The effect of currency

Many people in the UK have yet to realise how much Sterling has weakened against some of the world’s major currencies during the period of October 2007 – June 2008. Unless you trade overseas you may not feel it affects you. Well, it does, as this is likely to lead to increases in the costs of goods being sold in the UK that originate from other ‘stronger’ currencies. Effectively, we can buy less of the same goods for the same amount of money. So, I thought you may like an overview of the currency markets and how the latest currency movements may affect you.

History?

Sterling has remained strong for over a decade and has helped importers as sterling has bought more, but this has led to a huge trade deficit as well as we have been buying our goods from overseas. However, Sterling has been going down since September, specifically the time of Northern Rock', and it has dropped substantially in a matter of a few months..

Who are the UK trading with?

The two most important currencies for the UK are US Dollar and Euro. Whilst it has ‘held its own’ against the US Dollar it is dropped significantly against the Euro which is good for our exporters and visitors but bad for importers or people going on holiday to the continent.

A High yielding currency?

Sterling interest rates are going down, and investors like sterling for its high yield and its stability. At the moment we appear to have a little of both relatively and so investors put their money somewhere else.

Hang on, is this now a global problem?

Yes, What started in the US, spread to the UK, and now we are seeing clear signs of it in parts of Europe and it will undoubtedly follow throughout the world as slower growth and higher inflation gets nearly every country. It could be argues we are simply at the beginning of the dominos chain. The Canadian Dollar has performed even worse than the Pound. IN other areas, for example South African, interest rates are going up. The global economy makes it difficult for other currencies to avoid what is happening in the US and Britain currently.  We believe that the Euro (especially after the Irish ‘no’ vote and the problems in some countries like Spain), the Swiss Franc, the Australian and New Zealand Dollar will weaken, and this is already starting to show.

Will Sterling go lower (June 2008)?

We do not know! This has been an extremely swift and large exchange rate movement and they tend to overrun. Whether the Pound has fallen too far is not yet clear but it might weaken further.

For information on exchange rates we recommend http://uk.reuters.com/business/currencies

Re-assurance

If you wish to have some re-assurance and be able to plan ahead for the coming months/year, then through ourselves using Moneycorp, we can provide certainty about your foreign currency purchase. You can buy now for forward settlement as a ten per cent deposit will fix the exchange rate. If you have the luxury of time, you can buy in segments, maybe for example half of it now and then wait.

If you would like to discuss how Moneycorp could be of assistance to either your business or you, please do not hesitate to contact us.

Dated 03 June 2008 – valid for 3 months. Aisa Direct Ltd, authorised and regulated by the FSA as Independent Financial Advisers. 1 Fordbrook Business Centre, Pewsey, SN9 5NU

* This newsletter has been prepared with all possible care to ensure its accuracy. It is based on our current understanding of legislation and HMRC practice. 

* Neither Aisa Direct Ltd nor any of its employees can accept responsibility for any errors or omissions. You should seek further professional advice prior to action.

This should not be deemed as individual advice and you should seek further information particular to your individual circumstances. For further information, contact AisaProfessional on (01672) 569111.