December was one of the most volatile periods in 2015, which is certainly saying a lot in a year which involved a potential 'Grexit', the UK going into negative inflation for the first time since records began, and regular near-collapses in the stock and commodity markets.
The December period often produces more volatility in the currency markets compared to the rest of the year as a result of thinner volumes being traded as everyone winds down for the holidays.
Speculative traders at banks and other large institutions who trade hundreds of millions of capital daily are the main drivers of currency exchange rates. In normal times high trading levels mean that currency movements are gradual, as larger volumes create smaller aggregate changes. However, when trading is thin you get much larger spikes and troughs in the markets with the effect of economic data being far more pronounced than usual.
This will likely be exaggerated this year with the a major shot in the arm being provided to the financial markets. The US are set to be the first country in the Western world to raise their base interest rate since the 2007/8 financial crisis.
Opportunities for Sterling buyers and sellers alike will be rife throughout the month, and with the significant spikes and troughs expected it is imperative that you explain to your account manager any requirements you may have in order to be made aware of positive movements.
Sterling still under pressure due to rate hike delay
Last month the recent string of historically low inflation for the UK forced the hand of the Bank of England to finally admit that an interest rate hike in the UK economy will likely be off the cards for the entirety of 2016. The Pound slid heavily in value on this news.
Sterling’s value has remained subdued on the markets with a second month in a row of negative inflation for the British economy. This is unlikely to change in December as prices will likely see further falls with Christmas sales taking hold, which is why this time last year saw the worst inflation levels for 2014.
How will this affect the Pound for the rest of 2015?
While the main focus for the UK’s performance will continue to be inflation, there will still be opportunities for the Pound to shine during December. Retail sales will likely see a boost, and a slight change in fortune for the manufacturing and construction sectors in recent months suggest further confidence in Sterling lies ahead.
As explained above, reduced volumes of trading as we get closer to the Christmas period will result in more pronounced movements in currency exchange rates. These windows for Sterling strength could therefore be very lucrative, and if you are in a position to secure your currency quickly, gift-wrapped rates could occur well before Christmas day.
So, if you need to buy Euros, Dollars or any other of the major currency speak with one of our experienced team of currency brokers today on 01494 725353 to discuss a strategy for how to maximise your currency return over the coming months.
Excellent buying opportunities expected for the Euro this month
Despite strong data posted by the Eurozone this month, outshining the UK in numerous sectors such as inflation and exports, the rally on GBP/EUR exchange rates of exchange by more than 10 cents at their peak has been continuous since the middle of October. This is mainly due to events in the USA.
The USA have been giving more and more explicit hints that they will be the first Western country to raise interest rates since the 2007/8 financial crisis by their next meeting on December 16th.
The news has hit the Euro the hardest as the current base interest rate in the Eurozone is 0.05% and the US are expected to move up to 0.5%. The queue of investors rushing into the Dollar and out of the Euro is what has been gradually devaluing the single currency since October which allowed GBP/EUR to peak at 1.43 at the end of November.
The rate hike in the US however, is all but certain at this point. As such the hike itself is already largely priced into the markets, which is why GBP/EUR rates have fallen away slightly from the absolute peaks reached recently.
As such Euro buyers are encouraged to secure their currency ahead of time rather than gamble on market movements in December. Whilst large spikes are expected these could be in either a positive or negative direction depending on the date, and it would be frustrating to find yourself having to purchase your currency following an unexpected trough.
These presently attractive levels and mammoth gains since October can be fixed using a forward contract, and these can run for up to a year should your needs be later in 2016. This allows you to know exactly what your future purchase will cost you, translating not only into savings but a more exact idea on the funds available for presents this Christmas season!
GBP/USD breaks below 1.50 briefly on the last day of November
The US Dollar has been enjoying regular gains against Sterling last month as the US are poised to become the first major economy since the 2007/8 financial crisis to raise rates from these currently historic lows.
As an indication of what to expect this month GBP/USD exchange rates moved to lows of around 1.47 in April when the US were first thought to be raising rates. USD buyers should be looking to move immediately as this month could see these lows tested once more and maybe even broken should the rate hike finally be confirmed.
A popular option currently for USD sellers are limit orders. These are automatic orders put into the live market and are active 24/7. So should your desired US Dollar rate be hit even for a few moments, your exchange rate is secured to avoid missing out whilst you are sleeping, busy working or occupied with family and friends. Depending on the Dollar figure you were hoping to sell, your Sterling return could increase by four figures with a well-timed transfer.
Australian Dollar rallies as interest rate cut scrapped
The Australian Dollar has out-shined Sterling during November and GBP/AUD exchange rates have now moved below 2.10 to their lowest levels since July this year.
The reason for the sudden reversal of almost 8 cents in a single month was an interview with the Governor of the Reserve Bank of Australia, Glenn Stevens, revealed that the rate cut many economists were expecting in the Australian economy was now an unlikely prospect.
This has been a focal point of pressure on the Australian Dollar since August, and the news caused GBP/AUD to fall by more than three cents in in a 4 hour period.
Expectations of an interest rate hike in the UK and a reciprocal cut in Australia was the paradigm which allowed GBP/AUD to breach 2.20 earlier this year. Now that both of these expectations are off the table, those with Australian Dollars to buy should be looking move sooner rather than later. The Australian economy gets a boost during the summer tourist months so your purchase could continue to get more expensive heading into the first few months on 2016.
To be kept informed of all the latest currency news and the options available please call our foreign currency brokers on 01494 725 353.