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Monthly Currency Update - GBP/EUR October 09

Monthly Currency Update - GBP/EUR October 09

Old Oct 1st 2009, 10:41 pm
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Default Monthly Currency Update - GBP/EUR October 09

Hi All,

Here is an update of what’s been happening in the Currency Markets throughout September with the Euro.

The month started with mortgage approval data from the BBA (British Bankers Association) showing a rise from 35.6k to 38.1k, a 76% increase on the year. However, focus fell upon the fall in net mortgage lending (£2.2 billion to £1.6 billion) as homeowners and consumers continue to pay down debt. Similarly, another monthly rise in the Nationwide house price survey sent the annual decline to just 2.6%, but worries about the lack of properties for sale distorting the figures and the unavailability of mortgage deals for 1st time buyers, meant this data also contributed to the negativity surrounding Sterling.
The Euro meanwhile basked in an improved industrial orders figure at +3.1% on the month and another healthy spurt in the various components of the German IFO survey.

The announcement of additional quantitative easing from the UK and Germany and France’s surprise emergence from recession had been the catalysts a few weeks back when the summer’s 1.15 – 1.19 sideways consolidation range breached on the down-side.

It was again the suggestion of further Bank of England stimulus measures that lit the fuse on Sterling weakness. Mervyn King, testifying to the Treasury Select Committee, along with his MPC (Monetary Policy Committee) members, revealed that they were considering lowering the rates paid on commercial bank’s reserves held with the Bank of England. This would hopefully flush out funds back into business lending, an issue highlighted later in the week when this number was reported £15 billion lower in August. The already ultra low UK interest rates fell again on these plans and Sterling slumped to a 4 month low at 1.12 (mid month). The tone of the testimonies also contributed with warnings of a slow and protracted recovery and a continued rise in unemployment even as growth turned positive. Nothing new in the latter comment, almost every economist has noted the lagging nature of unemployment out of a recession, but it all added to the negative sentiment surrounding Sterling. Again, as if to illustrate the point, unemployment data later in the week rose from 7.8% to 7.9%.

King’s acknowledgement that developments in the global economy were more encouraging and the forward looking RICS (Royal Institution of Chartered Surveyors) house price survey turned positive for the first time in 2 years, but neither of these could arrest the slippage in the Pound.

Current Central Bank Rates:

Europe: 1.00% - European Central Bank (next meeting 8th October)
UK: 0.50% - Bank of England (next meeting 8th October)

GBP/EUR Highs & Lows of September:

High: 1.1489
Low: 1.0749

A movement of: 6.88%

Difference this would make on £200k

High: €229,780
Low: €214,980

A difference of: €14,800

Whilst FX isn't the most thrilling of subjects, the sooner you begin to think about your money transfers, the more likely you are to make your money go further.


Mark Bodega
Director - HiFX
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