Another Week of Panic in the Currency Markets

  • 17 years ago
  • Uncategorized
Moneycorp the foreign currency specialist report that Sterling lost two and a half cents to a volatile Dollar over the course of the week. It opened just below $2.0450, dropped below $2.02, rallied to $2.04 and fell all the way back. Things quietened down on Friday and Sterling started this Monday at $2.02.
The row of credit dominoes continued to topple last week, although we had to wait until Thursday to see the most spectacular part of the action. The US Dollar had started off on a positive note before running out of steam on Wednesday. It was hampered by an implausibly hawkish statement from the Federal Open Market Committee which expressed only the most general concern about the impact of the mortgage fiasco. Investors became even more suspicious when President Bush went on TV to spread reassurance. That suspicion was justified on Thursday when a French fund manager froze three of its funds because it was no longer able to ‘fairly’ value them. The US problem had become an international one. Banks immediately became more selective about their lending and central banks around the world felt obliged to supply the missing cash liquidity. Investors were unnerved by the central bank action and rushed to reduce risk. The ‘safe haven’ status of the US currency more than offset any concern about little things like the interest rate outlook.
Having struggled at the beginning of the week Sterling received a shot in the arm from the Bank of England’s Quarterly Inflation Report on Wednesday and from the Governor’s press conference that followed its publication. The bottom line of both was a strong suggestion that base rates would indeed go up to 6 per cent this year. The whole event was worth two US cents on the day. That positive mood evaporated on Thursday as the lemmings surged out of high yielding currencies once again and into the allegedly safer Yen, Swiss Franc and Dollar. Sterling’s platoon found itself in the firing line. To some extent it was lumped with the ‘safer’ currencies but given that its recent form has depended on rising interest rates, its losses at the end of last week were the result of investors’ sudden – and perhaps temporary – lack of concern about such matters.
Take the uncertainty away out of money transfers
When buying property abroad, making regular payments overseas or other overseas money transactions it is important to receive specialist currency advice. This will allow you to obtain the best foreign currency exchange rates. We all want to make our money go further you do not have to be at the mercy of the money markets or the banks.
So what to do?
Another week, another panic. There is no telling how long this pattern will persist. As long as it does, Sterling will remain at risk of falling from the swing and being hit by the roundabout. The Dollar’s credentials as a safe haven once again seem to be in order so Sterling’s performance will probably vary inversely with the general level of panic in financial markets.
Buyers of the Dollar should approach this volatility firstly by hedging their requirement and secondly by ensuring that the correct stop order, or orders, are in place to avoid getting run over by a major Dollar rally.
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