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By Jonathan Watson

Sterling has made some impressive gains against the euro and a few other currencies. I suspect however these will not last long.

The UK is in a perilous position with rising unemployment and rising inflation. We have also seen profit warnings today from a number of high street retailers. With 60% of the UK’s GDP accounted for by retail sales the snowy weather may be leaving a bit more of a chill than expected!

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By Jonathan Watson

Sterling has had a very bad week losing well over 2% against many of the major currencies. Why is this? Well a poor run of data has shown the UK’s recovery to be questionable and moreover the UK’s monetary policy to be uncertain. The UK has rising unemployment and rising inflation. This can cause a policy dilemna as the measures to combat each of these problems are at loggerheads. Let me explain why.

Unemployment is typcially a result of a lack of growth. The cure is to rejuvenate the economy, for example quantitative easing. But this will lead to the cost of goods and services increasing as there is more money in the money cycle leading to inflation. To combat inflation we typcially raise interest rates although this has the effect of curbing spending and reducing growth, which will in turn hamper efforts to control unemployment.

We can see the policy dilmena on the horizon for the MPC and this is why I feel there is extra pressure on the pound at present and why I would expect this to continue into 2011 until interest rate rises are more seriously considered.

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By Jonathan Watson

The Irish austerity measures were yesterday passed through the Irish Parliament and will help secure the EU and IMF funding neccessary to allow the country to continue financially.

The questions is now how are the other countries finances,which are in equally dire straits going to be managed? The Euro has weakened as the markets get a feel that the ECB has no coherent policy in managing the crisis.

I expect further Euro weakness in the coming weeks and months although the UK is not neccessarily best placed to take advantage.

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By Jonathan Watson

The specialist currency brokers that take the time to write on this blog are able to achieve excellent rates of exchange for their clients, saving them money.

By offering preferrential and commercial rates of exchange to anyone who needs to send foreign currency electronically, we can offer savings of thousands.

Typical bank transactions can be up beaten by up to 4% and we offer a service that offers guidance on the market, peaks and troughs in the market will be identified which can work to your advantage if traded on. No one knows exactly where the will market go, but we can look at recent and upcoming events and seek to maximise your transfer.

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By Jonathan Watson

Australia yesterday raised interest rates to 4.75%, up 0.25% from previous.

The Australian economy is really benefitting from a global upsurge in raw material requirements, predominantly from Asia and is also benefitting from a strong housing market.

The interest rate rise reflects the confidence in their economy and will make the Aussie look even more attractive to investors.

Against sterling I would not be suprised to see the rate go towards 1.50 in the next few months, particularly as the UK’s economic recovery is still precarious. A recent report from the CIPD – Chartered Institute of Personel and Development suggests unemployment could go significnatly higher than previous (government) estimates.

Either way uncertainty looks set to continue in the UK, whilst the Aussie is very secure. If you are looking to buy Aussie’s even if in a year or two years, it may be best to book a rate now. I had clients who never believed it would drop below 2. then 1.80, and then 1.60!

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