News

FAQs on Quantitative Easing

28 July, 2011

CurrencyIndex

While the economy is going from bad to worse there always seems to be new buzz words that have not been mentioned for many years. We had parity, which has become used all over the finance world as GBP/EUR was getting close to 1 for 1, even sport commentators were using it.

The current buzz word, which probably won’t make it into sports is quantitative easing, here are a few questions and answers;

How does Quantitative Easing work?
The Bank of England increases the amount of cash in the economy. But while it sounds good that the Bank of England is adding more cash into the economy, the more there is the less it is worth.

How much are they putting into the economy?
Initially they will be adding £75billion over the three months, but this could potentially rise to £150billion if the first attempt doesn’t work.

What are the pros?
The Bank can buy gilts, which are very secure, or invest in shares. Buying gilts is, in effect, lending the government money.

What are the cons?
It decreases the value of money, you need more to buy something.

Why do it?
It can lower interest rates, which encourages spending.

Can’t we just cut rates?
Interest rates cannot fall below zero per cent. Despite months of cuts, banks are still not lending.

Is money actually printed?
Most money in circulation never actually gets printed. When you buy large items, numbers just get transferred between accounts.

Won’t the Bank just buy more bad debt?
No. It will buy government gilts and private IOUs in companies with the best credit ratings.

Who else has done this?
Zimbabwe has been doing it for years, to disastrous effect, to pay government bills. Germany did the same thing in the 1920s. Japan did it in 2005 and it helped end their 15 year recession. The US started in November.

Will Europe follow suit?
Unlikely. Countries with the Euro will probably not all agree on it.

If you would like any more guidance regarding quantitative easing and the effect on the currency market, call one of our experienced brokers today on 0800 043 2623.

Quantitative Easing and Exchange Rates

28 July, 2011

CurrencyIndex

Speculation is rife that we will see the exchange of letters between Mervyn King and the Chancellor today at midday, relating to the Government’s plans for quantitative easing (injection of funds into the economy).

The effect on exchange rates is not yet known, although US Dollar exchange rates have worsened significantly this morning. Check back on this blog later today to find out the latest currency news.

A Busy Day on the Markets

28 July, 2011

CurrencyIndex

A potentially busy day on the markets today, depending on how much has been priced in by the traders. The day starts with the European Monetary Union announcing the change in Gross Domestic Product on Quarter on Quarter and Year on Year, both are reportedly predicted to be a drop, giving early strength to Sterling and US Dollar.

The strength may not last depending on how likely the Bank of England are to halve interest rates down to 0.5%. There is a positive consensus that a reduction to 0.5% will happen, which could be priced into the market already. Following on from that is the European Central Bank possibly reducing their interest rate to 1.5% from 2.0%. If they decide to only reduce the interest rate by 0.25% expect to see Euro strength early on after 12:45 while everyone waits to hear Trichet’s speech at 13:30.

If you need any guidance regarding interest rate decisions contact any of our senior brokers today on 0800 043 2623. Exchange rate for buying Euros are likely to be volatile from midday onwards.

A Positive Sign Downunder

28 July, 2011

CurrencyIndex

In a positive move for Australia, the Reserve Bank of Australia has frozen interest rates at 3.25% causing strength for the Australian Dollar against all major currencies.

Prior to the announcement GBP/AUD was trading at about 2.232, but since the positive news it was dropped to around 2.191.

There is no major news released today to effect cable against any of the major currencies. The Bank of Canada will be announcing their interest rate decision at 14:00 GMT, many believe the rate will be halved from 1.0% down to 0.5%, but this was also the consensus with the Australian Dollar as well.

If you would like to find out how you can be protected against adverse rate changes and assistance on when to buy your currency, contact one of our senior brokers today on 0800 043 2623 who will be able to explain you through the process. So if you are sending money to Australia or need to starting sending money to Canada contact us today and our foreign currency exchange specialists will be able to explain how it works.

More Negative Banking News

28 July, 2011

CurrencyIndex

Another day, another bank needing extra funding. Today HSBC announced they are looking to raise £12.5bn from shareholders through rights issue in the UK.

This was announced after HSBC revealed pre tax profits for 2008 of £6.5bn. Unfortunately for the London stock market this was down 62% on the previous year. HSBC are looking at reducing their presence in North America after they recorded a $15.5bn loss, mainly due to the US sub-prime market.

Just when everyone thought HSBC had finished they announced 6,100 job cuts in America as well.

The European Monetary Union announced an improvement in the Consumer Price Index from 1.1% up to 1.2%. The earlier consensus was a slight drop between 0.9%-1.0% so an early rally for the Euro this morning against Sterling.

Both the Bank of England and the European Central Bank are predicted to lower their rates to 0.5% and 1.5% respectively.

If you are looking at sending money overseas in the near future and need some guidance, speak to one of our brokers today on 0800 043 2623. They will be able explain how it works and how we could potentially save you up to 4% against most high street banks.

House prices down in February

28 July, 2011

CurrencyIndex

More bad news for the UK economy today as Nationwide announced a 1.8% drop in February house prices.

House prices need to stabilise in order for confidence to return to the UK economy – and the Pound is likely to remain low until that happens, says Chuck Hall, senior analyst at UK-based Currency Index Ltd.

“The low Pound is helping international investment into the UK, with sending money to the UK now around its cheapest for many years”, says Hall.

However, for those of you wanting the best exchange rates to send money to Germany or the Eurozone, or needing to buy US dollars at the best rates, things are still looking gloomy.

Recession to last to 2010?

28 July, 2011

CurrencyIndex

Ben Bernake, chairman of the Federal Reserve in the USA, said in his speech today that the US Recession my last into 2010.

This is the first time a central bank has indicated its concerns so far into the future.

As a result, the US Dollar weakened, making sending money in Dollars cheaper this afternoon. However, the Pound is also vulnerable to such comments (when America sneezes, we catch a cold in the UK) – so today some of the gains made in recent days have been wiped out in terms of exchange rates.

Euro money transfers are some of the worst affected, down 2c this afternoon, while South African Rand transfers have also got more expensive today.

Of course, if you are bringing Euros back to the UK, the news is the other way round – and you will get more sterling than you would have done yesterday.

Taxpayer liability over £1tn

28 July, 2011

CurrencyIndex

Government insurance schemes to protect banks from further losses arising from their bad loans and investments, will bring the taxpayer’s total liability to £1.3tn – more than the entire output of the British economy each year.

With Mervyn King telling an audience we are “deep in recession”, it is unlikely the Pound will be able to recover much this year, meaning that foreign currency transfers will remain expensive for some time.

For those of you wanting to buy overseas property, the only good news is that bargains can be found in Europe and elsewhere, to make up for the poor exchange rate against the Euro and US Dollar.

Use a currency company to make sure you get the best deal on any currency transactions.

Sterling – Euro rallies

28 July, 2011

CurrencyIndex

The Pound has gained nearly 2c against the Euro today – giving some of the best Euro exchange rates we have seen this year.

Positive news from the UK banking sector, including Northern Rock and RBS, have given some new-found confidence in the British economy.

While those of you who need to be sending Euros overseas will not be doing cartwheels just yet, it could at least be a good time to speak to your friendly currency broker if you have any Euro requirements in the coming weeks and months.

This week’s data releases

28 July, 2011

CurrencyIndex

Week Commencing Feb 23rd – important data releases for currency rates

Pound Sterling – sending money overseas? Receiving money from abroad?
Wednesday 0930 – GDP figures for the last quarter of 2008
Friday 0001 – Consumer Confidence survey

Eurozone
Tuesday 1000 – Industrial Orders
Friday 1000 – CPI inflation data

Canadian Dollar
Monday 1330 – Canadian Retail Sales

US Dollar exchange rates
Tuesday 1500 – Federal Reserve chairman Ben Bernanke’s speech
Wednesday 1500 – Home resales data
Thursday 1330 – Durable Goods orders
Thursday 1500 – New home sales
Friday 1330 – GDP and personal consumption data