For the past two weeks the pound against the euro has continued in much the same way, barely moving within a thin range. However, it did flicker into life yesterday, recovering around 0.6% on the day, and has strengthened marginally against other currencies too.
Why not call your trader on 020 7898 0541 and discuss the benefts of locking today’s elevated rate in before the various interest rate decisions this week?
It’s important to remember that the currency market is dominated by speculators, betting on movements. These can quickly accentuate small movements into being very large movements, which defy logic. One of the largest movements I have ever witnessed was when nothing happened. It was an occasion much like this week, before a Bank of England interest rate decision. The speculators had “bet” on an interest rate rise. There wasn’t one, so they got caught out incurring large losses, which forced them to close their positions and we saw a 10% movement in exchange rates in just a few days. That is why exchange rates are entirely unpredictable.
This week there will probably be a pause in interest rates from the Bank of England. One or two more ‘dovish’ members of the committee might even vote for an interest rate cut. Either way, you will hear endless speculation and it could all affect sterling one way or the other. But no-one knows where they will go.
That’s why at Smart Currency we always urge clients to focus on their plans, their budget and the potential risk to that.
Very occasionally an event comes completely from left field, having a huge impact, such as the Kwasi Kwarteng’s mini budget in late September 2022. These are impossible to forecast and if you hadn’t managed your currency risk the impact can be devastating.
We are certainly in dangerous days for the global economy right now, and a matter completely out of your control could hit the pound severely.
We produce on a quarterly basis a report that brings together the forecasts from major financial institutions. The reason we do this is twofold:
- To show the range of the forecasts and the potential loss, and
- The impossibility of forecasting exchange rate movements.
The current forecast highlights a range of 15% between the highest and lowest exchange rates in just a few months’ time. Would you be able to continue with your plans abroad if you were caught on the wrong side of such a swing?
For your copy of the latest quarterly report, just click here.
But for peace of mind in case of a sharp fall in your currency, do call your trader.
