‘Safe’ Currencies Gain Support as Global Recovery Stalls

This week is beginning with a lot of uncertainty in the currency markets with a weak Euro, strong Pound and volatile US Dollar… which could all change by the end of the week. An already weak Euro has experienced some negative data this morning regarding the manufacturing sector in the single-currency zone. This follows its fall to a one month low against the US Dollar and a seven week low against the Pound as the French President has been preparing the nation for the most severe round of budget cuts in two decades. The weak Euro is of course to great advantage for those UK based needing to transfer money into Euros. The GBP / EURO mid-market rate is up around the 1.22 level on Monday. With things starting to suggest that Sterling may deteriorate over the rest of the year, it’s possible to forward-fix this rate now for your property purchase even if the transfer doesn’t need to take place straight away to protect yourself from any potential drop. How long will the Pound stay strong for? Last week’s surprisingly positive UK retail figures gave Sterling a strong upwards push, helped along by the view coming from economists that there will be many upcoming foreign bids for UK companies. This is not expected to hold up the Pound long term however. With UK growth forecasts being revised downwards and household survey results today revealing the depth of concern over living costs and unemployment among the population, some are starting to suggest that the Pound will begin to suffer and end the year much lower against the Euro and Dollar than its current rate. Currency movements are really being influenced at the moment by worldwide investor’s attitudes to various economies as the global recovery is seen to be stalling. After last week’s atrocious US unemployment figures and speculation over a double dip recession, investors have become risk averse. This has caused the ‘safe’ currencies of the Swiss Franc and Japanese Yen to strengthen whilst the hung result of the Australian election has caused the Australian Dollar to fall. Events which are likely to bring more currency movements this week are US home sales and joblessness figures (which have recently been ever more disappointing) on Wednesday and Thursday then culminating in US and UK GDP figures on Friday. Its worth considering that a poor US Dollar typically causes the Euro to strengthen – apart from when the number one priority for investors is to avoid risk and they ironically put money back into the ‘safe’ US Dollar despite the poor data coming from the US itself. Keep up to date with our weekly currency news this week to see how the volatility pans out and speak with your broker early to discuss how to manage your currency and protect yourself from risk.