The currency blog

With sellers in certain regions of France remaining stubborn when it comes to dropping their prices, increasing numbers of prospective buyers are looking at new builds for their dream home abroad. Given that it typically takes between 18 – 24 months on the build process any movement in the exchange rate has a big impact, especially during highly volatile periods spanning a number of staged payments. Read the rest of this entry »

The effects of QE (quantitative easing) have not been fully realised yet.  It was thought that decisive action by the US and British governments would prompt a rally in the fortunes of QE currencies, however the reverse is true.  The pound has slumped against all the currencies refraining from QE, with lows of 1.0607 against the euro.  A currency’s value is no longer dictated by alterations in monetary policy or tweaking the interest rate, it is determined by the markets belief in the short term bailout policies of the respective government.  The fact that QE involves the governments buying of fixed income assets such as corporate bonds has encouraged a thread of optimism in the equity markets, which enjoyed a modest rally toward the end of last week, but sadly the outlook is predominantly bearish.  The main focus of QE is to provide liquidity to those markets dependant on institutional lending.  The process ultimately starts at the top and then filters down to a grass roots level.  This will take time, hence QE is yet to help local economies.

There are definitely more sellers coming into the market.  Although not ‘universally true’, prices the other side of the channel are coming down.  There is so much stock (property) available now that it is starting to become a buyers market.  Would be expats are now in an enviable position as they can to a certain extent, dictate the rate at which prices deflate. 

The weakening of the pound in the latter half of last week can be seen as a response to the quantitative easing pledge by the bank of England. As far as forecasts go it has become increasingly difficult to anticipate the effects of particular monetary policies, but there is greater volatility expected as industries brace themselves for the end of the financial year.

Both the pound and the euro have made gains against the dollar in trading as financial stocks continued to rally. Investor sentiment was improved following the G20 meeting which signalled that the IMF resources would be doubled. The pound also rallied as Barclays Plc declared that it has had a good start to 2009 and this is calming fears that more government funding will be necessary for UK banks.

The GBP/EUR rate today has been caught in no mans land as both currencies gained against the US dollar and the Yen. With increased resources for the IMF the euro should improve as this will allay concerns on the banking sector in Eastern Europe- recently worries over the region have caused a negative sentiment on the euro.

Short term we are looking at a range of 1.07- 1.10 and the pound will struggle to breach 1.10 on the upside as the euro is holding its neck above 1.30 against the US dollar and looking bullish following the G20 meeting.