Special Report from Currency Solutions

Markets are in turmoil and London is quite literally burning. If this were a script for a film I could think of several Hollywood directors that would snap up the opportunity to produce such a piece. However, rather than offer ammunition for what would be a long term debate we will stick to what we do know. However, even the markets are a volatile, kicking bull at the moment so we it’s a tough call on that front as well. The Aussie continues to slide and it now appears that the Canadian Dollar and South African Rand are following suit. The euro continues to cling on to a fine piece of thread and the Swiss Franc, despite the government’s best efforts has mounted another attack on world markets.

Pound Sterling – UK Markets

Just as I so eagerly portrayed the UK in a way that made us feel as though we were on the road to recovery I have been made to look like a fool by gangs of petulant individuals making a mockery of a city many of us are (or shall I say were) proud of. As our leaders belatedly returned from their holidays, they will have been met with frustration and anger from those who care. How you may be thinking does this all relate to our economy? Well, with MP’s suggesting reduced prison sentences, failing to learn from earlier rioting over the past year and a global message to investors that signals we are failing to control the very basic principles of our frail economy; the government needs to grab the bull by the horns and take control of markets to restore confidence. Despite the unpredictable nature of our markets, sterling remains stable.

US Dollar – US Markets

As President Barack Obama confidently marched up to his dais, the markets waited in anticipation. Little did they know that what was to follow was a sea of red in the ever volatile markets. Obama made an attempt to restore global confidence by stating that despite being downgraded the US will always be a AAA nation. You could have heard the winces in the room as markets, even during this speech markets continues to see red.

Furthermore, Standard and Poor has continued its rampage on the US by downgrading a number of institutions; mainly those that are government backed. This will do little to prevent steam emanating from Obama’s ears as he did his very best to calm fears and restore confidence. The dollar remains on shaky grounds following the downgrade. Sellers beware…

Euro – European Markets

Whilst European markets continued to nosedive, yields on Spanish and Italian government bonds fell for the second consecutive day. The European Central Bank has begun intervening in the markets in attempt to keep borrowing costs down for both countries. However, this has to be viewed as nothing more than allowing a bit of breathing space. Along with the US, the ECB is concerned over the growing issues surrounding Italy and Spain. ECB President Jean-Claude Trichet is looking ever more fragile in his role and has called on eurozone governments to beef up efforts to stem the debt crisis that is on the periphery of entering the core nations.

Other Currencies – Highlights

Rather than focus on individual currencies globally today, there is a clear trend taking place in those currencies that are linked to commodities. The Australian Dollar, South African Rand and Canadian Dollar have continued to fall as investors steer clear. The bottom line is no one will be attempting anything risky at present with the state of the global economy in tatters. Interesting times ahead.

UK markets are re-opening after the New Year break to a VAT increase which has risen from 17.5 to 20 percent. Although the impact on the currency is likely to have already been factored in Sterling will be watched closely over the coming weeks. Business groups are warning about the likely negative effect on consumer spending in but in the longer term the rise may push inflation higher making an interest rate hike more likely.

Pound Sterling – UK Markets

Sterling has moved lower against both the Euro and the US Dollar since the weekend. Today sees the introduction of the higher rate of VAT and mortgage approvals for November have come in slightly higher than expected at 48,000.

The VAT rise is a concern for the Bank of England who have struggled to prevent inflation soaring higher above the 2 percent target and the cost of living for many is spiraling. An interest rate rise will help curb inflation and the impact on Sterling could be positive in the long term however it is unlikely to happen in the immediate future.

Good news came from a survey by Deloitte which showed confidence amongst chief financial officers at major UK companies rose in the last quarter of the year with relationships with countries outside the UK being hailed as the engine for growth.

US Dollar – US Markets

The US Dollar spiked against the Euro and Sterling early on Monday. It has since dropped off against the Euro but has continued to make more reserved gains against Sterling after an initial fall.

US manufacturing showed improvements, expanding at the fastest pace in seven months with the manufacturing index rising to 57 in December. Construction spending also rose 0.4 percent in November.

FOMC minutes are due at 7pm this evening which will provide an analysis of economic conditions and the outlook for interest rate policy.

Euro – European Markets

The single currency has not shaken off sovereign debt fears which look set to continue into 2011 although it has experienced upwards movement against Sterling since Monday.

Poor news has come from Germany this morning showing an increase in unemployment by 3000 in December following a drop of 8000 in November.

Other Currencies – Highlights

The Yen fell to a one week low against the Euro following yesterday’s positive US manufacturing data spurring demand for higher yielding securities. The Canadian Dollar was also close to its strongest in two and a half years with crude oil prices soaring.

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Following its respite yesterday, the Euro has continued to find more strength, but the currency is still vulnerable as concern mounts over whether the actions announced by European Central Bank President Trichet yesterday will be sufficient to calm the crisis with Greece’s rating also now looking unsafe. The initial Euro strengthening can be seen as a result of the fact that the bond repurchase programme will be extended for three months in a bid to calm the crisis - but no more new larger quantitative easing decisions were taken with issues in Ireland still rumbling on.

Pound Sterling – UK Markets

The Pound had a poor day against both the US Dollar and Euro despite better than expected PMI Manufacturing data this week. This morning’s PMI Services data however, measuring economic strength in the services data has dipped.

It has been a fairly quiet week for UK data with Sterling mainly responding to the broader European themes. Next Tuesday sees the first influx of important UK data covering industrial and manufacturing production.

US Dollar – US Markets

The US Dollar has continued to lose out to the Euro and is experiencing volatile movement against the Pound so far losing out to Sterling this morning. Investors have continued for now to choose riskier currencies helped by stronger US housing data and short term ECB bond buying. Today’s non-farm payroll figures for November have the potential to bring movement with an upwards figure following on from some of the mixed data this week having the potential to move the Dollar. The expectation is for a rise of 146,000.

Euro – European Markets

The news that the ECB will be extending its bond-purchasing programme for three months to help out European nations seems to have been welcomed by markets as the Euro has found some strength. The currency is still in a very vulnerable position however as some believing the bond measures were inadequate with the underlying debt problems not being solved.

The emphasis is on providing individual nations more time to help themselves out of crisis, before the EU steps up measures any further.

Greece’s credit rating is also under threat by Standard & Poor’s and issues continue to stagnate in Ireland pending the 7th December budget. Interest rates were held at 1 percent yesterday for the 19th month in a row.

Other Currencies – Highlights

The Canadian Dollar experienced its largest gain in two days against the US Dollar since May as stocks and commodities were boosted with crude oil gaining in value in response to the actions taken to appease the European debt crisis.

A report today is also expected to show that payrolls increased for a second month in a row in Canada which may also help the currency.

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The Pound fell against the Euro since Friday with the focus on the Irish bailout package pushing up the single currency. The Pound closed at €1.1693, dropping by 0.5% against the single currency over the course of last week. It weakened against the Dollar by 0.8% last week to close at $1.5989.

Britain’s contribution to the Irish rescue package has been defended by the Chancellor as a necessary move to protect the British economy by ensuring stability in Ireland, one of its main trading partners.

A Rightmove survey has found that 42% of people surveyed believe that UK rents will rise 12 months from now. With mortgage lending low and UK house prices falling, there is likely to be increased demand within the rental sector.

Data produced by HM Customs and Excise suggests that the recovery in the UK housing sector has slowed down. Completed home sales dipped by 4,000 over the August figure last month to 78,000. This figure was lower than the comparable value from September 2009 and represents the first year-on-year drop seen in 2010.

The Council of Mortgage Lenders reported (Wednesday) that lending in September had been at its lowest value for a September since 2000 at £12 billion. Lending in September was down by 1% on the August figure, but 7% lower than that seen last year.

The Bank of England has confirmed that lending on mortgages has declined and they expect it to remain subdued for some time to come. Dwindling demand for homes and loans is likely to cause a decline in UK house prices. UK home price inflation has vastly outstripped UK wage inflation for many years.

Pound Sterling – UK Markets

Sterling has continued to decline against the Euro and was a further 0.9% lower at yesterday’s close in Europe with £1 buying €1.1233. The currency recovered slightly against the US Dollar and the Japanese Yen closing at $1.5745 and ¥127.67, respectively.

US Dollar – US Markets

The US Dollar ended yesterday’s trading session down against the Euro with the single European currency buying $1.4016, a fall of 1.1%. In overnight and early European trading, the Dollar has rallied and is currently trading at $1.3941 (at 07:10 GMT).

It was the sub-prime crisis that triggered the global financial crisis and it has been suggested that US mortgage giants Freddie Mac and Fannie Mae must take their share of the blame. The cost to the US tax payer of rescuing these two companies which form the backbone of the US mortgage lending is expected to double and the ultimate bill could surpass $360 billion.

Euro – European Markets

In overnight and early European trading, the Euro weakened against Sterling and the US Dollar again. This may represent a pattern of profit taking since early numbers show that the Euro is again appreciating against them both. The Pound was trading at €1.1280 and the Euro was buying $1.3941 at 07:16 GMT, respectively.

The protests against French plans to raise the national retirement age to 62 are set to continue with two new days of (in)action called for 28th of October and the 6th of November by the unions.

Other Currencies – Highlights

All eyes will be on South Korea this weekend as the G20 finance ministers meet ahead on next month’s summit of G20 heads of state. The question of national tensions within the foreign exchange market is likely to take centre stage. China, the USA, Japan, Europe and South Korea have all voiced concerns (or denials) that nations are deliberately manipulating their currencies to gain advantage in export markets. The IMF has already warned of the disastrous consequences of what it terms as a “currency war” in which nations are taking steps to weaken their own currencies to provide temporary economic relief through better export performance.

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Data just released by the Royal Institute of Chartered Surveyors (RICS) suggests that downward pressure is beginning to be asserted on UK house prices. With a glut of houses on the market, some buyers are looking for (and finding) bargains. 44% of RICS members surveyed reported that prices had fallen over the last three months, but half reported that the value of property had remained stable and 1 in 20 noted a rise.

The message seems to be that if you want to sell your home, you need to be realistic about valuation and aware of the fact that there are fewer buyers in the UK market right now. At the moment, many RICS members are characterising the trend as a “correction” rather than anything more dramatic.

Pound Sterling – UK Markets

Sterling has been regaining some ground against the Euro over the past 24 hours, closing 0.1% higher yesterday at €1.1434. The trend has continued this morning and currently, £1 is worth €1.461 (at 9:06 GMT).

A raft of UK data will be released later today which will reflect the consumer price index; trade balance; retail price index and the house price index amongst other figures. The consequences of government austerity measures should be starting to emerge in these data; indeed, the RICS survey noted that concern over the measures was affecting buyer confidence and suppressing the housing market already.

US Dollar – US Markets

The US Dollar is continuing to fall against the Yen, hitting fresh 15 year lows as it does so. Markets in both Japan and the USA were closed for holidays yesterday. The Dollar has strengthened marginally against both Sterling and the Euro over the past 24 hours.

In the States minutes from the Federal Open Market Committee (FOMC) will be released today. FOMC minutes offer a clear guide to US inflation rate policy.

Euro – European Markets

Germany is the economic powerhouse of Europe, so the fact that German exports had fallen for the second month in a row is unwelcome news. The Federal Statistics Office published data for August which showed that German exports had fallen by 0.4%. The single European currency has strengthened in recent months, following the crash caused by the sovereign debt crisis and the costlier Euro may be having an influence on German exports.

Data will be released later today on the German consumer price index and the wholesale goods index.

Other Currencies – Highlights

Poised to become the world’s second largest economy behind the USA, China has shown the best recovery from the global economic crisis with export growth figures which are more than ten times greater than her competitors. However, recently, both the USA and Europe have accused China of keeping the Chinese Yuan undervalued against other major currencies, thereby making Chinese exports artificially cheap. Whilst China acknowledges that it will allow the Yuan to appreciate, it has ruled out a swift revaluation and made it clear that US and European “interference” in the matter is unwelcome.

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Nigel Hodges www.currencysolutions.com

Yesterday’s decisions by both the Bank of England and the European Central Bank to keep interest rates on hold were widely expected.

Whilst the Bank of England minutes due later this month will give a more thorough indication of what the discussion on monetary stimulus was, Trichet’s comments following the ECB meeting that stimulus measures may soon begin to unwind in the Eurozone have only reinforced the current state of play. Although the fact that no further stimulus will be taken by the Bank of England initially gave the Pound a short boost yesterday, it is now back down to similar recent levels.

Sterling was trading at the mid-market rate of 1.1403 against the Euro and 1.5860 against the US Dollar at 10.00am today.

Pound Sterling – UK Markets

Yesterday’s decision by the Bank of England against introducing quantitative easing has not given the Pound any lasting support. Although Sterling was initially boosted after the news and began climbing on the Euro, it has since dropped back.

The UK currency wasn’t helped by the sheer drop in house prices after the Halifax housing reported recorded a tumble of prices by 3.6 percent in September. This has fuelled fears that a lengthy decline in the property market will continue and drag the rest of the economy down.

The release of Producer Price Index input data this morning which measures the rate of inflation experienced by UK manufacturers when buying goods and services has risen by 0.7 percent in September, which may help the Pound gain.

US Dollar – US Markets

The US Dollar has had a turbulent twenty four hours but overall has had some minor successes against the Pound and the Euro.

The minor gains following the Dollar’s drop to an eight month low against the Euro have been attributed by some to investors squaring positions ahead of the US nonfarm payrolls report later on today. This follows weekly jobless figures showing a slight improvement coming in at 445,000 rather than the expected 455,000.

Today’s figures will be significant as they are the last employment related figures to come out prior to the next Federal Reserve meeting at which further monetary policy will be at the top of the discussion agenda.

Euro – European Markets

Interest rates were also kept on hold in Europe yesterday as well as the UK although this was broadly expected by markets.

Although the Euro has lost some slight ground to the US Dollar, there is a chance that investors will reduce holdings of Euros prior to this weekend’s International Monetary Fund meeting.

Comments from European Central Bank president Jean-Claude Trichet suggesting that the Central Bank may be ready to start unwinding stimulus measures builds on all the reasons why investors have recently been attracted to the Euro as opposed to the Pound or Dollar and his press conference resulted in some instant gains.

With both the G7 and International Monetary Fund meetings this weekend, with the G7 in particular likely to focus on Dollar weakness, investors will be looking at what emerges from the press conferences of these.

Other Currencies – Highlights

The Australian Dollar is finding its way to the strongest levels in twenty years following its recent very strong jobs data.

The Head of the International Monetary Fund, Dominique Strauss-Kahn, has been the next to speak out about the recent focus on ‘global currency wars’ with several nations intervening to weaken their currencies and maintain the competitive edge of their export markets. Strauss-Kahn has claimed that this lack of co-operation poses ‘a real threat’ to economic recovery.

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The Pound has dropped to the lowest levels against the Euro since May following an outspoken warning from Bank of England member Adam Posen that the economy needs stimulus. This is an ideal time to speak with your broker or register an enquiry if you have Euros to transfer to Pounds, or to discuss how to protect yourself from further losses if you have an upcoming Pound to Euro transfer.

Sterling was trading at the mid-market rate of 1.1637 against the Euro and 1.5815 against the US Dollar at 10.30 am this morning.

Pound Sterling – UK Markets

Sterling has fallen to its weakest levels against the Euro since May. Bank of England policy maker, Adam Posen, burst the bubble surrounding the fact that second quarter GDP figures were confirmed at 1.2 percent yesterday, with a hard hitting speech on the lowly state of the UK economy. Posen declared his view that the Bank should re-start its asset purchasing programme seeing UK growth as far below its potential and suggesting that the UK needs to ensure it doesn’t follow suit with the post-recession patterns of other nations to avoid a situation such as the Japanese style ‘lost decade’.

Posen’s speech caused investors to instantly sell Sterling causing today’s slump. The sentiment of Posen’s speech is also in conflict with the other outspoken Bank of England member Andrew Sentence’s calls for an interest rate rise. The debate therefore also suggests that there may be a three way split of the vote on monetary policy at the next Bank of England meeting on 7th October – the subsequent minutes from this meeting later in the month may therefore not bode well for Sterling if they reveal a non-united policy committee.

The Bank of England has released mortgage approval data this morning with a shallow decline to 47,000 in August from 48, 300 in July.

Sterling is still broadly maintaining its position against the US Dollar – with the US currency being even weaker.

US Dollar – US Markets

The Dollar Index which measures the US Dollar against a basket of other currencies has fallen to an eight month low as speculation continues to rise that the Federal Reserve may add to monetary easing measures to shore up the economy.

Yesterday also saw dismal news on the US economy pushing investors to sell Dollars and pushing commodities such as gold to highs. Consumer confidence for September posted its worst reading since February, well below expectations and the Richmond Federal index pushed into the negatives at -2 far short of forecast reading of 6.

Tomorrow sees final GDP figures for the second quarter which will be watched by investors and is expected to show growth of 1.8 percent.

Today sees mortgage application data which will provide the latest snapshot of the housing market.

Euro – European Markets

The Euro is still widely benefiting from Sterling and Dollar weakness despite internal Eurozone debt fears making their way up the news agenda.

The European Commission is going to unveil plans today to fine countries that incur big debts posing a potential risk to the Euro. Unrest is high, with tens of thousands set to take to the streets of Brussels and other European capitals to protest against the extent of Government cuts and the hit to public sector jobs. The Commission is also making a drive to prevent EU countries being able to massage their statistics and introducing punishments for countries with poor economic management.

Economic confidence figures have come in this morning from the European Commission showing an improvement above forecasts.

Other Currencies – Highlights

Tensions over exchange-rate policies are likely to be addressed at the next G20 summit in November according to a South Korean official, after Brazil warned yesterday that they may intervene to weaken the Real following similar moves by other nations. Brazil yesterday referred to the situation as a ‘currency war’ after it was reported that several nations took moves to depreciate their currencies to bolster exports. This is against G20 policies with all members previously pledging to ‘refrain from competitive devaluation’. China, South Korea, Thailand, Japan, Switzerland and Brazil are nations thought to have sold their own currencies.

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In a week where the Irish banking sector has raised concerns, the health of the economy now looks more frail than feared. The Irish economy which was expected to grow by 0.5 percent in the second quarter has in fact shrunk by 1.2 percent.

At 10am this morning Sterling was trading at the mid-market rate of 1.1735 against the Euro and 1.5691 against the US Dollar.

Pound Sterling – UK Markets

The Pound’s movements against the Euro remain volatile but the Pound has begun to claw back some of the losses of the past three days. The Pound has also strengthened against the US Dollar although movements are still varied.

Morgan Stanley have drawn attention to the fact that the UK’s budget cutting plans may crimp growth by raising its year end forecast for the Euro against the Pound.

US Dollar – US Markets

The US Dollar has begun to regain losses against the Euro following data that has come in above expectations with existing home sales growing by 7.6 percent in August.

On the negative side, unemployment claims did not meet the predicted fall to 450,000 instead rising by 12,000 last week to 465,000.

Today sees durable goods orders data which measures the costs of goods orders such as cars to manufacturers. This is expected to show a drop highlighting the struggling sector.

Euro – European Markets

The last few days have boosted the Euro and the currency still remains in a relatively strong position.

German business confidence unexpectedly rose to a three year high in September with the expansion of the Eurozone’s largest economy occurring at the fastest pace in two decades in the second quarter led by exports.

The news on Ireland however may continue to heighten concerns. The Irish Government have been trying to calm fears this week about the Irish banking sector after a report emerged that Ireland may need external financial help. GDP figures have now been released to reveal that the Irish economy shrank by 1.2 percent in the second quarter – these did not meet analyst’s expectations for growth. This compares to growth of 2.2 percent in the first quarter. GNP (Gross National Product) fell by 0.3 percent.

Spanish Finance Minister Elena Salgado is presenting the Spanish budget later today and is under pressure to reassure investors that Spain is not soft on austerity measures.

Other Currencies – Highlights

Japan is once again in the headlines as speculation from traders mounts that the Government intervened in the currency markets to depreciate the Yen which was seen in a sudden jump in the Dollar’s value last Friday. It is thought that the Bank of Japan began buying Dollars on a large scale for the first time in six years last week although the Bank of Japan has not confirmed this. The move is to protect the Japanese export market.

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With UK house prices already suffering the brunt of a weak economy, further data suggests they have fallen further. Prices across England and Wales fell 1.7%, suggesting now is the time to sit on your property, leaking pipes and all.

Pound Sterling – UK Markets

Similar to the Euro, the Pound suffered losses against the Dollar last week but managed to stay just above support levels of between 1.5510 and 1.5550.

Further news on house prices suggested that home sellers cut an average of 17,000 Pounds off their asking prices during August, which wiped out the gains seen in the earlier part of the year. House prices dropped 4.1% in the nation’s capital, the biggest in two years.

The GBP/EUR rate as of GMT 1025 was 1.21730, whilst the GBP/USD rate was 1.5580.

US Dollar – US Markets

Continuing along the line of housing, evidence in the US suggests that the market is slowing on the back of today’s housing market index predictions.

Even with all the troubles in the Eurozone, China continues to favour the single currency compared with the Dollar, underlining the troubles that are facing the US economy. With constant fears over the pace at which the economy is beginning to slow, European bonds are becoming more favourable to many overseas investors.

Euro – European Markets

Towards the back end of last week Germany, France and Spain posted much better than expected second quarter GDP figures. However, this wasn’t enough to prevent the Euro sliding back against both the US Dollar and Sterling. The single currency hit 9 week lows against the Dollar and with CPI for July expected to come in at -0.4% and sovereign debt problems very much at the forefront of everyone’s concerns, we could yet see further falls.

The EUR/USD rate as of GMT 1025 was 1.27970.

Other Currencies – Highlights

The Japanese Yen is at the forefront of world economic movements as the currency outlines its position as the best performer among the major currencies this year.  Good news at first glance; however, with Japans economy clearly driven by exports, mainly in the technology sector, worries are growing over how the slowing US and Chinese economies will affect this. A combination of increasing costs and poor market data do not spell good times ahead for the Japanese.

The Yen reached a five year high against the Dollar on August 11th, touching 84.73 to the Dollar.

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Sterling has dropped against all but two if its sixteen major counterparts following the latest survey by the Royal Institute of Chartered Surveyors revealing a down turn in house prices.

Sterling was trading at the mid-market rate of 1.5795 against the US Dollar and 1.2004 against the Euro at 10.30 am this morning.

Pound Sterling – UK Markets

The survey by the Royal Institute of Chartered Surveyors has revealed that house prices have dropped for the first time since July last year according to the same survey. This has been attributed to fewer buyers entering the market with less mortgage availability and fears of unemployment still rife.
 
A British Retail Consortium survey also showed today that stores posted slower sales growth last month.

Some economists are starting to suggest that Sterling has recently been overbought by investors given the increasing emergence of negative economic news - and that a correction may soon be seen in the rates as investors start to change position.

June’s trade balance figures released this morning however were not as poor as predicted. Whilst forecasts suggested the trade balance would deepen to -£7.60 billion from May’s £4.49 billion, June’s figures were actually -£4.20 billion.

Tomorrow is an important day for Sterling with unemployment and average earnings figures as well as the Bank of England’s quarterly inflation report likely to bring market movement.

US Dollar – US Markets

The Dollar rose against the Euro and Pound on Monday ahead of today’s Federal Reserve meeting.

Although it is widely expected that interest rates will be held, the main focus for markets is the tone of the statement following the meeting and how the outlook for the growth of the economy will be described. Most important will be whether there is any mention of further stimulus measures in the form of bond purchases.

Other possible factors to add to potential Dollar volatility today are data releases on small business optimism, non-farm productivity and labour costs.

Euro – European Markets

It’s a quiet day for the Euro which is likely to respond to wider market movements.

There has been further data from Germany today with the consumer price index coming in better than expected. The prices of seasonal items such as package holidays and air travel are thought to have pushed the price index up 0.3 percent in June from May, and 1.2 percent higher than a year earlier.
Thursday and Friday this week will be the most important for news from the Euro-zone.

Other Currencies – Highlights

The Bank of Japan has announced the decision to keep interest rates on hold today and have not announced any new steps to control the currency.
The Chinese economy is also under scrutiny after it was revealed that the trade surplus rose to an eighteen month high in July to 170 percent from one year earlier. Exports have continued to rise and imports slowed – this will add pressure on the Chinese Government to take further action to allow the currency to appreciate and contribute more to global growth. The US in particular is likely to focus on how to negotiate the unfair advantage of Chinese exports over other economies.

Nigel Hodges www.currencysolutions.co.uk

For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000 or click here to submit an enquiry.

For up to the minute currency news, please subscribe to our rss feed.

Our currency converter provides live exchange rates and free SMS rate alerts on more than 1,770 currency pairs.

The rates quoted above are interbank rates. Client rates may vary according to the volume and timing of the trade.

Yet more volatility has ensued since our last weekly blog. The Pound has reached its highest rate against the Euro since 2008 and on Thursday bought further data to add to the current melting pot of instability as both the Bank of England and European Central Bank released data and held press conferences.

For those clients buying property in Europe and doing a GBP / EURO exchange, the rates are still very favorable with the rate being 1.2030 at 4pm last Friday. No one can be sure how long this will last or how long it may be before the Pound also weakens. Nick Clegg, the UK Deputy Prime Minister is due to speak in Madrid today about the effect that the Euro-crisis may have on the economy and is expected to label this as the biggest threat to UK recovery.

Risk of recovery therefore is high on the UK agenda. Recovery is still weak, despite the enormous monetary stimulus of the "quantitative easing" program. Yesterday the Bank of England announced that interest rates have been kept again at 0.5% for the fifteenth month in a row being maintained at the same rate since March 2009. Inflation is also not looking good as it has accelerated to reach twice the Central Bank’s target rate.

It’s not all bad news however as the housing market in particular is picking up. Housing data released last week revealed that prices are now within 10% of their 2007 peak. The strong talking we have been hearing from our new Prime Minister on budget cuts although austere is likely to boost the confidence of investors and suggest that the UK and the Pound are being decisively led.

It is also important to remember that other nations around the world are at varying stages of recovery and the UK is not alone. The new Japanese Prime Minister has said that Japan’s ‘public finances have become the worst of any developed country’ and that a restructure is desperately needed to prevent the scale of their debt causing a Greek style crisis. On the other side of the coin, nations such as New Zealand are raising their interest rates since the onset of the crisis in 2008 indicating recovery.

Unfortunately, the only certainty at the moment is uncertainty. The currency markets are seeing unprecedented amounts of volatility. If you need a foreign transfer for your property deal, make sure that you speak with us at Currency Solutions and manage your risk and maximize your profit effectively. This may include fixing a rate for the future, moving part of the total amount now and waiting to see how the markets pan out or setting automatic target rates and buying levels.

Nigel Hodges www.currencysolutions.com

Last week saw the phrase ‘double dip recession’ begin to make its way into economic reporting on a serious level. Whether there will be a second wave of a more severe global recession has been a hotly contested topic.

At the heart of the trouble lies Europe. There has been great volatility in the Euro rate and it dropped to its lowest against Sterling in over eleven months last week. Whilst there has been some identifiable positive market shifts in response to moves taken by the Eurozone to steer up confidence these have crucially been short lived. The effect of the original announcement of the near 1 Trillion Dollar rescue package for example only really benefited the Euro for one day. The conclusion on the part of investors seems to be that the problems are deep set and structural – however much money is pledged to help failing nations is insufficient without greater structural reform.

There was more bad news for Europe last week, as Spain and Italy became further embroiled in the crisis that began with Greece. Both nations approved their own intensive budget cuts - the Italian Cabinet for example approved 24 billion Euros of cuts to bring Italy’s deficit within the EU limit of 3% by 2012. Spanish stocks tumbled as it was also revealed that the Bank of Spain acted to give its first Government bailout (550 million Euros) to one regional lender Cajasur.

The crisis and its effects are far from limited to the Eurozone. In the UK, the new Chancellor has outlined initial plans to make 6 billion Pounds worth of budget cuts as the deficit desperately needs reducing and the scale of debt in the UK is staring to be directly compared to Euro nations.

The weakness in the Euro has caused the Dollar to rise and rise. It has been reported that multi-national companies on the scale of McDonalds and Coca Cola are Dollar’s could be facing negatively affected earnings as a large proportion of their income is generated outside the US and denominated in currencies that have all fallen against the Dollar.

The story however is not one sided. Rather than the crisis kick starting a second recession dip, the OECD’s chief economist has forecast that the weakening Euro will actually help European exports and with time this will lead to recovery. The luxury goods label Burberry is an example of one company who have reported increased profits on the back of the crisis.

There are also worldwide discussions taking place regarding banking regulations and whether these should be tightened. Whilst the Chairman of the US Federal Reserve has stated that banks must be kept independent of political meddling, the situation in Europe is likely to lead to upfront levys on banks to help support struggling nations. More banking regulation may also help to prevent the second recession dip.

For currency trades, the market is still exceptionally volatile. This is a great time for GBP/EURO and USD/EURO transfers. Speak to your Currency Solutions broker to make sure you catch the rate as it spikes – or can minimise your losses if you are selling Euros.

Nigel Hodges www.currencysolutions.co.uk

Seismic shifts have taken place since our last blog – transforming the political landscape of the UK, not just with the creation of a new Government but also with the dawn of a new form of coalition politics.

The Pound has been through a befittingly up and down week. There was an unexpected Sterling surge right up to voting time which faded away with the uncertainty in the results, spurred on by Mr Brown’s prolonged stay in Number 10 Downing Street. Although opinion polls began to suggest a hung Parliament fairly early on, the show of unity between Cameron and Clegg in sealing the pact of the coalition deal has been remarkable. Perhaps Cameron understood that investors and markets needed to see strong decision making (indicating a Government able to assertively pass measures to reduce the budget deficit). The Cabinet was chosen on Cameron’s first day in office and, although there have been some rumblings amongst backbenchers, there have been no major public dilemmas so far.

Since the coalition deal was put in place, the Pound has been more affected by the usual releases of data and like nearly all world currencies at present : the ever deteriorating situation in Europe. There have been three particularly poor UK figures for the new Government to deal with; unemployment figures, inflation figures and the trade deficit. Inflation came in at over 1 percentage point above the Bank of England’s target. The trade deficit refers to the fact that the value of March’s imports exceeded exports by £3.7 billion (up from £2.2 billion in February). This did not match up with the expectation that the decline in the Pound would drive up UK exports and consequently, after the data was released, the Pound fell by nearly two cents against the Dollar.

In terms of the ongoing forecast with the new coalition Government, investors are likely to be keeping a keen eye on how well spending cuts are being implemented to reduce the deficit. The reaction to the upcoming emergency budget will be crucial. Hype that Labour have left the nation’s finances in a deprived state is unlikely to implore the greatest confidence, although the most important issue is likely to be that the coalition Government does not begin to part at the seams.

In truth, any electoral impact has been overshadowed by what is happening in Europe which has kept the Euro at its weakest levels against the Dollar in four years and  looks set to continue. Significant steps have been taken by the Euro-zone to try and protect the Euro. First, Euro-zone nations pledged a near $1 Trillion deal to prevent other nations finding themselves in the same situation as Greece but this only gave any real support to the Euro for a day. On Tuesday night, traders were alarmed by a sudden ban on naked short selling and naked credit swaps by Germany’s financial regulator. The decision bans speculators from bets against European Government bonds and banks – in essence preventing them from both exacerbating and profiting from the debt crisis. However, this is a cause for concern to investors who may not be able to hedge their European holdings or sell assets as the region’s debt crisis worsens and has in fact caused the Euro to plummet.

German Chancellor Angela Merkel has spoken-out about the deep Euro crisis, stating that it is the greatest crisis for Europe in decades and the Euro itself is in danger- requiring the drastic steps which are being taken to address exceptional volatility.

The US Dollar is the one currency sitting strong and mighty as it benefits from all this uncertainty. If you have US Dollars to sell or Euros to buy, the rates are in your favour; if your transfers are occurring the other way round, there is still a need to contact your broker. Now is the time to maximise profits or minimise losses depending on the currency transfer you require.

Nigel Hodges www.currencysolutions.com

As Greece erupts with protesters storming the Acropolis and the Parthenon, the stage is set for the economic tragedy to spread. Greece is sitting at the epicentre of a storm of increasing debt woes spiralling across Europe.

On the morning of writing this week’s blog, the Euro has stooped to a one year low against the US Dollar and a nine month low against Sterling. This is great news for those buying Euros who can currently achieve the best rates of exchange seen for months. If you are a Euro-buyer it makes sense to consider fixing the rate which can be discussed with your broker.

However, the Euro’s fall is also symptomatic of increased fears that other nations may follow in Greece’s wake.

To start with Greece - worldwide traders and investors do not have faith that the 110-billion Euro rescue package from the EU and IMF which was formalised over the weekend will actually save the nation. The problem is that in order to secure the loan, Greece have been tied to agreeing to a range of severely unpopular budget cuts and tax rises. Protesters have taken to the streets with both public and private sector strikes taking place. Schools, hospitals and airports are paralysed. This does not bode well for any kind of clear-cut implementation of the rescue package.

Like all tragedies, the doom is escalating with a force of its own. Economic experts are predicting that more debt crisis management will be required across the Euro-zone. On Tuesday, Spanish Prime Minister Luis Rodriguez Zapatero stepped into the spotlight to fervently deny rumours that Spain will be the next to seek financial rescue, as ‘complete insanity’. However, Spain and Portugal had their debt rating downgraded last week by Standard and Poor’s. This had an immediate affect as investors offloaded Spanish stocks and bonds and today Moody’s placed Portugal’s sovereign debt on review for a possible downgrade. Investors are suggesting that Ireland and Italy could be the next in line.

Are the UK and the Pound safe? Last week it was revealed that the total UK Government borrowing for the last financial year was £163.4 billion. Whilst Sterling is benefiting from the current weakness in the Euro, our general election is set against the backdrop of an economic meltdown in Europe. This must act as something of a distant warning - protecting the UK’s AAA credit rating will be an absolute priority for the new Government. As the credit rating is dependent on the perceived ability of the Government to enforce its deficit reduction plans, who the Government will be and with what level of parliamentary majority (if any) could be very significant; there lies an unpredictable week ahead.

Nigel Hodges www.currencysolutions.com

Economic growth in the UK and Government borrowing have been hot topics since our last weekly blog as an unusually hefty amount of data was dished out for dissection.

Although there is no avoiding that the current two main staples of any currency connoisseurs diet, Greece and the UK election, have been once again casting their influence, last week was also remarkable for the unprecedented amount of UK key data and statistics released. But how much effect did these have?

There were three particularly bad data releases that stood out for the UK economy. We learnt that Government borrowing came in at a total of £163.4 billion for the last financial year, which is the largest of any UK Government in peacetime. Secondly, GDP rose at only 0.2% in the first quarter rather than the anticipated 0.4% (although it is important to say this could be revised up). Lastly, unemployment is at a sixteen year high of 2.5 million. The overall conclusion gleaned from this has been that the UK economy has grown only half as much as expected by economists in the first quarter.

Seem like depressing reading? This poor set of data should in theory be bad news for the Pound. The expectation is that such statistics undermine investor confidence. However, Sterling has been doing quite well so far in spite of these poor figures against certain other currencies, in fact reaching relatively high levels against the Euro with many clients choosing to fix the rate as it peaked.

The reason is that weakness in the Pound has in fact been masked in the exchange rate by the even greater weakness in The Euro, which is still being haunted by the spiralling effect of Greece’s debt crisis and the more recent down grading of Spain’s credit rating. There is an imminent danger that other EU countries  may experience a similar fate which would have serious consequences for the Euro. If this is the case and the Euro continues to get even weaker, there is a chance that this will have a knock-on effect on the US Dollar; money may well flow away from the single European currency and into the Dollar as investors seek a safe-haven currency as an alternative. In turn therefore, Sterling’s current vulnerability may very well reveal itself in its rate against the Dollar, if not against the Euro.

So currently Sterling’s should-be weakness is being disguised somewhat by larger events in the worldwide currency markets. However, the new UK figures may rear their ugly head back into the limelight as they happen to have landed in time for the third and final televised electoral debate on the all-encompassing topic of ‘The Economy’ where they will no doubt be dissected. Sterling is far from safe yet.

Nigel Hodges www.currencysolutions.com

Volcanic ash-clouds, alleged banking corruption and a live political battle; the past seven days have been an all too perfect example of world events manipulating currency markets.

As day upon ash-sodden day the European airline crisis has deepened; a further cloud was cast over global economies by the Goldman Sachs investigation. The Pound’s own weakness has been somewhat masked by the fact that fears surrounding the Greek rescue plan have continued to simmer, keeping the Euro in a similarly weakened state.

In the UK however, there is nowhere to escape the e-word. Last Thursday’s ninety-minute televised debate has been monumental in affecting opinion polls and certainly the focus of media hype. The instant surge in the polls for the Liberal Democrats has opened things up as three-horse race and Nick Clegg’s popularity has apparently reached dizzy heights. Most importantly for the currency markets however, this gives ever-more indications of a hung parliament come May 6^th.

A hung parliament is not likely to bode at all well for Sterling. The big issue concerning the city is that without clear leadership and a plan to reduce the countries budget deficit, Britain’s AAA credit rating might be put at risk. Concerns over a hung parliament are already affecting Sterling investors – the pound fell by one percent in the two days following the debate last week.

A lot of our clients here at Currency Solutions are therefore asking their dealer the golden question: what will happen to Sterling after the election? Do I buy now or do I buy later? A hung parliament would certainly not be good for Sterling but of course there are three weeks before voting day and no-one really knows what the election outcome will be. The only certain answer to this question then is that Sterling is likely to continue to experience great volatility in the run-up and after-math of the election. The exchange rates are expected to chop and change as frequently as the polls, and for that reason one of the safest bets, as in all times of volatility, is to fix an exchange rate now for use over the coming months, and wait and see what state Sterling is in after the storm has passed.

Tomorrow is a very important day for Sterling. There is a host of key economic data and news being released, including the total borrowed by the Government in the last financial year. This happens also of course to tie in with round two of the electoral debate. Will it be Sterling that takes the biggest beating?

Nigel Hodges http://www.currencysolutions.co.uk

Rather than meditating on the past weeks theatrics on the forex stage, it seems far more worthwhile to focus on the Euro-Zone in this week’s chapter of our currency exchange diary. An unexpected and sizeable aid package arrived on Greece’s front door and, although it hasn’t yet been signed for, the European currency is already benefiting from investors’ relief.

So here are the gritty details:

Over the weekend, bespectacled Finnish Eurogroup Junker and European Commissioner Olli Rehn presented the media with details of the financial backstop facility for Greece.

As anticipated, the rescue plan will come in the form of bilateral loans from the Euro area member states, in what promises to be an effective economical makeover for the Greek nation. Amounts will be tailored to fit Greece's funding needs over the next three years and The European Commission will act as a conduit and deal with the bilateral negotiations, while the European Central Bank will be the paying agent supplying the dough.

A larger-than-expected 30 billion euros will be the maximum amount of pocket money provided by the Euro area for the first year and each country will contribute according to the ECB capital key. Amounts for later years are yet to be evaluated, but it is reported that there is no upper limit to the commitment. Additional financing from the International Monetary Fund is expected to be formalised today, although Rehn confirmed that analysts’ assumption of a ‘two thirds’ contribution from the Euro area against ‘one third’ for the IMF is a good guess.

If and when Greece requests a loan, the European Commission and ECB will cast their beady eyes over the situation, make an assessment and submit it to the hopefully unanimous approval of the Euro area countries. It was specified in the press conference that cash would be promptly laid out, which conflicts with the fact that other countries need such decisions to be ratified by their parliament. This raises a few questions over the idea of ‘imminent disbursements’.

Developments in the next few days and the ability of Greece to access the market will determine if help is needed sooner than expected.

The next date to watch following this gripping omnibus is the update of the Stability and Growth Plan next month. As there have been no additions to conditionality we can only assume that EU leaders feel Greece have made positive steps towards dealing with their problems.

Of course, this has been a blinding green light for Euro investors in the currency exchange world, easing concerns about the inability of the EU to solve Greece's financing needs. However, it sets a hazardous precedent as the Euro area can ill-afford another similar situation. Pressure on other periphery countries to strengthen financially and for the ECB to maintain a sturdy policy will have increased and the intricacy of this deal and the IMF's participation will keep investors in heavy debate. While it’s clear that Europe want to help Greece, it’s possible that the forex market will only respond solidly when aid is actually disbursed to the country.

In the meantime, keep an eye on any news relating to the situation and for the best currency exchange rates visit www.currencysolutions.com

 Have a great week

Nigel Hodges www.currencysolutions.co.uk

Alistair Darling quite literally upset the apple cart last week by raising taxes for cider drinkers, sending droves of anxious park-loitering teenagers into a confused frenzy. He also decided to show mercy on first time homeowners whilst Londoners with property worth anything upward of a million were squeezed ruthlessly.

So another anticlimactic budget passed by as political foreplay got in the way of what would otherwise have been an event of equal predictability, just far less tiresome. Whilst on the topic of fatigue, the Euro has been on the wrong end of the treadmill for far too long now, so EU leaders have decided to give it a breather by agreeing on an aid program for Greece in conjunction with the International Monetary Fund. The bailout itself could include about £19.8bn, with two-thirds from Euro-Zone countries and a third from the IMF.

The situation is hard to gauge at the moment, Greece have managed to sell bonds to Germany today in an attempt to raise funds and some experts seem to think the ‘non-bailout’ bailout won't solve much in the long term unless the core issues are addressed. However, the agreement lifted the single currency out of its 10 month rut of weeping behind closed curtains, eating chocolate-chip ice cream and watching reruns of old detective dramas. The EUR strengthened to USD1.3399 from 1.3273, reaching a high of 1.3418 in last Thursday’s trading after a dismal start to the week due to the uncertainty of the Greece saga.

Back to the UK, where concerns have festered in the run up to the impending election. There is still a strong belief that it will all end with a hung parliament which, for the youngsters amongst us, means a stalemate - not a medieval-style group execution – though some may argue the latter might be a good way to teach MP’s a thing or two about fiddling expenses. The pound was also driven lower amid speculation Dubai World will prolong the repayment of its loans, hurting earnings at UK banks that serviced the state-owned Emirati company. This week Sterling has benefited from revised UK growth data but further political indecision could weigh it down.

In the past fortnight several indicators pointed towards an economic recovery in the US, which allowed a bullish dollar to push against the majors. However, later in the week Ben Bernanke gave his opinion on the situation, saying he believes that the US's fledgling economic recovery is “not quite ready to take flight” cradling the nation’s eagle in his arms lovingly - but minding his fingers.

Have a great week.

Nigel Hodges www.currencysolutions.co.uk

This week presents the 2010 budget with our enchanting host, Mr. Alistair Maclean Darling… but could this be his last? Aside from having a renowned brand of toothpaste for a middle name, there are many reasons why the Chancellor of the Exchequer will be losing sleep at the moment, what with the uncertainty surrounding the upcoming election.

So what will this all mean for Sterling this week? Some say Darling will sing a ballad sweet enough to rouse the pound into a gentle boogie. It goes a little something like this: Reducing estimates for the UK’s borrowing requirement and upgrading growth estimates on the back of last quarter’s GDP figures (insert predicted estimate for this quarter’s number here).

Although there is a fair degree of uncertainty surrounding the budget, pleasant sounds would provide support for Sterling in the short term. However, it won’t change the fact that the nations political contest is a little harder to predict than the anticipated ‘barbecue’ summer which is set to keep the UK warm for all of three days before it returns to standard grey drizzle.

Now for the Euro, and Greece, and a squabbling group of EU leaders that simply refuse to make a decision on the issue. Chancellor Angela Merkel says that EU leaders shouldn’t be getting Greece’s hopes up with talk of aid, Trichet is slamming his fist on a desk of fine mahogany demanding stringent terms whilst delightfully mustached Greek PM George Papandreou said he’ll turn to the International Monetary Fund for aid if they won’t help him. So it’s another tough week for the single currency in the world of currency exchange, with a fair amount of data releases providing other possibilities of things that can go wrong for the Euro-Zone.

The dollar is looking sharp this week, ruthlessly claiming the spoils of a beleaguered Euro whilst keeping a watchful vulture eye on the Pound. However, it wasn’t all plain sailing for the greenback last week, after the US Federal Reserve held its pledge to keep interest rates low for an extended period, prompting investors to snap up growth-sensitive assets.

Forget President Obama and his health plan, this week it’s all about Ben Bernanke who will be appearing on Thursday, live, in person to thrill traders with anticipation as to whether or not he’ll discuss potential interest rate changes. All will be advised to watch this space.

Have a great week.

Nigel Hodges

Euro-traders will undoubtedly be well and truly fed up with the ongoing shenanigans in Greece. Yes, the nation has a wealth of fascinating historical curiosities and feta cheese tastes lovely in a Chickpea Bourekia – but the whole fiscal collapse just isn’t sitting right with anyone.

Today, fantastically-named German Finance Minister Wolfgang Schaeuble and his French counterpart Christine Lagarde threw cold water on speculation that there will be a decision on aid for Greece at a two-day meeting in Brussels.

Last Monday Nicolas Sarkozy said that he agreed the Euro-Zone should help Greece out. This got the single currency off to an optimistic start to the week whilst the pound also faired well against a subdued dollar. Then UK house prices turned up uninvited with no booze or biscuits and spoiled everyone’s fun.

Worse than expected data sent sterling below the USD1.50 mark but by Friday it managed to move over USD1.52 following news that an opinion poll indicated an outright Conservative majority. Needless to say, if the pound could vote, it would be opting for Tory.

However, the weekend’s polls are once again pointing towards a hung parliament which is not good at all for UK currency. To add to sterling’s woes, Moody’s ratings agency confirmed that the UK’s fiscal position has been subject to “extreme deterioration” - all very scary stuff for sterling supporters.

As for the dollar, the start of the week saw some strength on the back of solid employment figures from the previous Friday. Then things went a bit quiet with not a lot of news emanating from across the pond.

On Thursday traders were treated to a veritable symphony of critical economic indicators including such classics as the US Trade Balance Report and the weekly unemployment claims. Disappointingly though, the day produced a mixed bag for the dollar, leaving it trading lower against majors on the Friday.

This week it will be wise to keep an eye on political polls, chatter and Gordon Brown’s every move as indicators as to which way the election will sway will be critical to sterling’s progress.

Have a great week.

Nigel Hodges

www.currencysolutions.co.uk

Phrases such as ‘better the devil you know’ and ‘the lesser of two evils’ may have been scribbled in the tattered moleskin diaries of a few sterling traders last week. Keeping that theme in mind, an eternity in flames may have provided a more favorable option to those expected to vote this summer, as the British public seem well and truly stumped, which could result in a hung Parliament – which doesn’t bode well for sterling.

However, some believe a weak pound isn’t necessarily a bad thing for the economic recovery, despite a gaping black hole of debt and fiscal infection so shameful, you’d stay at home with the doors locked and the curtains shut tight just to hide it.

Last week saw the pound making depressing nosedives in form due to an unhealthy diet of economic data. Weak weekend polls and another unwholesome helping of the same on Tuesday morning left the pound sluggish as a result of political uncertainty. However, a refreshing dose of PMI data reversed these losses to keep sterling steady before an unchanged decision on interest rates and QE gave rise to a whole lot of nothing on Thursday. It’s advisable to keep a close eye on the political pendulum as the election approaches, as it will have a significant say as to how far sterling will go against other majors in the coming months.

The suspect scent of schadenfreude could be detected outside German Chancellor Angela Merkel's office at the weekend, as the European juggernaut suggested that Greece could perhaps part with a few islands to curb their debts and maybe stick the Acropolis on EBay just for good measure. German newspaper Bild echoed the Chancellor’s discreet intimations with the headline “Sell your islands, you bankrupt Greeks! And sell the Acropolis too!" Comments from French President Sarkozy were a little gentler "If Greece needs help, we will be there" he said reassuringly, whether or not this will be with a wad of cash or a blueprint for an incursion of Crete was unclear though.

Chatter about a Greek support plan kept the euro steady last Monday but it slid on Tuesday as Greece began to outline further spending cuts. By Friday, the ECB decision to keep interest rates at their record lows spun the single currency back into downward descent. However it isn’t looking quite as bad as it was, the markets are breathing easier over the Greek fiasco with new austerity measures viewed favorably. Whether or not a support package will turn out to be a Trojan horse remains to be seen – more on this next week.

Which leaves us with a little room for the dollar, which had a slightly bearish week, ending well with solid Non-Farm Payrolls data. With the Trade Balance and Retails Sales due along with weekly Unemployment Claims and Consumer Sentiment reports, maybe this week’s news from the US will warrant a little more space on our market-shifting update – fingers crossed.

Have a great week

Mutually detrimental – that’s one way to describe the rocky relationship between politics and economics in the UK as the promise of a stalemate in the coming election looms like a threatening rain cloud over the nation’s fiscal picnic spread.

There will be no extra-time, no penalty shootouts and no debatable referee decisions, however there may be a few grown adults crying because a hung parliament means there will be bad times ahead for the pound.

In fact, the nation’s fiscal complexion is so repulsively hideous not even the politicians can bear to stare it in the face. So for a realistic appraisal of what’s going on (at least in the forex market) you’ll always have this blog to depend on.

Last week wasn’t a good one for UK currency, with trends looking bearish from the off. In fact, it wasn’t much better for other majors either, with the euro still banging its head against the wall over Greece’s problems and the US dollar down due to its stagnant jobs market.

On Tuesday gilt figures rose and BoE Governor Mervyn King said the UK's recovery was fragile and risks to the MPC's central view of a gradual recovery remained to the downside. So the pound slid once again.

The euro, however, was a little steadier on the tightrope after a newspaper reported Dubai provided more funds to Dubai World, easing concern that European banks will incur losses on loans to the Gulf emirate.

As to the dollar, restrained consumer spending and home sales in the US underscored Federal Reserve Chairman Ben Bernanke’s comments on Wednesday that the economic recovery is “nascent” and would still require interest rates near zero, keeping the greenback on a low.

By Friday we were all a bit tired of hearing how bad things were for the pound. Although UK GDP figures came in above expectation for the 4th Qtr at 0.3% growth (against 0.2% forecast), sterling continued to slide.

Currently there’s plenty happening that doesn’t work to the pound’s advantage. As well as political and fiscal fretting, the potential purchase of AIG from Prudential is causing large negative M&A flows out of sterling and into the dollar. Today UK currency is ominously fragile and it would certainly be wise to keep an eye on its movements for anyone looking to profit at sterling’s expense.

Feel free to give us a call on +44 (0)207 740 0000 for some sound forex advice or a great bank-beating rate. For more information, visit www.currencysolutions.com.

Lets hope for a more optimistic week!

Nigel Hodges

You don’t see much of sterling in the headlines these days. Maybe it’s the lack of outrageous award-ceremony outfits, or perhaps it’s just a bit run down and worn out by all the fiscal misery and bad weather of late.

This was certainly the case last week and it was only the plight of the euro that kept sterling steady on Monday morning, as it waited with baited breath for BoE Governor Mervyn King’s two pennies-worth in Wednesday’s minutes. Whilst a rise in unemployment benefit claims kept sentiment shaky towards the pound, Wednesday’s policy meeting showed a unanimous vote to pause quantitative easing, which kept sterling firm against the euro on Thursday. Friday however, was a day for the dollar.

The greenback took a bank holiday on the Monday, having ended the previous week looking fairly bullish against the majors. Further tightening of Chinese monetary policy was expected to slow the global recovery which led investors towards the safe-haven US currency. As Euro-Zone concerns waned, the dollar slumped slightly on Tuesday but picked up midweek in anticipation of PPI figures, unemployment claims and the Philadelphia Fed Manufacturing Index.

The Federal Reserve then went and surprised everybody, including themselves, by raising a key interest rate which sent the dollar surging against the pound on Friday - which slumped to a nine month low against the greenback. The Federal Reserve statement said it would increase the discount rate it charges banks from 0.50% to 0.75%. This was a signal for further tightening and that the Fed Funds rate may well be next.

So last, and probably least as well, the euro continues to thrash around violently in its sleep, troubled by nightmare’s about Greece, wondering whether or not the EU will sort it all out. Concerns lightened after reports out of Brussels suggested that European finance ministers may start playing hard-ball with Greece, possibly by stripping them of their EU voting powers and sending them to bed with a firm scolding and no supper. Greek unions called off a strike of tax collectors, farmers removed their barricades and a fearful silence filled the air. European finance ministers have given Greece a one-month reprieve (until March 16th) to show its deficit reduction plan was being rolled out effectively.

The week ahead could be an interesting one, with some key data due for the UK including house prices, industrial orders and consumer confidence. If you’d like some valuable tips on what to do with your currency, then just give us a call on +44 (0)207 740 0000 for a free quote and a chance to chat to one of our dedicated currency experts. For more information, visit www.currencysolutions.com.

Have a great week.

Nigel Hodges

It’s all getting a bit fraught in the eurozone at the moment, after a fruitless EU gathering last week failed to produce any concrete solution to the problems in Greece.

Maybe they were too busy catching up on old times, watching the new series of 24 or even enjoying a light-hearted game of Scrabble. Either way, Wednesday’s coming together didn’t do a great deal to alleviate investors’ fears and the euro ended Friday’s session on a downer having bobbled hopefully throughout the week.

German politicians from the Free Democratic Party made their feelings known about a possible bailout for Greece, saying it would be akin to “helping an alcoholic with another bottle of schnapps.” The questions remains; if Greece get a drink on the house, then surely the likes of Portugal, Ireland, Italy and Spain should expect to be in on the round as well. As it stands, the uncertainty could see the euro slipping further this week with seemingly not a lot of good news on the horizon.

Meanwhile in the States, the dollar looked a little more self-assured, optimistic and alarmingly cheerful/manically apprehensive after positive US unemployment data provided a boost. It proved to be a positive week for the greenback, as many traders opted for the safe-haven currency due to the trials and tribulations of the euro and the fact that sterling still carries a fair amount of unwanted baggage – fiscal, political and a list of other ‘cals’ that’ll probably exceed our word limit.

However, it wasn’t all doom and gloom for the pound - focus moved away from a murky BoE report and shifted back to euro weakness, which propped up sterling to finish Friday in good shape.

As for the week ahead, Monday sees the US taking a holiday (President’s day) whilst February house prices promise to get sterling’s feet moving. Wednesday brings us the BoE meeting and anything euro related will be closely watched due to the recent low-budget and badly-subtitled Greek soap opera.

If you prefer pleasure to pain and simplicity to strain then it’s worth giving us a call to find out how much you can save on your currency exchange transactions this week. Just call +44 (0)207 740 0000 for a free quote, or visit www.currencysolutions.com.

Have a great week.

Nigel.

As the snow begins to fall here on the Thames you’d be forgiven for believing that the UK is caught up in a whirlwind of unnecessarily spiteful weather out of which we may never emerge.

It felt a little something like that in the Euro-Zone last week, as the deficit flies buzzed around the problematic countries that are currently giving the euro plenty of grief. Interestingly enough,  the troublemakers have been dubbed the ‘PIGS’ (Portugal, Italy, Greece and Spain) as it is these nations that are expected to continue kicking dirt in the direction of the euro which this week could be to the detriment of the pound due to risk-aversion.

Last week sterling wallowed in its own pity as a second wave of post-holiday blues crept in. Investors weren’t buying the pound on Monday; instead they turned extra speculative and began a patient wait for the BoE decision to come out later in the week.

Meanwhile the dollar and the euro made some ground against the pound, the former still beaming after the previous Friday’s unexpectedly strong US growth and the latter was lucky to get anywhere at all with the weight of Greece and Portugal’s fiscal problems on its back.

A report on Tuesday showed that manufacturing activity came in at a 15-month high, which gave sterling a brief boost. In Australia, news bulletins reported that the Reserve Bank of Australia decided to keep interest rates steady at 3.75%, while it was highly forecasted that the bank will raise borrowing costs by 25 basis points to 4.00%. However, many failed to register this information, instead transfixed by the web-surfing habits of a particularly unfortunate banker who was fired as a result of his antics.

Of course, here at Currency Solutions we always have our eyes on the ball, and on Wednesday the pound made a short-lived recovery before once again slipping after a weaker-than-expected reading of the UK services sector. Meanwhile the dollar fell against the euro and The European Commission put their heads together to try and resolve the Greek issue.

Thursday provided us with the long-awaited BoE decision, which was to pause stimulus. This didn’t do a great deal for the pound adding to concerns about sterling and the UK's fiscal position.

The dollar hit a seven-month high against a host of currencies on Friday, as rising investor risk aversion on fiscal problems in some Euro-Zone countries made the safe-haven currency a far more attractive prospect for traders .

The week ahead seems like it will be fairly quiet in terms of data releases, if you see a rate you like and want to keep it that way for a future transaction, give us a call now on +44 (0)207 740 0000 for a free quote or visit www.currencysolutions.com

Have a great week.

Nigel.

Lukewarm would be the word to describe the happenings of the last seven days as the UK floundered in the aftermath of underwhelming anti-climax, and no, we’re not just talking about Andy Murray.

Finally Britain dragged it’s heaving, half rotten carcass from the pits of recession, but seemed to slump to a halt in the doorway. This all occurred as data revealed that Gross domestic product expanded by 0.1% between October and December, which was well below analysts' forecasts of 0.4%. So, as leftover fireworks from New Years Eve headed for the skies only to make a tepid detonation, it seems we made it, but only just. 

So, what did this mean for the pound? Disappointing data saw sterling take a nosedive on Tuesday afternoon. David Tinsley, UK economist at National Australia Bank said that "It's not impossible to imagine the first quarter returning to negative growth on the basis of today’s data”, which, along with a mound of political uncertainty, doesn’t bode well for the pound.

The euro currently has a couple of weak links, namely Greece and Portugal, whose economic issues continue to hamper the single currencies progress. The euro did however touch a session high on Tuesday whilst the dollar and yen rose broadly as investors cut exposure to riskier assets. This all followed China’s implementation of a planned increase in required reserves for banks.

On to Wednesday, and sterling crept up against a broadly weaker euro to recover from the previous day’s fall which was due to weak GDP data. The dollar wasn’t looking too shabby either, as it rose slightly against major rivals ahead of the US Federal Reserve's first policy meeting of the year.

It seemed investors felt risky one day and timid the next, as sentiment rose and fell throughout the week. Andrew Sentance gave sterling some firm support later on Wednesday, when he said that it may be difficult to keep inflation on target if import and services prices keep rising. The focus on inflation strengthened the view that the BoE may opt to pause asset purchasing under its quantitative easing programme this week, we’ll just have to wait and see.

So by Thursday the dollar was strong after hitting a 6-month high against a lowly euro, deflated by the prickly situation in Portugal. These concerns carried on through to Friday as sterling rode its luck against the euro. The dollar ended the week well after the US Labor Department reported that the number of initial jobless claims had reduced.

Looking ahead, this week’s big BoE event will keep cautious investors from taking any major risks. If you’re sensing now is the right time to make a currency transfer and you want to do it at the best rate possible, get in touch on +44 (0)207 740 0000 for a free quote or visit www.currencysolutions.com

Enjoy your week.

You have to keep your eye on the ball in this market and that’s exactly what we’ve been doing here at Currency Solutions of late, as the pound jumped, the dollar ducked and the euro had a bit of a sulk having been let down by Greece, whose FTD (fat terrifying debts) could prove to be contagious and extremely unattractive to punters on the FX dance floor.  

In case you didn’t feel the banks were getting a strong enough kick up the backside, US institutions took one this week after US President Barack Obama decided they’ve been getting too big for their boots of late - undoubtedly very expensive, bonus-funded boots at that. 

"Never again will the American taxpayer be held hostage by banks that are too big to fail” cried the US President, after which the dollar drooped shamefully to end a tepid week of losses against the pound.  

A healthy breakfast of strong UK housing data saw sterling bright and breezy on Monday morning, whilst the sorry state of the euro suggested it can only have had time to grab a less-than-generous helping of stale muesli. This made the dollar appear a lot healthier than it actually was whilst the yen carried as much optimistic morning oomph as one of those impressive yet irritating morning joggers. 

Tuesday delivered the horrifying news that a much-loved British treasure was to be swallowed up by a large American buyer. Goodbye Cadburys, hello Kraft… well known in the UK for their processed, plastic, orange cheese - which is sure to ease the fears of any anxious dairy milk enthusiasts. The outcome? Sterling saw major gains as the euro dropped to a four month low and the dollar followed suit allowing the pound to hit a one month cable high, every cloud… 

The pound’s progress against the euro continued on Wednesday, following chatter that the central bank's quantitative easing would pause next month. Consumer inflation from Tuesday fuelled the fire and excitement filled the air: Then BoE Governor Mervyn King poured water all over the UK inflation spike in his first major speech of the year, possibly branding himself as something of a killjoy... 

Then we hit Thursday, which saw the pound’s fortunes reverse as those pesky investors decided to stay coy before the release of UK public finances data later that day. They may have also remembered the small matter of the countries dismal economic circumstances as well as the financial implications of the impending scapegoat selection process we call a general election.  

So the week left us with mixed signals as to what lies ahead for the majors, as the pound’s gains were capped and the euro and dollar looking fairly unpredictable. If you are hoping to surf the markets like a true pro this week, do get in touch with us for any advice, information or just a very good rate, by calling +44 (0)207 740 0000 or visiting www.currencysolutions.com  

Have a great week.

As the country thaws out and normal service resumes after another snow-shaken week, it’s time to start thinking about how the market will be shaping up as we trudge towards the end of January 2010.

Last Monday saw the pound climb against the dollar and the euro, however gains were capped as investors remained wary of the UK's mounting debt and political uncertainty. The dollar was certainly on the backfoot as the market responded to disappointing US non-farm payroll data released the previous Friday.

In addition to the market data the continued speculation surrounding Cadbury and the possibility of improved offers lent sterling some support. French Industrial Output came in stronger than expected which gave the euro a lift against the dollar.

Tuesday saw further selling of the greenback as the pound moved into pole position following a round of good data. The British Chambers of Commerce’s economic survey for the fourth quarter of 2009 noted that there had been improvements in many areas of the British economy, particularly in manufacturing.

Retail sales figures for December were also uplifting, but it should be noted that there may have been a fair amount of front-loading prior to the VAT increase and January’s figures are liable to drop. Another poll from the Royal Institution of Chartered Surveyors reveals that UK house price growth slowed in December, marking the first fall since February’s low point.

The pound made significant gains against the dollar on Wednesday following comments from a BoE policy maker whilst the dollar itself struggled against sterling. Things weren’t looking so good for the euro, dragged down by Greece’s not so healthy fiscal complexion, an issue that continues to hamper the progress of the European currency this week.

Elsewhere, risk appetite took quite a flogging after China’s decision to increase their required reserve ratio (RRR) for its commercial banks by 0.50%, thus obliging financial institutions to hold onto more of their deposits as reserves.

By Thursday the Aussie was up and the US dollar still skulked quietly as sterling recorded a one-month high against the greenback. The euro also traded higher against the dollar after hitting a high last reached back in December.

The market mover on Friday was a rumour that circulated the Far East indicating that the German Chancellor, Angela Merkel, was ready to resign her position. The rumour was swiftly denied by a German Government spokesperson but the damage proved irreparable as the Euro sank quickly.

Onto the week ahead and the pound is looking feisty against a weakened dollar, if you want to find out the best way to get more for your sterling feel free to get in touch with myself and my colleagues at www.currencysolutions.com for a free currency quote or alternatively, give us a call on 0207 740 0000.

Have a great week.

Nigel.

Political drama and a fair amount of snow have made for a chaotic week and the market has been just as animated with the pound anxiously stuttering as a result of the Governments latest bout of turbulence.

The US dollar started brightly on Monday, recording early gains against the pound and the euro, but then later dipped as sterling pulled back. By Tuesday, the pound was still under pressure as jitters surrounding the UK economy reverberated through the market. This allowed the euro to hit a high against sterling, which then settled having risen 0.3%.

Rumors of large-scale repatriation by Japanese exporters pushed the yen higher against US currency, this weighed on the greenback as it struggled against the majors later on Tuesday. The following day wasn’t much brighter for the dollar and the yen, as negative data saw investors turning away from riskier assets.

The pound was dealt a swift blow on Thursday as Prime Minister Gordon Brown fought off an attempt within his party to unseat him. It wasn’t just the Prime Minister who was feeling the heat, as political uncertainty pushed sterling down to one-week lows against the dollar and the euro. However, these worries did ease and the next day the pound made a swift recovery, gaining 0.5% against the dollar.

Meanwhile the euro slipped whilst the dollar also failed to live up to expectations of further rallying at the start of the year as investors awaited US non-farm payroll data.

The Australian dollar went on to touch 1.73 against the pound, the strongest in 25 years, and traded up 0.5% at 1.73 as retail sales climbed 1.4% from October. Since the dollar’s aggressive December rally came to a halt, its progress has been limited and that continued to be the case.

So there’s much to ponder for the week ahead, with UK retail sales output data due later this week and the pound under pressure due to worries about the country’s economy.

For any further advice on foreign exchange, or for an instant quote on bank-beating rates, call +44 (0)207 740 0000 or visit www.currencysolutions.com

2010 is underway and with that comes a fresh new year for the currency markets. Obviously there hasn’t been a great deal to report after the Christmas break but early movements are starting to paint a picture for what we can expect over the next week.

As is always the way with year-end trades, orders are so thin that they can easily cause a large movement in the market. Sterling held it’s own against the dollar from last Tuesday onwards and was up 3% against a soft dollar. However, the pound didn’t fare as well against the euro which was up 5% to trade at 90.29 pence, a month high.

Wednesday saw ongoing debt concerns strike an already thin market and this resulted in the pound hitting a two and a half month low against the dollar. Currency strategists saw any positive sentiment for UK currency immediately washed out by negative factors and the general consensus is that it’s been a challenging year for sterling, despite it’s appreciation against the euro in 2009, which took advantage of the pound’s weakness to touch a one month high at 90.43 pence.

Political risk is likely to be a focus this year ahead of the UK general election, with investors concerned about the chances of a hung parliament which could make it difficult for the government to take steps to alleviate UK debts.

However, some believe there’s every chance that sterling is being undervalued, which could bode well for 2010. The UK economy is expected to return to growth in the fourth quarter of 2009 after contracting in the third, but the proof will most certainly be in the pudding.

So onto the dollar, which has experienced something of a revival towards the end of 2009 after making gains against the euro and the pound. There’s a belief amongst speculators that the greenback could make considerable gains this year, as US investors reduce the share of foreign assets in their portfolio. A December rally saw other currencies struggling against the greenback although it took a slip today as an advance in global stocks and crude oil revived demand for higher-yielding assets.

So 2010 looks to be an interesting one, with economic recovery on the tip of our tongues and a fresh decade ahead.

Before going headlong into a tumultuous week of stress, spending and of course, seasonal cheer, we can look back on a week that’s been kind to the dollar and just a bit vicious to the euro.

Monday saw the Government of Dubai authorising the use of USD4.1 billion to settle the maturing Sukuk (Islamic financial certificate) that was causing concern in the market. Abu Dhabi stepped up to show that you can always count on your neighbours, and pledged immediate financial support for both Dubai and Dubai World to the tune of USD10 billion. This helped the euro out a bit, and the single currency climbed to USD1.467, allowing sterling to make a slight gain on the dollar as well.

However, the dollar rose back with a vengeance on Tuesday, hitting a two month high against the euro and slapping the pound into submission. Sterling wasn’t helped by outlook for the UK’s fiscal health and looming budget deficit – which will be reluctantly adopted by the next government, whoever that might be. 

By midweek the euro was still struggling and the downgrade of Greece and jitters in Austria only made matters worse. The dollar continued its mighty surge, kicking dust in the face of a downbeat sterling amid signs of economic recovery in the US, too soon?

Sterling did jump a little as UK unemployment data confirmed that the number of people claiming benefits unexpectedly dropped by 6,300 in November.

The dollar had gained even further by Thursday on the back of the Federal Reserve keeping their interest rates on hold. This suggests there may not be a rate hike until late next year, even early 2011. UK retail sales didn’t do much for sterling and the euro was still suffering after S&P joined Fitch Ratings in downgrading Greece which, with the widest budget deficit in the European Union, has a lot to tackle in the near future.

Both the pound and the euro made something of a recovery by the end of the week as the dollar slowed to a more manageable pace. Markets were cautious prior to the release of data showing a further deterioration in UK public finances which begs the question; where will the bad news end?

We’re set to head into a holiday-shortened week with not a great deal to offer apart from Tuesdays GDP data and Wednesday’s minutes to the Bank of England's December policy meeting. On that note, Merry Christmas and a Happy New Year to all on behalf of the Currency Solutions team.

The festive period is well and truly upon us and with that comes staff increases for the holiday season, which was a contributing factor to the better than expected US payrolls reading the week before last. This gave the dollar room to fight back from recent slips and the greenback hit a five-week high against a basket of currencies on Monday morning.

The euro also picked itself up from lows touched the previous Friday and pre-budget nerves saw sterling fall overnight and come in looking a bit under the weather on Tuesday. The pound’s slip commenced in Asian trading and was instigated by a market order to sell sterling and buy euro. The Dubai crisis reared its ugly head again to contribute to the pound’s decline as stocks fell and worries mounted on Dubai World’s debt restructuring.

US Fed chairman Ben Bernanke poured cold water on the positive non-farm payroll report by pointing out that the job market was “weak” and more sustained evidence would be needed to assure a self-sustaining recovery.

Rolling along to Wednesday and all eyes were on Alistair Darling’s pre-budget report. The looming election and unhealthy state of the UK economy were on politicians’ and economists’ minds and Darling was forced to admit that the recession was deeper than he forecast back in April.

In came a one-time 50% tax on bank bonuses that exceed £25,000 which will expire on April 5th, which will no doubt result in a shed load of bonus payments being made on April 6th. The report also included an increase in National Insurance and a public sector freeze on pay limited to 1%, leaving the ability to halve the deficit within 4 years looking very doubtful.
 
The Fitch downgrade of Greece had everyone flustered and sent a clear message to those with thoughts of spending our way out of recession that debt cannot be escaped. The euro dropped sharply against the dollar as a result and concerns as to whether Eastern Europe could suffer the same fate will not help matters for the single currency.

The biggest gainer in the currency markets midweek was actually the Kiwi dollar as the RBNZ released a hawkish statement to raise the prospect of a rate increase earlier than expected.

Thursday saw the pound recover slightly as the dust settled following the pre-budget report as investors bought the pound back at cheaper levels. The euro was undercut by concerns about sovereign debt in the region after Greece’s credit rating was downgraded. The Aussie reached highs due to positive employment data and the Kiwi was also up after the Reserve Bank of New Zealand said it may begin removing policy stimulus by the middle of 2010.

Which brings us to a cold and frosty Friday morning in which sterling made gains against the euro and yen, but fell against a stronger dollar. A major ratings agency said Britain's top-notch sovereign rating was under no immediate threat, but this failed to alleviate concerns about UK fiscal health.

So this week should prove to be an interesting one as the Dubai plot thickens and speculation on whether we’ll have a white Christmas intensifies. Until next week, wrap up warm.

Nigel Hodges (Currency Solutions).

There were perplexed and apprehensive glances exchanged early last Monday as no one was entirely sure what depth of impact the situation in Dubai would have on the exchange markets.

Both Abu Dhabi and the UAE Central Bank quickly came forward to assure markets of their support for the besieged Emirates State to soften the blow, yet repercussions for ‘fairy godmother’ Western lenders are expected to come around.
 
Other weekend news took a back seat but was largely centered on Japan, where intervention chatter continued to reverberate around the markets and officials maintained their stance on the current volatility in foreign exchange rates.

The Dubai rumpus continued to dominate headlines on Tuesday  although the market contained the news with a steady rally in US and Asian stocks. The Reserve Bank of Australia raised their official rate by 25 basis points to 3 3/4% completing a hat-trick of interest rate rises. However, the Aussie remained subdued with both the decision and the comments that followed widely anticipated.

The strength of Eastern European currencies saw myself and my colleagues at Currency Solutions taking a lot of calls from clients looking to bring back funds from Poland. The euro itself gained across the markets and it has been heavily bought into as an alternative reserve currency over the greenback by Asian central banks and Russia.

The dollars wasn’t up to much on Wednesday having had a good run the previous day, which was largely due to the Dubai fear factor. Restored comfort saw the euro push through the 1.51 level against the dollar, sterling also gained back to the 1.66 level.

It was business as usual in the markets on Thursday as the search for yield gathered impetus. The Japanese Yen wore the loser’s hat, surpassing the US dollar as the currency of choice to sell. The recent stimulus from Japan and verbal attempts to weaken the currency saw the yen finally feeling the pressure.
 
The pound softened a little after UK PMI services data came in weaker than expected at 56.60 down from 56.90 in October and later in the day the ECB announced that they would take small steps to cut liquidity.

Jean-Claude Trichet announced that they will terminate the one year tender in December and that the final tender will be offered at an average policy rate. They also announced that the 6 month tender will end on March 31, gesturing towards a cut in the stimulus program.
 
As Friday rolled in, the dollar lost ground against the Aussie and the Kiwi but gained against the pound and the euro in later trading.

The market awaited payroll and unemployment data from the US which came in a lot more positive than was previously thought, boosting optimism about a recovery in the US and prompted speculation that the Federal Reserve will exit its ultra-loose monetary policy earlier than previously thought.

You said Dubai, our survey said: Correct. Trouble in the UAE towards the end of last week sent a few shockwaves across the currency landscape but Monday painted a different picture.  

The pound was smiling against a subdued dollar early on in the week as a revival in moderate risk sentiment put sterling up 0.7% versus the greenback. The euro was also up 0.1% after figures revealed that the purchasing managers' manufacturing index rose to its highest level in October since March 2008.  

It was all about the US markets on Tuesday as consumer confidence and GDP figures came rolling in. The dollar pushed higher as stocks sold off in Asia on Japanese share sales and even the Canadian dollar had a go, jumping to its highest level in two weeks against US currency as gold and equity markets rose. 

On Wednesday, economists across the UK sang out a chorus of ‘we told you so’ as revised data showed that the British economy shrank by 0.3% in the third quarter compared with the initial estimate of a 0.4% contraction. However, sterling’s blushes were spared as all eyes were on the dollar which took its lowest tumble in over a year.

Minutes from Tuesday’s Federal Reserve’s policy meeting had described the dollar’s decline as ‘orderly’. Needless to say, this was a green light for traders to ditch the greenback, which gave the pound some consolation on a difficult day.  

Then came D-day Thursday in the UAE, which saw sterling fall against both the dollar and the euro. So what was all the fuss about? British banks' exposure to debt problems in Dubai as well as concern over UK economic health was the diagnosis and this continues to affect the pounds performance despite the UEA central bank pledging their support. Dubai moved on Wednesday to restructure its biggest corporate debtor, Dubai World, and delayed repaying some of the company's 59 billion dollars worth of liabilities. 

Things were a little more cheerful in Japan, where the yen soared to a 14-year high against the dollar despite direct government warnings of intervention against ‘abnormal’ currency moves. Further instability loomed as liquidity thinned out ahead of the US Thanksgiving holiday and the euro traded down as much as 0.2% against the US Dollar, the result of a volatile overnight session. 

By Friday, the US dollar and Japanese Yen looked set to extend their gains as European and US equity index futures traded deeply in negative territory. This pointed to continued risk aversion through the end of an already tremulous trading week as a potential default in Dubai inevitably gave investors a scare. With the UAE central bank scrambling to alleviate fears, next week may well bring some clarity to the saga.

This week Sir Alan Sugar has a new apprentice and a new role, appointed by Gordon Brown - who only narrowly avoided being fired himself - as the UK's new "enterprise tsar". The UK has triumphed over the euro, and not just Andorra either, with the pound surging to its best exchange rate in 2009 against the single currency. And while currency rates have climbed, so too have the value of Ronaldo and Kaka, with the two footballers reportedly signing to Real Madrid for GBP80 million and GBP59 million respectively this week.

This week has been one of tempered optimism for international currency markets. Sterling reached its best currency exchange rate for 2009 against the euro, following a seven-month high against the US dollar recently. Internationally, markets have been awash with speculation that the Federal Reserve may raise interest rates in late 2009, although the USD has also been burdened by the weight of expectations and as a result, has suffered some downward pressure. The major winners of the week have been the higher yielding currencies, particularly the Australian dollar and pound, which seem to have cemented themselves as the currencies of choice when risk appetite is strong.

In the UK, disastrous results for the Labour party in the European elections drove sterling downwards as it appeared a leadership crisis was imminent for Labour. The pound plunged below 1.6 against the US dollar and 1.14 against the euro as a result of the political turmoil. After a crisis meeting, news that Gordon Brown had secured party support, for the time being at least, allowed sterling volatility to settle and industrial production figures triggered a bullish run for the pound later in the week.

UK industrial production rose in April, for the first time in over a year, adding to the view that recession is abating in the UK. With a rise also reported in manufacturing production, these figures drove sterling to its best currency exchange rate against the euro this year. The pound touched on 1.1722 before falling back to 1.1714 and rose to over 1.64 against the US dollar. The NISER is currently putting the UK economy on track for a return to growth in the second quarter of 2009, which would make the UK one of the first to exit the recession. While these figures are far from conclusive, they have boosted sterling exchange rates internationally and renewed optimism that Bank of England policies: devaluation of the pound, low interest rates and quantitative easing, have been effective in stimulating the UK economy.

The US dollar has suffered a rougher ride this week. Plagued by rumour and speculation, US dollar exchange rates have been subject to downward pressure over uncertainty surrounding the state of the US economy. Early in the week, speculation that the Federal Reserve would increase interest rates by the end of 2009 triggered a demand for riskier assets, boosting the pound, euro and Australasian dollar currencies. The announcement from treasury secretary Geithner that ten major US banks would repay government funds, lent to them in the height of the financial crisis, added to the opinion of growing stability in the US financial sector.

However, news that the US trade balance had fallen to USD -29.2 billion and Russia's central bank was considering transferring its dollar reserves into IMF issued bonds, capped the rise in risk appetite as it renewed fears the worst may not be over for the US economy. Although the fact that retail sales figures for May rose by 0.5% while jobless claims for June declined less than expected, have reignited risk appetite moving forward.

The week has been rather unremarkable for the euro exchange rate, which has suffered at the expense of increased optimism surrounding the UK economy. French industrial production contracted by a greater degree than expected, shrinking 1.4% in May. German industrial production was also lower than expected, in contrast to results for the UK and this added to the market view that the eurozone could take some time to emerge from recession. Also this week, the Standard and Poor's downgraded Ireland's credit rating to AA and the Swiss unemployment rate rose to 3.5%, both of which had a negative effect on euro exchange rates.

Around the world, from the US to New Zealand, property markets beginning to stabilise and this could help pave the way for economic recovery. This week the Kiwi dollar has gained the most in two weeks, following the RBNZ decision to keep interest rates on hold at 2.5%. The Australian dollar has also benefited from fewer than expected job losses and news that China is to increase spending on roading and infrastructure which would fuel demand for Australia's commodities.

So at present, while some economists are suggesting sterling is overbought and this is just one of many false dawns for the pound, this doesn't change the fact that recent days have brought the best sterling-euro exchange rate we have seen all year. This is also hot on the heels of the seven-month high the pound reached against the US dollar. As economies begin to haul themselves out of recession, these spikes may occur more frequently and be accompanied by an underlying bullish trend for many of the higher yielding currencies. Watch for gains in the Aussie, Canadian, New Zealand dollars and of course the pound, with the return of market optimism.

If you need to transfer currency, particularly pounds into euros, now is a better time than most. For the rest of your international currency transfer, remember to get your self registered with Currency Solutions and your personal currency broker will ensure you gain the best exchange rate within your time frame for currency transfer. Alternatively, set one of our stop loss or limit orders and trade automatically when the rate spikes in your favour.

Have a good weekend!

By Nigel Hodges of Currency Solutions

As the UK moves into the first days of summer, this week has been one of extremities. While temperatures soared across Britain, so too did the pound against the US dollar, touching on a seven-month high against the greenback.

As signs of global recovery are beginning to show, this week a growing divide has become evident between international economies. As one economist put it "there is some distinction between the walking wounded and those in greater disrepair". Economic sentiment is greatly affecting currency exchange rates at present and the fact that the Australian and Canadian economies are viewed in the former category has led them to an eight-month high against the US dollar this week.

Sterling exchange rates have also reached a seven-month high against the US dollar as confidence in global recovery becomes more entrenched. As more positive economic data emerges, there has been a diversification from risk trades which has benefitted the higher yielding currencies.

In the UK, PMIs for manufacturing and the service sector have improved significantly which has been positive for sterling exchange rates. House prices have risen 2.6% on the month and new mortgage approvals are also up, paving the way for recovery in the property sector. UK consumers reported their greatest level of optimism in six months and the pound touched on 1.16 against the euro, a level also not witnessed this year.

The picture has been somewhat different in the US. After the announcement of GMs "surgical" bankruptcy early in the week, economic data has conspired to keep dollar trends bearish. Mid-week, US housing data was better than expected and this boosted international currency exchange rates, although Thursday's negative employment data heightened investor nervousness in the run up to the official unemployment rate released on Friday. The minutes of the FOMC meeting had little effect on foreign exchange markets as interest rates remained unchanged in April.

News has been relatively quiet in the eurozone this week, allowing the euro to plow ahead bullishly against the USD and JPY. The euro reached a seven-month high against the dollar following news that the Australian economy grew in the first quarter of 2009 and the single currency has retained support above 1.42 against the US dollar.

The euro-sterling exchange rate is relatively unchanged from the 0.87 level with the pound having gained an edge on the euro due to the market perception that the UK economy is well positioned for recovery. Both the Bank of England and MPC opted to leave interest rates unchanged at 0.5% and 1% respectively and European retail sales rose for the first time seven months.

In eastern Europe, the Polish zloty has slumped 25% against the euro since July and the credit rating for Polish debt is currently regarded as less safe than the Czech Republic and Slovakia.

The Australian economy has surprised economists by reporting 0.4% growth in the first quarter, defying the recession that has dragged down the US, European and Japanese economies. Australian equities and currency exchange rates rose across the board with the Australian dollar reaching USD0.82, the highest level in eight months.

While the pound has reached highs not seen for some time against the US dollar and euro, there is a perception in the market that sterling is overbought and a natural correction may occur.

Still, that does not detract from the fact that for anyone selling sterling, this week was the best time in the last seven months to do so. That is, it was until cabinet resignations took their toll on the pound today and sent it rapidly down against the euro and dollar.

This volatility is a reminder of the importance of timing when it comes to currency transfer. As we see more evidence of global recovery, we may see the higher yielding currencies push higher trading ranges against the safe havens. If you have currency to trade, get yourself registered so you don't miss out.

Have a good weekend!

By Nigel Hodges of Currency Solutions

With Barcelona the new European champions, Santander taking over the high street and the euro still strong against the pound, Brits might have every reason to feel a bit miffed. But with the global recession losing momentum, a glimpse of green shoots in the property market and spring in the air, it's hard to be negative this week, as even Sterling found when it rose to a seven-month high against the US dollar.

The positive momentum has flowed into equity markets and currency exchange rates this week. After a long, dark winter of discontent, signs that recession may be easing have improved investor sentiment around the world. The benefits of this have been evident in euro and sterling exchange rates, as both currencies surged against the US dollar this week.

Perhaps the next batch of economic worries will come from government budget deficits as credit ratings have already been making waves, but for this week, with a lack of negative data to blight the picture the pound has remained strong against its international currency partners.

In the UK, the conspicuous lack of data this week may be responsible for the bullish run of the pound. After a bank holiday on Monday, markets opened on a weak note as North Korean missile tests triggered safe haven buying. US consumer confidence was the piece of data which turned things around.

Posting the best results since November, improved confidence in the world's largest economy created a wave of optimism internationally which saw the pound shoot through 1.60 to a seven-month high against the dollar. The pound has since retired to the more familiar 1.58 level but we could see sterling break out of recent ranges as confidence continues to improve.

In the US data has also been relatively thin on the ground. US markets began the week with a public holiday too and thin trading led the euro to gain on its major currency partners. As the week wore on it became apparent that the major concern of investors stateside is government debt and more importantly, how to finance it.

While budget deficits have ramifications throughout the entire financial spectrum, in terms of currency exchange rates the major legacy of this uncertainty is unease. And as we know, unease leads to safe haven buying and dumping risky assets.

Perhaps the factor that has prevented a wholesale return to risk aversion is the growing consensus that the pace of recession is easing. As investor sentiment has improved, this is encouraging a wider distribution of funds and a breakdown of the bad news = safe haven buying relationship. While not to say this relationship is forgotten, it does show the prospect of global recovery has enough momentum to endure intermittent bouts of negative data.

Eurozone economic news has been dominated by General Motors this week. On the verge of bankruptcy, the European division of GM is desperately seeking a buyer. Failure to secure one would put thousands of jobs in Germany and the UK at risk.

The German government is heavily involved in negotiations and has pledged billions of euros in finance to the potential buyer. Unemployment in Germany has risen to 8.2% and the euro touched on 1.40 against the US dollar, before sliding back to 1.38 this morning.

In eastern Europe, risk appetite remains crucial to currency exchange rates. The Lithuanian economy shrunk 13.4% in the first quarter and Hungary may need to take out another IMF loan later in the year. Polish zloty weakened to its lowest level in more than a week against the euro and the Polish Central Bank opted to keep interest rates unchanged in May. Watch for waves of global optimism which often boost eastern European exchange rates.

In New Zealand we witnessed a clever bit of pre-emption this week from finance minister Bill English who deferred tax cuts on the basis of government budget deficits. This was met with approval by the Standard & Poor's which improved New Zealand's credit rating and the NZD strengthened to USD0.61. The kiwi has risen 23% in the last three months against the dollar.

It is likely that government deficits will come under increasing focus in future as they affect the rate of recovery for individual economies. The property market also remains integral to wider economic recovery and economists predict that although we may see a return to growth by the end of 2009 for the US and UK, recovery in property and employment sectors could take significantly longer.

In terms of currency exchange rates, the pound and euro have been testing the top end of ranges recently, as are many of the higher yielding currencies: the CAD, AUD and NZD in particular.

This trend could be set to continue as confidence grows and it could well be worth placing automatic orders in case currency rates spike overnight. Those who had placed automatic orders for the pound-US dollar will be laughing now after the pound reached that seven-month high. Get registered with Currency Solutions and your broker can arrange one for you.

Have a good weekend!

By Nigel Hodges of Currency Solutions

Currency exchange rates and MPs learnt a similar lesson this week: there is no such thing as a free lunch.

While MPs were forced to repent the cost of new bathrooms, gardens and moats, the pound was forced to give up its gains after the S&P downgraded the UK's credit rating on the basis of exorbitant government debt.

Throughout the week, currency exchange rates climbed amidst improved market confidence. The US dollar and yen declined as economic data showed the pace of recession easing in the UK, eurozone and US. Minutes from the FOMC and MPC meetings supported the view that there is now greater stability in the banking sector and international investors looked to diversify their funds rather than shadow appetite for risk.

In the UK, retail spending improved in April and inflation is running at its lowest level since 1948. The government considered selling Lloyds and RBS shares while the IMF praised the UK's decisive action in combating the economic crisis. Sterling climbed to a six-month high against the dollar, on track for its largest monthly gain since 1993, and reached a three-month high against the euro.

On Thursday however, Standard & Poor's announced that they are downgrading the UK credit rating from "stable" to "negative". The FTSE tumbled and the pound shed three cents against the dollar in ten minutes. Sterling has since recovered those gains but the incident proves the importance of market volatility and information when it comes to currency transfer.

The US dollar has weakened on the back of improved international confidence. As stability is beginning to emerge and the pace of recession is easing, investors are looking to diversify and this is leading to a flow of funds away from the US dollar and yen. It is also responsible for the boost in euro, pound, Australian and Canadian exchange rates.

Minutes from the FOMC meeting added to dollar weakness, as signals that the Fed may expand its QE program threaten to undermine the dollar's status as a reserve. The fact that this failed to cause a surge in risk appetite suggests that the idea of stability seems to be gaining traction and signals that investors are looking beyond just risk appetite when considering where to keep their currency.

The euro has also gained ground as recession appears to be easing in the eurozone. Export levels were up by 1.6% in February and imports increased by 0.4%. While these represent a significant contraction from last year, they also show the pace of recession is easing and this boosted demand for the euro. PMIs for both manufacturing and services also revealed better than expected results for May and the euro climbed to 1.38 on the dollar.

In Eastern Europe, Hungary announced its commitment to slashing government debt and Moody's downgraded its view of the Czech banking sector to "negative". The Polish zloty has recovered ground on the euro as market confidence grows.

In India the election of Manmohan Singh's Congress Party caused such a jump in the rupee that it forced the Bombay Stock Exchange to close for a day. Election of the Congress Party is expected to provide a mandate for the economic reforms that have driven Indian growth rates in recent years.

Events in foreign exchange markets this week have shown although support for the higher yielding currencies is growing, we are still not immune to exchange rate volatility.

After surging to a 6-month high against the US dollar and 3-month high against the euro, the pound shed three cents in 10 minutes proving that timing is everything when it comes to currency transfer. If you know your currency requirements in advance, a personal currency broker can provide you with the right information to help you make the most of your currency transfer.

Have a good weekend!

Nigel Hodges of Currency Solutions

Much like Jenson Button's return from racing purgatory this month, financial markets have recovered their bullish momentum. Yet unlike Button, who will hopefully maintain his momentum in Formula 1, the level of unknowns in the global economy have forced investors to limit their exposure to risk, dragging down currency exchange rates in the process.

Early this week financial markets from Tokyo to Sydney continued to gain ground on the back of improved prospects for global recovery. Despite US unemployment hitting a 26-year high, overall sentiment was positive as it appeared that the worst of the recession was over. Currency exchange rates were boosted and the pound and euro touched on new highs against the dollar. Later in the week however, with the emergence of data that likely represents the trough of the downturn, the gain in equities stalled as investors began to think twice before taking on more risk.

In the UK, the Bank of England's quarterly inflation report has dominated headlines this week. The report included growth and inflation predictions, as well as hints regarding monetary policy in coming months and had an impact on the underlying trend in sterling. The Bank predicted growth would bottom out this quarter at -4.5% and inflation would be still be running under 2% until 2011. Governor King also noted that economic recovery is likely to be a gradual process with the Bank utilising the full extent of the quantitative easing programme.

In the UK labour market, unemployment has risen to 2.2 million and British Telecom announced plans to cut 10% of its workforce. This amounts to 15,000 jobs and comes on the back of a GBP1.28 billion profit loss in the last three months.

The sterling-dollar exchange rate began the week by surging to a four-month high of 1.56. This strength was derived from the view that the pace of recession was easing and the euro, Australian, Canadian and New Zealand dollars also advanced on the greenback. Midweek, uncertainty over the Bank's inflation report began to weigh on the pound and at present the trend in sterling remains neutral.

In the US, markets began the week in positive mode as figures showed the economy shed less jobs in April than in any month since October. This sent the dollar to a four-month low against the pound and seven-week low against the euro.

However as a number of unknowns remain in the global financial system, investor confidence waned as the week went on. Major General Motors shareholders dumped shares prompting speculation that bankruptcy was imminent for the company and Ben Bernanke urged US banks to raise capital independently.

Later in the week, news that US retail sales slumped -0.4% in April raised further uncertainty. This took markets by surprise after two consecutive months of gains and risk appetite took a hit, sending the dollar and yen higher against the perceived "riskier" currencies.

The euro also gained ground earlier in the week, climbing to 1.37 on the US dollar as improved confidence increased demand for the single currency. Later in the week calls for "stress testing" of European banks and weaker than expected EMU industrial production figures saw the euro slide against the dollar and pound. Overall though, currency exchange rates remain relatively unchanged and the euro is retaining support above 1.36 on the dollar and 0.89 on the pound.

In eastern Europe, zloty has continued to weaken against the euro throughout the week, currently trading at 4.49. Retail sales in China climbed by 14% in April from the previous year and this helped strengthen global equities. India, China and Brazil are expected to be a major drivers of global recovery.

At present risk appetite and risk aversion continue to be the major influences on currency exchange rates. Recession has skewed the normal business cycle making predictions difficult, hence the continual revision of growth forecasts from governments and economists alike. Following the recent 8 week gain in equities, the bullish momentum has been waning as investors become wary of taking on more risk.

If you need to transfer currency in future, get yourself registered with Currency Solutions and we can watch the markets on your behalf and ensure you get the best deal when it comes to currency transfer.

Cycling for Charity

And finally, if you want to do something positive with your currency, two of our directors, Hakan and Tien are about to embark on a 7 day cycle from Bayonne to La Rochelle in France. All funds are donated to Islamic Relief, an international relief and development charity that aims to alleviate suffering among the world's poorest people.

To donate to this worthy cause, please visit http://www.justgiving.com/hakanenver

Have a good weekend!

Ah, Easter. We're not going to try and kid anyone; as far as we're concerned, Easter is a chance for a long weekend spent stuffing our faces with chocolate.

Were we of a more religious bent, we'd be focussing on the weekend as a time for resurrection and rebirth.

But, frankly, that would seem almost inappropriate, since there's little sign of any resurrection in the US economy. In fact, notes from the last meeting of US Federal Reserve policy makers show just how downbeat they had become on the state of the US economy. It was this pessimism that led them to agree to spend more than $1 trillion to revive its fortunes. The minutes also revealed that the US economy had deteriorated more than policymakers had expected since the turn of the year.

However, despite the depth of the recession, the committee said that it expected recovery to begin in 2009.

Which is all very well, but there are no signs of a recovery just yet. According to figures from the Department of Labor, the number of people employed in the US fell by 663,000 in March. The jobless rate rose to 8.5% from February's figure of 8.1%, meaning it is still at its highest since 1983. It means that since the recession began in December 2007, 5.1 million jobs have been lost, 3.3 million of them in the past five months.

Things are bleaker still in the eurozone. Data from European Union statistics agency Eurostat has shown that eurozone industrial producer prices posted their biggest drop in annual terms for almost 10 years in February. The report heaps pressure on the European Central Bank to lower interest rates further in the months ahead, with factory gate prices dropping 0.5% on the month, leaving them 1.8% weaker than in February last year. The drop is the seventh consecutive monthly decline in prices.

Italian industrial production, adjusted seasonally and for the number of working days, has fallen 3.5% in February from the month earlier - a greater amount than expected - as investment goods slid, Istat said today. On the year, February's industrial production plummeted 20.7%, more than expected and compared with a downwardly revised 17.6% drop in January. The annual decline in February was the steepest since the index began in 1990.

The Netherlands' annual inflation rate was flat on the month at 2% in March, according to the Dutch Central Bureau for Statistics. A rise in the price of clothing was balanced by falls in the prices of fresh vegetables, diesel and energy. According to the European Harmonised Index of Consumer Prices, or HICP, Dutch inflation came in at 1.8% in March, the bureau said, compared with a eurozone average of 0.6%.

But it's Ireland and Spain that are battling to claim the unwanted prize of ropiest economy at the moment. The Irish Republic has unveiled its second budget in six months to deal with its rapidly contracting economy. The emergency budget includes a large rise in taxes and a cut in spending, to deal with Ireland's budget deficit. Finance Minister Brian Lenihan also said an independent agency would take over banks' bad assets to try and restore lending. His forecast for 2009 was also revised down sharply. He expects it to contract by 8% this year, down from 3% in 2008. Dublin is being forced to deal with a deepening recession while being forced to correct the worst deficit in Europe.

Meanwhile, The Bank of Spain has predicted that the country's rate of unemployment will reach 17.1% in 2009 and 19.4% in 2010. Spain currently has the highest unemployment rate in the European Union, with a rate of 15.5% in February, nearly double the EU average.

Back in the UK, the Bank of England has kept interest rates at their historical low of 0.5%. The news came as little surprise; the BoE having cut rates six times since October last year, when they stood at 5%.

The UK global goods deficit narrowed sharply and by more than expected to GBP7.3 billion in February, as exports to countries outside the European Union rose rapidly, the Office for National Statistics has said. Analysts had predicted a deficit of GBP7.6 billion. Exports to non-EU countries rose by 13% in the month, with economists pointing to a weaker pound as the reason for the increase in exports.

According to the Office for National Statistics, UK factory gate prices posted their weakest annual increase since 2007 in March following a record drop in petroleum product prices. Output producer prices increased 0.1% on the month and 2.0% on the year, the weakest rise in annual terms since July 2007. Economists were expecting output prices to increase 0.1% on the month and 2.1% on the year.

The pound has inched up against its major counterparts this week and is currently trading at an interbank rate of between 1.0906-1.1106 against the euro, 1.4641-1.4841 against the US dollar (a two-month high) and 146.84-146.86 against the Japanese yen.

The best news, however, comes from the Czech Republic, where the koruna has risen to a 2-week high against the US dollar after a report showed that the Czech trade surplus increased more than expected in February.

Whether it's a weekend of religious significance for you or just a chance to kick back for four days with a belly full of chocolate, have a great time!

An inspiring beginning to the week as Slumdog cleaned up at the Oscars and Gail Trimble took out the University Challenge opposition. Somewhat less inspiring for markets however as we have seen a number of new themes emerge.

Risk aversion is still top of the international agenda, albeit in a somewhat different way. The generally muted tone has settled back over equity markets following a mid-week rally triggered by comments from Ben Bernanke, Chairman of the Federal Reserve. The prospect of further nationalisation of major US banks has preoccupied markets and confidence remains the crucial force driving investor sentiment.

To quickly recap, the week began in a downbeat way after Christopher Dodd, Chairman of the Senate Banking Committee, announced that the government may increase its stake in Citigroup and Bank of America, taking the beleaguered banks a step closer to nationalisation.

This triggered a wave of risk aversion which sent Wall Street to multi-year lows and the Pound and Euro to the bottom of their ranges. As speculation of nationalisation grew, the Dow Jones fell to its lowest level in 12 years, Citigroup shed 20% of its share level while Bank of America lost 50%.

On Wednesday, Ben Bernanke made a speech noting that nationalisation was not imminent and that the government would be acting as supervisors rather than shareholders in the major banks. This led Wall Street to rise 3% and currencies rallied, boosted by the redistribution of funds as investors recovered some of their appetite for risk.

In the UK, the Pound's fortunes have been largely linked the rise and fall of investor confidence. Midweek the Pound rose to 1.46 versus the US Dollar, yet the release of GDP figures showing an unrevised -1.5% contraction in the fourth quarter of 2008 and a £24 billion write down from RBS sent Sterling back to 1.41 on the Dollar and 1.11 against the Euro.

The Euro continues to be plagued by macro-economic factors which are threatening the concept of a single currency. ECB President Trichet noted the difficulties facing the Euro and highlighted the diverse range of policy responses the global recession requires.

The EMU current account deficit is currently at €7.3 billion, reflecting declining import demand in the Eurozone.

Results of the German IFO survey showed business confidence plunged to a record low in February. As a survey of over 7,000 businesses in the Eurozone's largest economy, the IFO is seen as a crucial indicator of Eurozone economic sentiment and this too weighed on the Euro.

Elsewhere, mining giant Anglo American cut a further 9,000 jobs on top of the 10,000 cut last month. Reduced commodity demand is impacting on the activity and this is affecting the South African and Australian economies.

The Philadelphia Fed showed manufacturing levels have reached 19 year lows in the US and Canadian inflation fell 0.4% in January, the same as the previous month.

Within Eastern Europe, Poland is expected to be the tiger of the region, with growth of 1.3% predicted this year despite the recession. Contractions of up to -3.5% are expected in Hungary.

Financial analysts Nomura expect Zloty to continue to trade in the vicinity of 4.7-4.75 versus the Euro in the first and second quarters of 2009, before rebounding to the 4.55 level in the second half of the year.

A significant new theme has also emerged this week; Yen weakness. While traditionally regarded as a safe haven, rapid deterioration in the Japanese economy has rattled investor confidence in the currency. Japanese exports plunged 45.7% in January as a result of reduced demand from Japan's major trading partners.

Currently at their lowest level in 10 years, this decline was fuelled by a 53% drop in exports to the US, 47% to the Eurozone and similar steep declines to China and other Asian economies.

Worldwide, currency markets continue to shadow US equities, which remain the primary determinant of market sentiment.

President Obama addressed the nation this week, outlining an ambitious government plan which includes both stimulating and greening US industry, cutting taxes and halving the US budget deficit within the next five years.

Combined with Bernanke's comments this sent a wave of confidence to investors yet this confidence is countered by the fact that any upturn in UK or European growth is likely to lag behind the US by 1-2 quarters.

While economists initially predicted a 'V' shape recession, the decline may be longer than initially thought. More solid trends may be visible with the publication of first quarter statistics. So, although it feels like I have been saying the same thing for weeks now, the situation remains unchanged. Uncertainty abounds and while this is the case, information and keeping a line open to your dealer is your best bet.

Have a good weekend!

Sitting here amongst the London drizzle I cannot help but spare a thought for Allen Stanford the Texan tycoon who is probably hiding on a tropical island somewhere. Stanford, you may recall once put up $20 million for a Twenty20 cricket match and has recently been accused of an $8 billion fraud by the US Securities and Exchange Commission. Perhaps more criminal is the moustache he's sporting but that is by the by... if England had got as many runs on the Antiguan pitch as Stanford had on his Antiguan bank, English cricket would be much better for all involved.

This week the sense of global unease has continued. Equity markets are still the barometer for currency exchange rates and the prevailing economic sentiment has been negative. G7 leaders and the US Government have both failed to provide an immediate blueprint for recovery, despite passing multi-billion dollar rescue packages and risk aversion continues to dominate the headlines.

In the UK, minutes from the February MPC meeting revealed an 8-1 vote in favour of a 0.5% reduction in the base rate and a unanimous vote in favour of quantitative easing. This is where the Bank is set to buy gilts and securities in an attempt to increase the supply of money and alleviate toxic debt in the UK economy. Sterling fell to a two week low against the US Dollar following the news but has rallied against the Euro amid concerns over the economic situation in Eastern Europe.

News has been distinctly negative in the Eurozone this week as we learned that the export-led German economy shrunk by 2.1% in the final quarter of 2008. This was accompanied by over 1% contractions in France and Italy which dragged Eurozone GDP down by 1.5% in the first quarter of 2009. Combined with a 3.8% contraction in the US and a 3.3% contraction in Japan in the final quarter of 2008, this news led to downward pressure on the Euro and a loss of risk appetite throughout the week. Oil also declined to $41 a barrel on the back of this news.

However the major source of pressure for the Euro this week has been reports of economic deterioration in Eastern Europe. This sparked investor fears over the exposure of Western European banks to bad debts and has undermined Euro sentiment all week. Hungarian, Polish and Czech government debt has been downgraded by investors and Zloty fell to a five year low against the Euro.

In the US President Obama released details of a $275 billion housing package and signed off on the $787 billion Federal Reserve rescue package. Both deals are unprecedented in scope and scale yet have still failed to provide the confidence boost so desperately needed by markets. As a result Dollar strength has largely come via risk aversion this week which has kept the Pound low and Australasian currencies lower.

So at present, confidence and growth prospects are determining market sentiment which is determining currency exchange rates. The fact that no one knows how long this recession will last and what needs to be done to remedy it is keeping confidence low and pressuring currencies into 'consolidation channels' otherwise known as terrible exchange rates. Until we see an upturn in growth, or at least a less drastic downturn, investors will continue to favour short term positions, fuelling yet more currency volatility.

Australasian and Eastern European currencies remain particularly vulnerable as investors continue to dump riskier currencies at a time of unprecedented economic uncertainty. For governments, installing confidence and unlocking credit remain crucial to garnering positive economic sentiment and policy responses require international co-operation. For those with investments in the perceived 'riskier' regions, keeping a line open to your dealer is the best option so you will be informed of market movements as and when they happen. If recent volatility is anything to go by, this could make a significant difference to your bottom line.

My charity skydive is also drawing near so if you wish to donate that would be much appreciated!

Click here to donate

By Nigel Hodges of Currency Solutions

It seems the English sportsmen are doing a good impression of the UK economy this week. With the abysmal performance in the West Indies last week and the friendly against Spain on Wednesday, perhaps overpaid and ineffectual are adjectives not confined to those operating solely in the banking sector....

This week we have seen more of that notorious market volatility as uncertainty and nervousness are seeing traders abandon long-term positions in favour of short term gains and traditional safe havens.

Mervyn King's statement this week, that growth prospects remain "unusually uncertain" sum up market sentiment for not only the UK, but the world as no one is sure what the length and breadth of this recession will be.

This week has seen a return to risk aversion wiping the cautious gains made by Sterling and the Euro in previous weeks.

Negative economic data has dampened investor confidence but the major influence on market sentiment has been the underwhelming rescue package from the US Federal Reserve.

The eagerly anticipated package was expected to provide blueprint for recovery in the world's largest economy.

However, details of the plan, announced by Treasury Secretary Geithner early in the week, were deemed to be light on specifics and failed to inspire market confidence.

What everyone wants to know is: how to stop banks failing, how to alleviate toxic debt, and how to stimulate property and credit markets.

Simple, right?

Apparently not. The failure of Geithner to address these issues, combined with the news that the Senate had passed a 'nipped and tucked' $789 billion version of the original rescue package, meant market response was tepid at best.

The Standard and Poor's actually declined 4.9% and crude oil fell back to $45 a barrel on the back of market unease.

As global equities take their cues from US markets, this luke-warm reception affected currency exchange rates via a return to risk aversion. The Pound, Euro, European and Australasian currencies all suffered in favour of the traditional safe haven Yen, US Dollar and Swiss Franc.

Of concern to economists now is that a drop in confidence at this early stage could sabotage the entire package.

For Sterling, this increase in risk aversion combined with negative domestic news knocked the Pound off the pedestal it has occupied in recent weeks. Unemployment is up to 6.3%, soon to hit 2 million and Bank of England Governor Mervyn King predicted the economy will contract 4% in the first quarter of 2009.

Sterling fell to 1.10 versus the Euro and 1.42 versus the Dollar. King also hinted at further monetary easing which with interest rates at 1%, presumably means quantitative easing is still an option for the Bank. This is a strategy fraught with risk and added uncertainty is depressing the Pound.

Results for the Euro have been mixed this week, gaining on the Pound to 0.90 yet broaching a two week low of 1.28 against the Dollar. Credit Suisse and Peugeot posted major write downs for the final quarter of 2008 and this dragged European equities lower.

The Credit Suisse news is significant in that the bank managed to avoid the worst of the sub-prime crisis, yet still suffered massive losses to its investment arm in the wake of the Lehman shocks.

The IMF has predicted the Eurozone economy will contract 2% in 2009 and Sweden's Riksbank reduced their base rate to 1% this week. French President Nickolas Sarkozy is coming under fire from EU leaders for his economic nationalism which is at odds with the spirit of the EU and many economists are regarding recession as the true 'litmus test' of the Euro.

Poland may cut the minimum reserve levels for it's major banks as the economy continues to be battered and interest rate reductions have devalued the Zloty.

We are still in a stage where no one knows how long recession will last, how bad it will be and which are the best steps to take.

Predictions are still subject to routine revisions and it has been evident this week that risk aversion is still the dominant force in international markets. With global markets looking to the US for cues, the diluted Federal Reserve announcements have refreshed uncertainty throughout the world.

This is fuelling volatility, as the flight to quality means short-term positions are being favoured over long-term ones. Information and timing are still your best bet when it comes to making viable trades and with that in mind get registered with Currency Solutions and take advantage of those spikes when they occur.

And lastly I am doing a skydive on the 28th of February for Global Angels, an international children's charity. The nerves are growing so I am in need of support.....and donations! Every penny goes straight to charity and your support is greatly appreciated. To donate click here.

Thanks have a great weekend!

This week began with a highly international flavour as Chinese New Year, Australia Day and an Indian National Holiday all coincided on Monday, making trading thin on the ground.

However, rather than exacerbate woes for the Pound, Sterling staged a significant rally spurred on by a minor recovery in confidence in the banking sector. Give me an S!

After Barclays announced they would still be making a post write-down profit in 2008 and would not need a bail out, thank you very much, shares in the bank staged a whopping 75% recovery.

Not quite tall buildings in a single bound but highly impressive nonetheless and indicative of what a little confidence can do.... Give me a T!

Now if we could just get the cheerleading squad into the HQ of RBS we could be all right.

The Monday morning rally was followed by 3 magical days of gains in global equity markets, giving the Pound and beleaguered currencies everywhere the chance to gain some lost ground.

Extreme risk aversion faded, allowing Sterling to gain a foothold on a much stronger trading platform, above the 1.4 level and up from the 23 year lows we saw against the US Dollar last week.

At close on Thursday the Pound was trading at 1.43 versus the US Dollar and 1.09 against the Euro.

However, government debt, currently running at 10% of GDP, is likely to continue to be a thorn in the side of Sterling, capping its potential in future.

While negative domestic data has continued to flow, markets have been routinely discounting bad news and this week the focus has been on macro-economic events.

The World Economic Forum began its meeting in Davos, Switzerland and the IMF issued its revised growth forecasts for 2009.

The IMF expects the UK to be hardest hit by recession with a 2.8% contraction expected in 2009. The German economy is also expected to contract by 2.5%, Japan by 2.6% and the US by 1.6%.

The IMF also cited the 'pernicious feedback loop' linking financial markets and the wider economy, reiterating that recovery in the financial sector is key to wider economic stability.

Redundancies have also been big news and a separate report from the International Labour Organization this morning put world wide job losses at 50 million. Corus has announced 2,500 redundancies in the UK while Royal Dutch Shell, Europe's largest oil company posted its first quarterly loss in 10 years on the back of lower oil prices and reduced demand due for the commodity.

In the US, the House of Representatives passed an $820 billion rescue package, which now faces approval in the Senate. Worryingly, the bill received not an iota of Republican support in the House potentially compromising its viability in the Senate. The FOMC left base rates unchanged as expected and reiterated focus on purchasing assets to aid the recovery of credit markets. The Washington Post consumer confidence survey reported record lows.

The Eurozone remains an enigma.

We know the situation is getting worse, latest figures confirm it. Yet despite this, consumer and business confidence is up with Sweden joining Germany and France in the rising index this week.

On the downside, German unemployment has risen, up to 7.8% with 56,000 jobs lost in December as global contraction takes its toll on the export led German economy.

Volatility has reduced between the European currencies and the Pound. Against the Polish Zloty, Sterling fluctuated between 4.70 and 4.63 this week, greatly reduced from before the New Year. Reports suggest Poland may have slipped into a 'technical recession' this week as Eastern Europe is beginning to be affected by a downturn in trading partners. The IMF also predicted a 0.4% slump across Eastern Europe.

In other markets the Aussie and Kiwi Dollars benefited from equity market rallies and firmer commodity prices early in the week. The RBNZ decision on Thursday to cut rates by 1.5% to the lowest level in history sent the Kiwi to its lowest level since 2002 against the US Dollar.

The Yen has weakened from recent highs with the return of risk appetite. Economic conditions continue to deteriorate in Japan, at odds with the strength of the Yen.

And finally there are still great opportunities to be had when it comes to spot deals. This week was a perfect example as Sterling sunk to 1.36, its lowest level in 23 years against the Dollar. If you need to exchange currency in the future contact your dealer to set up a limit order so you know these spikes will not be missed. Lock them in on a forward contract and you'll be laughing in years to come!

Have a good weekend.

Nigel Hodges of Currency Solutions