents in just two weeks. A while back that would have seemed unthinkable, but it has happened. And it makes us wonder how all these bank rescues by the government will affect the strength of the pound in the weeks to come.
Only time will tell.
So how did we do against the Euro? There's no doubt that this currency has been struggling as well, but which one would come out on top for the week in question?
Last time we saw the pound perform well against the Euro, finishing ahead for the week on an exchange rate of 1.2762. So who would get the upper hand this time?
Monday certainly brought good news for Britain, because by the end of the day the pound was claiming 1.2939 Euros. That's a healthy rise over one day's trading. What would happen next?
Unfortunately Tuesday was when the rot set in. After a vigorous day's trading we finished slightly lower at 1.2865 – and there was more of the same to come.
While the pound managed to stay in the 1.28 region the following day, it did drop slightly to 1.2805. This was starting to look like a familiar pattern, and one that would result in the pound coming off worse out of the two currencies.
Thursday did nothing to turn that around. In fact things got worse as the exchange rate dropped to 1.2666. How much lower could it go before the weekend came along to give us some respite? This certainly wasn't turning into a good week for the pound.
As it happened, it finished with a rate of 1.2531 on Friday. This meant we had lost a total of 0.0231 over the week – not as catastrophic as our performance against the US dollar, but still worrying. And that rise on Monday was long since forgotten as we were left licking our wounds once again.
From Europe we continue our journey on to Hong Kong, where we came off worst the week before as the Hong Kong dollar exerted some authority. Would the same happen again now?
13.719 was the point we left the tussle at the previous week, and although there was only a minor drop to 13.704 by the end of Monday it certainly gave us something to think about. Would we see a similar nosedive here as we had already seen against the US dollar and the Euro?
Tuesday seemed to say yes, as the exchange rate dipped further during the day and ended on 13.621. There was no question as to which currency had the upper hand here.
That fact was questioned on Wednesday though, as the pound found something from somewhere and managed to push back, even if only a little. By the end of the day we were looking at an exchange rate of 13.653. Could this be the start of a fight back by the pound?
In a word, the answer was no. Because the tussle that ensued on Thursday gave the Hong Kong dollar the upper hand, finishing on 13.458. It now seemed very possible that there would be further losses to close out the week, and unfortunately that speculation soon turned into hard fact. The pound finished a poor week by claiming just 13.204 Hong Kong dollars. That means a loss of 0.515 since the same time the week before – and just another loss to add to the list.
New Zealand is our next stop. Now you would be forgiven for thinking that there wouldn't be any good news to celebrate this week, but it could be that the pound does better in some countries than others.
Last week we ended up with an exchange rate of 2.6645. By the end of Monday you would have been rubbing your eyes with disbelief, because that had soared up to an amazing 2.7201. Could there be more to come, or would we now lose all the gains we'd made in a single day?
Well on Tuesday we got our answer – and it was almost as if someone was playing with the figures. The closing rate on that second day of the week was 2.7580. But if that wasn't enough, the biggest jump was yet to come.
By the end of trading the following day, there was an even bigger leap up to 2.8787. Could we actually hang on to any of this rise in the exchange rate?
Perhaps not surprisingly Thursday brought a slight redressing of the balance, as it slipped back to 2.7983. But there was no need to worry here – Friday night saw the pound claiming a healthy 2.8417 New Zealand dollars. That equates to a rise of 0.1772 – nearly eighteen cents more than it had been this time last week. How could this last, we wonder? We'll see next week.
So let's see whether we had such a good time in Australia. The two countries can sometimes mirror each other in terms of the tussles they have with the British pound. If the performance in New Zealand is anything to go by we could expect a chance at a healthy increase in the exchange rate with Australia as well.
We left the rate at 2.2717 the week before, after gaining nearly five cents that week. But by the end of Monday, 2.3574 was the figure we were staring at – and not surprisingly with a sense of disbelief. Could we be about to see the New Zealand delights happening again here?
The answer came on Tuesday, as we claimed 2.4168 Australian dollars by the end of the day. And there was more to come.
In fact the next jump up was mind bogglingly big. Because just twenty four hours after we hit 2.4168, we were looking at a figure of 2.5639. Could this go any higher?
When it dipped back down to 2.4702 the next day, it seemed like common sense had finally kicked in. But don't be so sure. Because by the time the week ended, the exchange rate between the British pound and the Australian dollar had jumped back up to 2.5736. That's a jump of 0.3019 in a single week – thirty cents higher than the week before.
That isn't just good – it's positively alarming. What will happen next in these turbulent money markets?
We'll be back next week to find out.
The world is packed with sweepingly big events at the moment, which was seen by the crisis concerning the banking system in Iceland.
An exchange rate of 0.0050 against the Euro for the Icelandic krona on the 7th of October dropped to 0.0032 just two days later. Such is the nature of the banking crisis currently going on.
There is speculation that rescue plans to keep the banks afloat may not be the best way forward in the long run.
While everyone knows we should ideally keep inflation low, it could go in the opposite direction when the dust settles. Let's hope for once the experts are wrong.
No individual currency was alone in losing value last week. The rupee was seen to hit its lowest ever level.
But it has many problems as well as dealing with its part in the global crisis, so there is a long road to negotiate before things will get better.
If you want to keep up with the latest headlines regarding the currency markets and the banking crisis, visit MSN. The money section of their website is comprehensive and up to date, and can be found at http://money.uk.msn.com/. The best part of this site is that it explains things clearly and regularly updates the news itself.
It certainly seems as if the key words for the current climate are bailouts and takeovers. These certainly do have a big effect on the markets, and as such they can be expected to affect exchange rates.
We have seen that big rises and drops in a single day are more than possible. And we have seen it this week more than any other. We can't remember a time when there has been this much uncertainty and worry over the future.
But what can be done except to wait and see what happens next? We will certainly still be watching next week and reporting the latest events to you. And who knows what they will be?
One thing is clear though. There is no clear path out of this situation anytime soon. And that means there will be yet more revelations to come.
See you here next week for the next round of them.