Volatility due to world events

17 April, 2013

Tom Arnold

The best word to describe the current climate in the currency markets is volatile. The pressure is being exerted on all currencies from many different angles causing a very uncertain picture, and making it very difficult to pick and chose the right time to buy or sell your currency.

The two biggest factors in the last 2-3 days have been the Boston marathon terrorist attack and the IMF’s twice yearly assessment of growth forecasts for all the world’s economies.

The Boston situation has caused significant turbulence for a number of reasons. Firstly, general uncertainty caused a move by investors into safe haven currencies and away from riskier positions, such as the Pound. Secondly, the Dollar specifically was put under a lot of pressure, and when President Obama confirmed yesterday that it was definitely a terrorist attack, the Greenback lost significant ground immediately. Lastly, fears for the London marathon this weekend have put significant pressure on the Pound – concerns of a repeat of the Boston attack are trouble enough, but once you start considering spectators staying away and the impact that would have on London’s retailers, and hence on the fragile economy, you can understand why the Pound is also struggling.

The IMF then announced yesterday their revised forecasts for the world’s economy’s growth figures… virtually all of the figures were revised down, with the UK being revised down from 1% growth for the year to 0.7%. The IMF were particularly concerned that the Chancellor’s tactics are not working to increase growth – “Greater near-term flexibility in the path of fiscal adjustment should be considered in the light of lacklustre private demand” said their report. This figure is slightly above that suggested just last week by the UK’s Office for Budget Responsibility which predicted only 0.6%, and so did not come as a particular surprise, however the harsh tone aimed at Mr Osborne is only likely to up the pressure when he next returns to the House of Commons.

All of this has pushed and pulled the various currencies around and the result is a significantly lower rate for buying Euros and a slightly improved rate for buying Dollars.

This morning we have both unemployment figures and the announcement of the Bank of England’s minutes from this month’s MPC meeting. Neither are likely to help the Pound’s cause – employment figures were negative last month and there is pressure on the BoE to increase QE – so expect more bad news for the Pound later today.

As always keep in close touch with your CI account manager during these volatile times to make sure you have the best information to aid in your currency purchase decision.