While the UK markets may have been closed for the past two days, some of the world has carried on as usual and the pound has been moving, gaining around a quarter of a percent on the US dollar. There was also some sharp but short-lived movement against the euro including a brief plunge of close to 1% around midday on 25th December.
That gives a clue as to what drives most currency movements. The market is dominated by speculators, making up some 90% of currency transfers, with transfers for physical assets, such as a property abroad, being a very small part of the market.
Hence when the speculators all run for the door at the same time you will see a large movement. It is impossible to predict these movements. For example, sterling had its biggest boost against the euro in the post-Referendum era when Boris Johnson appointed the unknown Rishi Sunak as his ‘tame’ Chancellor of the Exchequer in February 2020. Then a month later the arrival of Covid-19 led to a 12% drop in sterling almost overnight. Both moves were all down to speculation, not ‘real’ business.
No-one knows what will trigger these movements. The variables are infinite. Horse-race betting is a doddle compared to currency speculation, since it is based on form whereas your currency transactions will be subject largely to future events.
That is why, if you have a major overseas currency payment in 2024, it is so advisable to lock in your rate with a forward contract so that your plans are not at the behest of currency speculators.
You simply do not know what is lurking around the corner.
Give your trader a call on 020 7898 0541. They will be working every normal working day over the New Year period apart from 1st January.
