Windsor2

Hi All,

Here is an overview of what’s been happening in the Currency Markets throughout July with the USD.

Further evidence of green shoots in the UK housing market at the start of the month stimulated GBP to notch new highs for 2009 against the US dollar at 1.6744. According to the Nationwide, house prices jumped by 0.9% in June, the second consecutive monthly rise, bringing the annual house price falls below 10%.

However the final figure for Q1 GDP (Gross Domestic Product), revised down to a 2.4% drop in growth, the steepest quarterly fall in 50 years, reminded the market how grim things were at the start of the year. So with the last three quarters (Q3 08 -0.6%, Q4 08 -1.6%, Q1 09 -2.4%) showing this recession deepening, there is a lot at stake that the talk of green shoots will buck the trend.

There was further evidence of stabilisation in the UK economy with the latest readings of the Purchasing Manager’s Index for manufacturing and services. The positive momentum in the manufacturing sector was confirmed with a reading of 47.0 in June from 45.4 in May and the all important services sector held expansionary territory with a reading of 51.6.

In the US, seen as the leading indicator in this credit crisis, the data took a turn for the worse. Despite marginal improvement in the housing sector and the manufacturing sector, consumer confidence surprised the market by dipping back down lower from 54.9 in May to 49.3 in June and the all important non farm payrolls scuppered hopes of a solid recovery. The non farm payrolls proved to be 100k jobs worse than expectations with 473k jobs lost in June.

The equity markets around the world bucked their recent weakening trend to rally across the board backed up by an impressive Chinese Q2 GDP number of 7.9% allowing the FTSE to end the week with its strongest weekly gain for this year of 6.3%. Other significant events included further signs of stabilisation in the housing market with the RICS housing market survey jumping from -43.8 to, its highest reading since September -18.1 in June 2007.

As we celebrated the 40th anniversary of the lunar landing, the equity markets continued their propulsion higher as confidence grew amid the US reporting season, with 75% of companies that have reported thus far, exceeding market expectations. The FTSE 100 has now pushed higher on 10 consecutive trading sessions, a feat only managed twice in its 25 year history and never at this rapid 10% rate of ascendency.

Growth in the UK in Q2 fell by 0.8%, more than twice as bad as market expectations, taking the year on year drop to 5.7% and markedly outpacing the recession in the early 1990’s, although still behind the 6.4% drop in growth in the early 1980’s. There were however some fresh green shoots from of the housing market, with a jump in mortgage approvals and also on the High Street as retail sales surged by 1.2% in June, although the weather and early discounting were cited as the transitory positive influences.

The rampaging global equity markets were again the driving force for the Dollar’s decline last week with just a little help from the UK’s favourite dinner party topic, house prices, to bolster Sterling. With up to 75% of major US corporate results out-stripping analyst’s forecasts and household UK names such as BT and Cadbury doing likewise, the growing investor optimism had translated directly into higher share and commodity prices and a familiar sell off in the Dollar.

Current Central Bank Rates

U.S (Federal Reserve): 0.25% (Next Meeting 11th August)
UK (Bank of England): 0.50% (Next Meeting 6th August)

Highs & Lows of July:

High: 1.6734
Low: 1.5982
Movement of 4.71%

Difference this would make on £200k

High: $334,680
Low: $319,640

A difference of $15,040

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.

Regards




Mark Bodega
Director - HiFX

Sailorchief

As someone who is planning to retire to and take money to the US next year, what do you think is the longer term trend of GBP/USD rates - I know that is a bit of a crystal ball question but do you have any feelings on that?

Windsor2

Sailorchief

Throughout the first half of 2009, we have seen a big shift higher in the GBP/USD exchange rate from 1.35 at the start of the year to 1.70 last week.

The overall trend still points higher at the moment, but given the severity of the move over the past six months, there is a good argument to suggest that it may start to run out of steam.

Regardless of which way the exchange rate it going, one point that remains increasingly apparent is that volatility in the financial markets looks set to stay for the time being.

With this in mind, we would recommend to any client that they look to fix their currency costs at the earliest possible opportunity. Granted, there is always an opportunity cost to bear if the rate moves in your favour and you’ve already fixed at a worse rate, but surely this is a small price to pay for the peace of mind of knowing what your hard earned Sterling will be worth when you reach the US?

As I've said before and no doubt will say again many many times.....what you do is completely up to you - it al depends on what you're looking to achieve and your appetite for risk.

Hope this helps.

Best Regards

Mark Bodega
Director - HiFX

Sailorchief

Thank you Mark for an extremely interesting reply.

As one who is not into currency speculation may I assume from your reply that bearing in mind I will not be converting any currency until next year I could have the opportunity of fixing any future deal at say $2 to the £ if that were to happen in say November? Who foots the bill if Sterling declines between then and April for instance?

Windsor2

Hi there

If you're looking to achieve a specific rate, we can arrange what we call a market order. This allows you to target a specific rate. We monitor the markets on your behalf and, SHOULD the market reach your pre-determined exchange rate, your currency is automatically bought or sold. Your order is live 24 hours a day and can be amended or cancelled at anytime prior to the transaction taking place.

A couple of things to remember -

If the rate you've targeted is not achieved your trade will never be executed so you could lose out if the rate moves against you.

Market orders remain in place until you cancel them. Occasionally we get clients who decide to trade outside of their market order as the rate has moved and they then forget to cancel the order only to have it triggered a year later when the rate they stipulated is reached!.

Again as I always say it all depends upon what you're looking to achieve.

Hope this helps.

Best Regards

Mark Bodega
Director - HiFX

Sailorchief

Excellent Mark, Thanks for that - clear as a bell!