A very unhealthy picture of the UK economy was painted this week. As I reported may be the case in last week’s blog, the Bank of England Inflation Report published on Wednesday left a damaging impression of the UK economy with it highlighting that more quantitative easing is likely to be introduced and growth forecasts were also reduced. Taken alongside dire news on unemployment which has reached a fifteen year high, and news that consumer confidence hit record lows in October, the one small piece of good news from the UK – an increase in retail sales – seemed very insignificant.

The effect of all of this on the Pound showed itself much more acutely against the US Dollar and other safe-haven currencies than the single currency. Against the US Dollar, Sterling fell by an enormous 1.62 percent over the course of the week, meaning that we start this week at around a rate of 1.578 on the US currency. This is clearly mirroring Sterling’s fall against the Japanese Yen, another of the world’s largest ‘safe-haven’ currencies which it fell against by 1.91 percent, revealing how damaging last week’s UK economic data was.

Fortunately for those interested in Sterling’s performance against the Euro, the Pound has managed to almost hold its position overall that it reached following the previous two weeks of consecutive climbs. In last week’s blog, I reported that the Pound had reached levels of 1.169 on the Euro and we start this week at a rate of 1.168 so the overall movement is almost flat at 0%. Sterling is therefore managing to hold on to a strong position against the Euro, despite plummeting against other major currencies. This is because the dramatic events unfolding in Europe are causing currency investors to exit the Euro and hold them in Sterling using the Pound as a form of safe-haven instead.

Berlusconi’s resignation and the approval of austerity measures in Italy, gave some very short lived confidence back to the Euro on Monday. This soon dissipated however, and the situation remains very precarious. This will not necessarily continue to play out in Sterling’s favour however, as many economists are starting to point out the increased risks that this may being to the UK due to the UK’s close trading and financial links with Europe. If the European debt crisis continues to spiral, the impact on the UK economic recovery may become more and more real – at present, many economists are describing the Sterling – Euro situation as indicating that Sterling is being given ‘the benefit of the doubt’ by currency investors. If you have a Sterling to Euro transfer to make in the upcoming months therefore, it may be worth considering using a forward contract to secure the kinds of exchange rates we are seeing now as there are no guarantees about how long these will last. Feel free to give me a call to discuss.

There is some significant UK data to watch out for this week, which could have an effect on exchange rates, alongside continuing developments in the Eurozone. House price figures on Monday and an update on the amount of public sector net borrowing on Tuesday will kick off the week. One of the most significant events however, will be the release of the Bank of England minutes on Wednesday. These will reveal whether any more members in the Bank of England have voted in favour of more quantitative easing to help shore up the economy – if this is the case, Sterling could potentially lose some momentum.

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.

Anyone who has seen a TV or newspaper over the past week will have seen that the financial position of Italy and build-up to Berlusconi’s resignation became something of a news sensation. It won’t surprise you to hear therefore that Sterling saw its chance and took it – rising for a second week on the Euro to some of the best levels seen in eight months. Sterling starts the week at around a level of 1.169 on the single currency. It also rose against the US Dollar by 0.21 percent over all, meaning that it has now just about tipped over the mid-market rate of 1.60.

All very good news if you want to buy property in either the US or Europe and need to convert Sterling into Dollars or Euros. Sterling also benefited from the Bank of England monthly monetary policy announcements on Thursday. Interest rates were held at 0.5 percent which was widely expected – but the good news for the Pound was on Quantitative Easing with no increase to asset purchases (meaning that no more Pounds will be plunged into the economy this time round to help shore it up - which can knock the value of Sterling against other currencies).

Will this last however? The position against the Dollar is fairly precarious. There was some good economic data from the US this week that showed consumer sentiment rose to its highest level in five months. There is rising speculation that the US are also going to resort to expanding Quantitative Easing and lots of focus on when this third round of ‘QE’ will happen. Should this happen before more QE is announced in the UK, there could be a golden window of opportunity for Sterling to rise on the US currency, but the reverse could be true if a QE expansion hits the UK first.

One potentially damaging event for Sterling to look out for next week is the Bank of England quarterly inflation report on Wednesday. It is expected that the inflation report will make something of a case for more QE which could scare currency investors, cause funds to drain away from Sterling and therefore cause it to weaken.

Against the Euro, a lot will become more clear after Monday, when we can see how currency markets have reacted to developments in Italy including Berlusconi’s resignation, the new budget law and reform austerity measures that have been approved. The situation became very serious last week with Italy’s level of debt having a severe knock on impact with Ireland, Portugal and Greece having to call for bail-outs. The spiralling situation last week edged very close to a Euro-zone wide melt down. Although the Eurozone is far from clear of danger yet, the fact that new reform measures have been approved in Italy paving the way for a new unity Government to tackle the crisis, could re-assure some investors and cause the Euro to lift off its recent lows this week.

Bear in mind therefore, that if confidence starts to pick up in the Euro and the UK inflation report suggests more quantitative easing, the Pound could become more vulnerable following two weeks of climbs. I’m more than happy to speak to any of you about the target rate of exchange you are looking to achieve or if you have any concerns about the Euro crisis and want to discuss your property investments or regular currency mortgage payments.

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.