Blog / News
24hrs in the currency market and everything can change, but by how much.
Currency blog from South West Foreign Exchange Ltd. 12-11-2018
Once again we have seen a very turbulent time for the pound against most currencies as you would expect, from the uncertainties of the Brexit deal which seems on the whole to be led by the EU and the UK unable to agree on what will happen on the Irish border.
As the summer season comes to an end, I thought it would be useful to analyse what the market has been up to, and effected by, in the last few months and what should we be looking out for in regard to currency movements and what might benefit or hinder those involved in the current status of the pound for both importers and exporters.
Generally, the traders have been betting against the pound i.e. ‘shorting the pound’ in anticipation of further downside moves, betting that it will weaken due to market growing increasingly wary that the UK and EU will not reach a Brexit deal before a November deadline. The angst is reflected in an ongoing weakness in sterling: the pound-to-euro exchange rate has fallen by 2.0% in 2018 and now sits close to 11-month lows, while the pound-to-dollar exchange rate has fallen 10.8% in the same period.
However, when too much of the same thing is bet against a currency the possibility is that the trend can stall and often reverse on the slightest of good news as traders book profit and/or are forced out of the trade as stop-loss orders are triggered.
What does this mean for our clients in the import and export markets?
First, for exporters. Clearly the devaluation of the pound has been a benefit to those exporting and hopefully they have taken advantage of the movements of the pound against the dollar and euro and, of course, against any other currencies they deal with. However, have we seen the pound at the lowest point? And will the pound strengthen form the lows of 1.0986 against the euro, the lowest since 11th Sept 2017? Is this the time for exporters to possibly take out a forward contract to hedge themselves against a recovery of the pound?
With regards to the US dollar, we saw the rate go as low as 1.2660 on the 15th August but it has recovered back to 1.2930 this week. Have we seen the strongest the dollar can afford to be on the market and once again is it worth protecting dollar income for the coming months?
This has been evidently a difficult time for importers. Hopefully they might have bought some protection when the dollar as up at 1.4 in April or at least had stop losses in to protect the price of their goods as the price of the pound fell continuously during the last four months. The euro certainly hasn’t been as volatile as the US dollar but levels of 1.13 certainly were obtainable earlier in the summer which all look very attractive now.
It is obviously very difficult to know where the pound will be during the coming weeks but the biggest test for the pound will be the return of a divided UK parliament from their summer recess and the upcoming party conference season. A murky UK political backdrop may continue to put further pressure on the pound. However, there might well be snippets of good news coming from the Government in regards to Brexit which may well help the pound strengthen but they might be short lived so any gains will have to be grabbed upon quickly.
If anyone has any questions about the above I would be delighted to hear from you to see if I can help your business take advantage of positive or negative movements in the coming months.
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