Last week was volatile for the currency markets with a roller-coaster of events influencing exchange rate movements – first the US debt limit was extended, then moves were taken by the European Central Bank to buy back bonds as fears of the debt crisis engulfing Italy and Spain accelerated, and since the close of markets on Friday, ratings agency Standard and Poor’s has gone through with prior warnings and downgraded its rating on the United States to AA+.

What does all this mean for the international property investor who is interested in how the Pound is doing? Overall, Sterling dropped by 0.19 percent against the Dollar over the week and gained on the Euro by 0.54 percent. Movement was certainly erratic however, with the Pound in particular moving both up and down against the Euro in the early part of the week. The European debt crisis issues in the second half of the week allowed Sterling to capitalise on the single currency. The slight drop against the Dollar, can be put down to the Dollar’s use as a ‘safe haven’ currency by investors, as the panic about the spread of European debt between Euro zone nations hit the headlines.

These large-scale global events diluted the impact of internal economic news coming from the UK. Manufacturing PMI data early in the week was disappointing and yet another stagnant hold on interest rates at 0.5 percent on Thursday did not make for inspiring reading on the UK economy. Despite the fact that most economists are continually pushing back their expectations for when an interest rate rise will occur in the UK due to this kind of lacklustre data (with predictions having moved from summer 2011, to late 2012, to now even later – 2013) the Pound is currently still managing to keep up momentum from these external global events damaging confidence in the Dollar and the Euro. Looking at the month as a whole, the Pound’s strengthening has been consistent, with Sterling having grown by 2.31 percent on the Dollar and 2.78 percent on the Euro.

Although the agreement on the US debt limit also took downwards pressure off the Dollar last week, this may all change as markets assess the fact that Standard and Poor’s have now downgraded the US credit rating over the weekend. Some economists are therefore predicting we may see more downwards movement in the Dollar at the start of this week. Should the European crisis continue to escalate this week with more evidence coming to light of the flow of debt between nations, Sterling may also seize the opportunity to gain yet further on the single currency.

However, it will be important to look out for the impact of the inflation report and Bank of England Governor’s speech on Tuesday – Mervyn King sometimes has the tendency to talk down the UK economy which can have a negative bearing on the Pound.

For further advice on how to save thousands on your property purchase compared to the bank, protect yourself from currency movements or set up regular mortgage transfers, get in touch with the dedicated Property Secrets currency specialist: Nigel Hodges of Currency Solutions on +44 (0) 207 740 0000 or by clicking HERE to leave an enquiry.