Tuesday 2 June 2009

Return of the Pound; Get your summer holiday money now!

The UK Pound Sterling, long-suffering under the control of Mr. A Darling and Mr. M. King, has staged something of a rally these past few weeks.

Not long ago sinking below parity with the Euro was the talk of the town and reaching parity with the US Dollar. But like a phoenix from the flames, the pound has reached nearly 1.15 to the Euro and the US Dollar rate is a mighty 1.64 today.

Behind the rises are a big move in closing short positions on the Pound and also a flight away from the dollar into more risky assets. As such demand for dollars goes down and so the currency falls.

However, there is no sign as to whether this is a longer-term trend coming into play. More likely, this currency reversal will itself reverse when the equity markets end their rally in the next couple of months.

As such, if you are planning a trip abroad over the summer, think carefully about when you buy your currency. Now may be a good time if you can afford to put the money aside. Alternatively, watch the global markets, if there is a strong downturn the currencies will follow quickly, so don't dither.


Bill Quango MP said...

Euro bubbling at 1.08ish on the tourist currency market for a few weeks now. Not good enough yet to take a punt.
1.15 on the tourist needs about 1.25 on the big board.

$1.54 tourist today. Better, but not good enough for Disneyland.

Tuscan Tony said...

I'm a bear of sterling above Euro parity, rightly or wrongly this seems to me to be a dead cat bounce.

Richard Elliot said...

I used to work for a big hitter in the City. He told me back in Jan, that he thought fair value for GBP:USD was 1.65. Didn't give me a timeline though. I'll be interested to see if it stays around here (minor fluctuations excepted).

However, I agree with CU. Now is a good time to get your holiday money. Except if you are going to Australia, which hasn't enjoyed the recent of EUR and USD.

Simon Fawthrop said...

I'm going on holiday in July and everything is USD denominated so I might take your advice, but wont blame you if it goes wrong :-)

CityUnslicker said...

GS - no way the £ is going to more that 1.70 against the dollar. if it does, there will be new, more horrible reasons for it.

Anonymous said...

The dollar was in decline for years and bottomed at .72 on the index.

Then came the engineered crash, everything reversed and everything was sold and dollars bought.

The dollar gained, as the global reserve currency, in a flight to safety.

Then came bailouts, QE, and much more.

Even if it were to preserve its status as a global reserve currency, given the games played, it is overvalued above .68 on the index.

China and other nations are making extensive moves to eliminate the use of the dollar in bi-lateral trade agreements, and SEA "stability" funds, denominated in Yuan are established. Yuan currency swaps are proceeding apace.

SDRs are ballooning if you look at the IMF.

US and $ hegemony is in decline.

The £ will follow shortly. The EU is about to hijack the City.

Go East Young Man.

Anonymous said...

The final few paragraphs of this link explain the economic bounce, and maybe one of the reasons for a resurgent pound.

But understand the amounts injected to achieve an insignificant GDP increase.

I believe the interest rates rises, and the consequent debt repayments (up to £90B, pa)will floor the economy and crash the £

And crashing the £ is the only way out for these disgusting one-eyed b*stards.

CityUnslicker said...

Anon, those are good links and I generally agree with the comment. Inflation and devaluation are the way governments get out of this mess.

Demetrius said...

Personally, I think the situation has gone chaotic, and things will be difficult to follow or to explain. Not only do those in authority not know what they are doing, there is little hope of them doing so. The whole thing is a gamble, and less reliable than a bent routlette wheel.

Anonymous said...

The Euro is a joke currency right now, there is nothing remotely sustainable about a huge disjointed economy looking at losses in all sectors , manufacturing, tourism, finance.Late and insufficient action by ECB will ensure that Euroland will continue to suffer long after the USA and the UK have made tentative steps to recovery.
£1=€1.40 by xmas , a rational price instead of a bloated jabba the hut of a currency.