US Crisis concern

31 October, 2013

Matthew Boyle

Many of you will have seen in the news about the 1 trillion dollar debt the US government is in and their ongoing debt crisis, which at present looks to go unresolved until February 2014 at least. As a result of this crisis and lost confidence, huge amounts of investor money is being moved out of the US which normally enjoys “safe-haven” status and into Europe. The Euro is the second largest traded currency in terms of its market size, not least because 17 countries use it so it is unsurprising that much of this lost US and Dollar investment is moving to the single currency bloc. This is having a particularly strange and perhaps worrying effect on the markets at the moment, which is most apparent for anyone who is buying or selling pounds and Euros. The UK economy is doing relatively well at the moment and in recent months has posted the following to name but a few : • BoE U-turn on Quantitative Easing • House prices the best they have been in 3.5 years • Unemployment Down • GDP up • Manufacturing and service sector growth Despite this anyone who has been watching the rates will have seen that despite this raft or positive news, and whilst the pound gains against almost all of its other counterparts it is struggling to make ground against the Euro and for much of the recent weeks trading has seen a steady slide with rates slowly trickling down. This is particularly strange and in many ways quite concerning as we must acknowledge the gains it has made elsewhere and question why it is not gaining on the Euro. For example yesterday we had a number of poor CPI releases from Germany, whilst US CPI data was poor. In most normal trading situations you would expect following the poor Euro data for the pound to gain against and rates to rise, however rates remained stagnant – which can only be put down to poor US data increasing the shift of investment from the greenback to the single currency and therefore bolstering it against the pound. Whilst the US crisis will go on until February 2014 and the Euro zone begins to show the first true signs of recovery, what additional positive data will it take from the UK in order for it to turn the tables and begin to make noticeable gains against the Euro? Many of you who are buying a property in Europe over the coming months may be well advised to speak to your Currency Index broker about forward contracts. This is a very easy way of protecting the current rate and preventing any further slips in the rates, which given the current US situation could continue until early 2014. Speak to your Currency Index broker today to avoid any future disappointment – we can help you stay well informed and well ahead of the market.