Foreign Exchange - UK Weekly Update
Foreign Exchange - UK Weekly Update - Monday, March 15, 2010 17:00 - 0 Comments
World First Foreign Exchange Sterling Update 15 March 2010: Safe As Houses
One of the benefits of the downturn in the housing market that we have seen here in the UK over the past 2 years or so is that dinner party conversation has evolved. No longer are we forced to sit at a table while couples compete over the mortgage deal they managed to wangle nor the increase in value of their pad in that up and coming area that nobody yet knows about. Their braying bravado was replaced at first with plucky optimism and now is conspicuous in its absence.
The housing market has seen a bit of a recovery recently. Prices started to rise in the late part of last year as buyers snapped up bargains and supply began to open up. Prices in London in particular have snapped back to levels reminiscent of the early bubble days. Of course, given the correlation between the housing market and the overall mood of the public, a housing market uptick leads to increased confidence, spending and employment. The benefits are truly universal.
But fears over a double-dip in the market have, alongside other reasons, stymied the pound in recent weeks. The influential Ernst & Young Item Club have predicted that house prices will fall 1.4% over the course of 2010, the NIESR by just over 1% and they are not the only ones. Figures released overnight showed that prices in the UK rose by 0.1% in March, a record low for this time of year.
There is some good news for those moving within the housing market over the coming 12 months. Interest rates are likely to stay low for a good while now as the Bank of England and the financial sector as a whole try to encourage borrowing and consumer spending. We don’t forecast interest rates will rise in the UK past 2.5% for at least 2 years.
Mortgage approvals however remain depressed with January’s figures half those in December. Most of this can be blamed on the cessation of the stamp duty holiday with the largest falls seen in the £125,000 and £175,000 bracket; the traditional haven for first time buyers.
I doubt we will see housing strength in the UK in 2010 and the prospects for 2011 hardly look ideal. Sterling will have to wait for a while until it can rely on the housing market to help its progression higher. At least dinner will continue to improve.
Trade of the week
This week’s trade of the week is the simplest option available and therefore the hedge that gives the client the most freedom possible. The ‘Vanilla’ is the building block of the options world and is one of the most popular trades in the market at the moment.
The buyer of this trade is an importer based in the UK and bringing in goods from France and the Netherlands. He wanted to protect a GBPEUR rate of 1.08 for the next 6 months. The client believes that sterling will gain against the euro over the course of 2010 but must at least get a level of 1.08 to keep his margins unaffected. This cost the client only 0.75% of the notional amount (the amount hedged). For that he receives 100% protection at 1.08 and every piece of upside forthcoming i.e. should GBPEUR be trading at 1.17 on expiry the client would receive 1.17.
This offers the client the most amount of freedom to benefit possible while still being protecting a rate that benefits his business. This works on all currency pairs and is available to both buyers and sellers of sterling.
Have a good week.
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- World First Foreign Exchange Weekly Sterling Update – 26.10.09 – Picking Through The Rubble Of GDP
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- World First Foreign Exchange Sterling Update – 05 October 2009 – Who Would Sterling Vote For?
- World First Foreign Exchange Sterling Update – 01 September 2009 – The euro stages a comeback
- World First Foreign Exchange Sterling Update – 24 August 2009 – Inflation – The devil you know
- World First Foreign Exchange Sterling Update – 17 August 2009 – The Language of Policy
- World First Foreign Exchange Sterling Update – 10 August 2009 – Bank of England bombshell rocks the pound
- Foreign Exchange Sterling Update – 27 July 2009 – Never fear, green shoots are here
- World First Foreign Exchange – 20 July 2009 – Sterling Update – Chinese growth figures spur risky assets higher
- Foreign Exchange Weekly Update – World First – 6th July 2009
- Divergent data leaves pound stalled – World First’s Sterling Update – 22nd June 2009
- Sterling Redemption Underway – World First – Sterling Update – 1st June 2009
- Greenback falls from grace – World First’s Sterling Update – 26th May 2009
- Shaping up for recovery – World First’s Sterling Update – 18th May 2009
- BoE reveals further QE – World First – Sterling Update – 11th May
- Something in the Air? – World First – Sterling Update – 5th May 2009
- The Long Road Ahead – World First – Sterling Update – 27th April
- Equities lead Sterling higher – World First’s Sterling Update – 14th April 2009
- Change is the only constant – World First – Sterling Update – 30th March
- Fed Joins the QE party – World First’s Sterling Update – 23rd March
- Currency War Looms – World First’s Sterling Update – 16th March
- World First’s Sterling Update – 23rd February – Eastern Europe feels the Pinch
- Inflation report Hurts the Pound – World First’s Sterling Update – 16th February
- Euro suffers as Congress stalls – World First’s Sterling Update – 9th February
- World First’s Sterling Update – 26th January – Year of the Ox
- World First’s Sterling Update – 12th January 2009 – Method in the Madness
- Interest Rates Bottom Out – World First’s Sterling Update – 22nd December 2008
- Sterling Takes A Pounding – World First’s Weekly Update – 16th December 2008
- World First’s Sterling Update – 8th December 2008
- Government Moves Dictate Currency Directions – World First’s Sterling Update – 1st December 2008
- Inflation – The Double Edged Sword – World first’s Sterling Update – 25th November 2008
- Has the Tide Turned? – World First’s Sterling Update – 3rd November 2008
- Death of the Carry Trade? – World First’s Sterling Update – 27th October 2008
- Canada Cuts Rates in Tough Environment – World First’s Canadian Update – 21st October 2008
- Euro Battles on as France act on Banking System – World First’s Euro Update – 21st October 2008
- Volatility Continues as Emerging Markets Feel the Pressure – World First’s Sterling Update – 20th October
- World First – Sterling Update – 13th October – Sharemarket Crash Leaves Sterling Under Pressure
- World First’s Weekly Sterling Update – 30th September – The Madness Continues
- World First’s Weekly Sterling Update – 22nd September – What a week!
- World First’s Weekly Sterling Update – 8th September
- World First’s Weekly Sterling Update – 28th July 2008
- World First’s Weekly Sterling Update – 14th July 2008
- World First’s Weekly Sterling Update – 23rd June 2008
- World First’s Weekly Sterling Update – 16th June 2008
- Sterling suffers as fear still prevalent
- A New Black Dawn?
