Friday, September 18, 2009

Special Report - Sterling Crashes and Burns

The following special report is provided by the official Expat Focus foreign exchange partner, World First. To request further currency transfer information or a no-obligation quote please click here.

Sterling Crashes

Given the volatility that sterling has experienced recently, we thought it only prudent to advise you all on what could happen to sterling in the coming weeks and months. We would say that 1.10 and 1.60 are near term targets for GBPEUR and GBPUSD respectively however the prospects of falls below these levels are very strong given the momentum behind the movements we have seen over the past week. A break below these levels could easily see 1.07 and 1.55 which were the lows of the previous range.

We still believe that those of you who need to buy either euros or dollars with sterling for overseas property purchases, emigration or other reasons should be thinking about hedging around these levels through ‘currency options’. Should GBP continue to fall as we expect it do so then the levels achievable will no longer be attractive.

We would therefore advise all reading this to contact the Private Client team here to find out how to protect yourselves against further adverse shocks.

‘Currency options’ like forward contracts, allow you to exchange one currency for another on a future date. However, with an option you can fix a ‘worse case rate’ and unlike a forward contract, if the rate moves in your favour you can benefit.

Below is a graph of GBPEUR 2 weeks ago detailing the ongoing trends in GBPEUR while below that we have GBPUSD.

The top line is a trend of 2 years whilst the lower is that of the past 7 months. GBPUSD seems to be capped on at these levels with many analysts predicting that a break of 1.60 will see this brief rally over and a move back to 1.55. Our expectations that the market would obey the longer term trend has come true.

That trend has broken now as shown below.

GBP is Overbought

Going further in you can see that this is a regression to the middle
ground over the past year.

by Jeremy Cook, World First

To request further currency transfer information or a no-obligation quote please click here.

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.

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