httpvh://www.youtube.com/watch?v=ashJLa0Gs0s

‘When I have reached a summit, I leave it with great reluctance, unless it is to reach for another, higher one.’ Gustav Mahler

I shall avoid mentioning the Budget of last week in this sterling update, those of you that read Jeremy’s emails on the 22nd should be up to speed and depressed enough from the results.

A brief nod should be made towards the renegade band of rebel Liberal Democrats who have decided that they really didn’t like the sound of an increase in VAT. The five MPs have decided to vote against the ‘regressive rise’ today in a proposed amendment to this finance bill. This could also show the insecurity of the coalition party, they are still trying to fend off fears of crumbling and are fully aware of the importance of keeping disillusioned members on their side. The real crunch time will come in October, when the detailed spending cuts are announced, this will be when it hits dawns that  the cuts are affecting to us all and not just other people!

On Sunday the G20 summit meeting in Toronto agreed that tougher rules need to be enforced on banks to defend against a further crisis in the future. These banking barriers include such pledges as, ‘the compromise pledge’ which plans to halve fiscal deficits by 2013 and that banks must hold enough capital to withstand any future losses. There has been no agreement on the amount of capital needed but the target date has been aimed at 2012. Obama and Cameron were vocal on the meeting, with Cameron stating “While the rules must be tough, on the timing we need to be careful we don’t shrink the monetary base.” The aftermath of the G20 summit initially cooled the markets but it looks like sterling is heating up in current temperatures, with EURGBP at over 19 month lows.

The cap on immigration has come under discussion today, with the home secretary stating that the cap will not be set until an evaluation of its economic impact has taken place. These May was firm on the Government creating a tough new limit, which is being discussed over 12 weeks of talks, this caused some worried over how businesses will be hit by the drop in global talent recruitment.

Have a wonderful week and don’t forget your sun cream!

Jeremy’s Trade of the Week

The use of leverage is looking increasing good in the current high volatility environment as the below trade idea will show.

We were able to provide a client with a worst case rate at the current market rate. He was able to achieve a worst case rate of 1.50 and he can benefit up to 1.60 (over 6% above where the market currently lies). Should the rate touch 1.60 during the barrier period (1 month before the expiry date) then he reverts to a forward at 1.50. In this structure he has leveraged himself by a factor of 1.5: should the rate touch 1.60 he has to buy £150,000 worth of dollars as opposed to the original £100,000.

This strategy is premium free and is also relevant for buyers of sterling and sellers of other currencies.