Foreign Exchange - UK Weekly Update - Monday, November 3, 2008 16:36 - 0 Comments

Has the Tide Turned? – World First’s Sterling Update – 3rd November 2008

We may look back at last week and wonder if it was the moment the tide turned. It is more likely that the bullish performance can be attributed to month end portfolio rebalancing and bargain hunting. While it may have provided some brief respite, the seat belt needs to remain firmly buckled as the path may be rocky ahead. It is undoubtedly too early to call a bottom to the market, however last week was largely a positive one with gains on worldwide equity indices and the return of some lost ground for heavily battered currencies. The FTSE gained over 10%, the Nikkei managed 12% and S&P 500 rose 10.5% for its best weekly performance in 34 years. The Pound gained almost 2% against the Dollar and Euro, and as confidence leaked back into the markets it wasn’t only the UK that had reason to smile, as emerging market currencies also bounced back marginally. The Yen weakened slightly from the highs it reached a fortnight ago, as Japanese investors edged back into the market.

 

October as a whole however, was a month to forget. Historically, it has never been a particularly friendly month and once again it did not disappoint. Like the damage done in market crashes in 1929 and 1987, October was the epicentre of much destruction, with equities, commodities and currencies crashing. Headlining the disappointing results within equity markets was the Nikkei, with its worst ever monthly loss, shedding almost a quarter of its value. Commodities also had their worst ever month on record, with the Reuters Jefferies CRB index indicating commodities fell well over 20%.

 

The pound reached record lows against the Euro, and slipped 9 percent against the dollar for its worst monthly fall since its expulsion from the Exchange Rate Mechanism in 1992. October will also not be remembered nostalgically by Emerging Market currencies, (or anything other than the Yen or Dollar essentially) as the risk aversion sent investors deleveraging and queuing for safety.

 

Markets last week were delivering rate cuts in the US and Japan, and this week we look forward to similar responses from Australia, the UK and Europe. These anticipated cuts may provide markets with a slight boost, which in turn will benefit the corresponding currencies, as a high level of correlation between equities and currencies has been increasingly evident. We also look forward to the American election results as voting ensues tomorrow; however I will spare you from any further comment regarding this.

 

Trade of the Week

Last week’s trade of the week was for a seller of US Dollars and buyer of Sterling who entered into a ‘protection option’. The client had a worst case rate (WCR) of 1.60 and by paying a premium of 2% on the amount hedged, was able to fully benefit from any favourable movement. For full details of this structure please contact one of our options traders on 0207 801 9050.

 

Have a great week

 

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Please feel free to contact me (rick.roache@worldfirst.com) if you have any questions or thoughts regarding these updates or if you are interested in a particular event in the calendar. If you would like to discuss your foreign exchange requirements, please contact our:

Corporate Foreign Exchange Team on 020 7801 9050 or our Private Client Currency Exchange Team on 020 7801 9080.

 

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Disclaimer: The above comments are only our views and should not be construed as advice. You should act using your own information and judgement. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgement as of the date of the briefing and are subject to change without notice.

Any rates given are “interbank” i.e. for amounts of £5million and thus are not indicative of rates offered by World First for smaller amounts. E&OE. Definitions of jargon/market terms can be found in our Glossary of Foreign Exchange Terms.