If you are buying or selling overseas property soon, you’ll want to keep a keen eye on exchange rates. Mindful of that, here’s the latest monthly currencies review from Peter Lavelle at Pure FX.
Sterling surged to a 10-month high against the euro as the European Central Bank made an emergency cut to interest rates to stop the threat of deflation.
The pound shed 2 cents against the US dollar as America created almost 80,000 more jobs than forecast, upping the odds of a Fed taper.
Sterling had it tough against the Aussie but may rebound as Reserve Bank of Australia chief Glenn Stevens predicts the currency will soon be “materially lower”.
The pound dived against the kiwi dollar too, but soon picked up, as NZ central bank head Graeme Wheeler said New Zealand may soon raise interest rates, but then backtracked.
Sterling took its cues from James Bond in October, because it seems The World(‘s strongest growth) Is Not Enough! This is to say, the pound fell against currencies ranging from the US dollar to the New Zealand dollar, in spite of the fact that the UK expanded +0.8 per cent between July and September.
So, if the UK is going gangbusters, why didn’t the pound rise? Well, for one, it’s because many economists remain sceptical that the recovery has got legs. The story goes that consumption is being fuelled by people running down their savings, so, when the pot of gold goes dry, the UK will again slow down. Second, there’s the fact that the Bank of England remains dearly attached to its forward guidance and insists it won’t raise interest rates until late 2016. With this in mind, 2013 may be the year the UK economy was a world-beater, but sad to say, the pound isn’t following in its footsteps!
How does the pound say hello to the euro? “Hiya!” Sterling reached its highest against the euro since 17 January recently, at more than 1.20. However, this has little to do with the fact that the UK economy has stepped up a gear. Instead, it’s because the European Central Bank took the drastic step of cutting interest rates to 0.25 per cent to stop the threat of deflation in the Eurozone. That came down on the euro like a ton of bricks, leading the pound to triumph!
The taper is back on the menu! Sterling fell 2 cents against the US dollar last month, chiefly because the US economy performed far better than forecast, raising the odds that the Federal Reserve will cut (or ‘taper’) its economic stimulus. For instance, America created 204,000 jobs in October, 79,000 more than forecast. Moreover, US factories expanded at their fastest rate since April 2011. Owing to this, the US dollar came out ahead, to sterling’s loss!
On top of the world, but not for long? The Aussie dollar hit 0.60 against sterling at its peak in October, yet odds are high the Aussie will weaken from hereon. How come? Well, because Reserve Bank of Australia chief Glenn Stevens has seemingly decided that enough is enough with this overpriced Aussie and has stepped up his rhetoric to bring the antipode currency down. Last month, he forecast that the Aussie would be “materially lower” in the near future. Given this, look for the Aussie to go even further “down under” versus the pound than it already is!
Like a under-fuelled Ryanair flight, the New Zealand dollar soared the skies in October, gaining 3 cents against the pound, but was then forced to make an emergency landing and shed all its gains. Why? Well, we can pin the blame on Reserve Bank of New Zealand boss Graeme Wheeler. Early in October, Mr Wheeler announced that New Zealand would be the first developed nation to raise interest rates since the financial crash. However, when the kiwi rocketed as a result, potentially crippling New Zealand’s export industries, the RBNZ chief was quick to backtrack. Hence, the up-down kiwi!
Up, up and away! Sterling touched its highest since February 2010 versus the loonie dollar last month, at 1.6950. How come? Well, on the one hand, it’s because Bank of Canada governor Stephen Poloz finally conceded what’s been written in the tea leaves for some time; that Canada’s economy is now too weak to raise interest rates. And, on the other hand, the UK economy went hell-for-leather between July and September, growing +0.8 per cent, the fastest expansion in 3 years, giving the pound a decided upward lift!
BThe real rises! Brazil’s real climbed to 0.2850 against the pound in October, its highest since early August. This is chiefly because there’s a long list of positives coming out of Brazil at the moment. For one, Brazil’s unemployment rate is just 5.4 per cent, a rate that would make most industrialised nations today green with envy. Second, Brazil’s economy is in a “self-sustaining expansion,” ccording to PNC’s Bill Adams, as higher wages fuel faster growth. What’s more, the Bank of Brazil lifted interest rates +0.5 per cent to 9.5 per cent last month which also boosted the real!
Look for the lira to tank! Turkey’s lira held steady against sterling in October, yet looks set to make like a lead balloon in the months to come. Why? Because so many stars are aligning against Turkey. First, there’s the continuing conflict in neighbouring Syria. Second, inflation in Turkey is running rampant, which the central bank widely seen as ill-equipped to deal with it. Third, the lira will likely plummet, just as soon as the Federal Reserve cuts back its stimulus. So, look for a lira very much on the back foot!
That’s all for now – as ever, to chat to Peter, by phone or by email, please email back and we will put you in touch with each other for a no-obligation discussion.