Pound Starting To Show The Strain

The past week has seen some considerable shifts in the state of play with the currency markets. The Pound has done a U-turn in its movements against several major currencies throughout the past week following its recent climbs against the Euro and US Dollar. Some negative news has emerged on the housing market by Rightmove which reveals that asking prices dropped in July for the first time since December. This has brought an abrupt halt to what seemed to be a recovering housing market and is likely to be due to budget cuts and tighter lending rules making consumers more nervous about buying property. In fact, the austerity measures and budget cutting of the emergency budget that at first gave the Pound a strong boost are beginning to be more widely debated. After the Chancellor’s meeting with EU officials last week, several economists have said that budget cutting alone is not enough to bring on the UK recovery and is starting to hinder growth. This sentiment seems to be weighing on the Pound which has started to drop against most major currencies – there was a great article in today’s Guardian covering the debate over cuts. Last week gave some respite for the Euro after its recent heavy losses. The Euro clawed back ground on most major currencies as it benefited from a wave of negative news on the US economy throughout the week – often when investors take their money out of the Dollar they tend to put it into the Euro instead causing the rates to swing and this certainly seemed to be the case last week. Europe also benefited from successful bond sales in several nations. Events over the weekend and so far on Monday however have already put these Euro gains into jeopardy. Ireland’s rating has been downgraded by the ratings agency Moody’s as they believe the nation is losing economic strength. Europe is also undergoing problems with trade balances – the uncertainty over the strength or weakness of the Euro is affecting imports and exports. The most important thing to watch out for this week will be the stress tests on European banks with the results being announced on Friday. If you have any transfers involving Euros or any other European currency it may be wise to get in touch for advice with us earlier this week in case the stress tests bring more volatility to the rates. Anyone involved with the Hungarian Forint should be aware that the EU pulled out of talks regarding a financial package to help Hungarian debt over the weekend. This means that the package was not confirmed and the Forint has significantly dropped against a basket of other currencies. There lies an interesting week ahead which will culminate in the tell-all European bank stress tests and UK GDP figures.