Today buying Euro rates breached fresh 5 month highs in addition to more attractive levels for Australian Dollar buyers following the historic interest rate decision last night across the Atlantic in the US.
This was only their second rise in interest rates in over a decade. In the world’s largest economy, there was certainly going to be financial ripples as a result.
The obvious and direct result was that for anyone holding Sterling the Dollar become more expensive following the rate hike announcement.
But why did the Euro and Austrlian Dollar take a bit of a dive?
The USD/EUR currency pairing is the most heavily traded in the world – frankly because they are the two most widely used currencies globally. So as a rule of thumb, due to the large amounts of transactions concentrated between the two, when one of the two currencies suddenly gets a large boost in demand, as we saw today, the other loses value through decreased demand. This is why GBP/EUR briefly breached 1.20 earlier today as a secondary effect of the hike.
The gains against the Australian Dollar similarly were due to a lower demand for AUD which sucked away some of its recent, and frankly over-inflated, value. The interest rate on the Australian Dollar is at record lows but still much higher than elsewhere at 1.5%, compared to the UK’s at 0.25% for example. However, it is traditionally seen as an unstable currency, so when you have a safe-haven currency which raises its base rate, investors like to opt for this safer option, and the sell-off of Aussies for US Dollars is why USD/AUD gained today, as well as GBP/AUD.
However, markets moved back sharply in the afternoon following this move, with GBP/EUR almost losing a full cent as an example.
It seems markets are worried the recent improvements on Sterling will not carry through the volatile end of year trading period. At the end of the year traders and companies wind down their positions in order to consolidate their profits in a stable currency to avoid coming back to their desks in January and finding outside forces have eaten away some of its value.
Of course the Pound is seen as anything but stable at the moment. So the Pound seems set to lose out to major safe havens such as the Dollar, Swiss Franc, and potentially the Euro, however, more exotic currencies should still see it hold its own.
As such anyone with a buying Euro and US Dollar requirement may be wise to move sooner rather than later to avoid the hefty amount of risk which should be piled onto Sterling in the very near term.
Sterling buyers, of course may consider the opposite and play the currency markets by ear as we edge closer to the Christmas period to try at catch the market at any peaks which emerge.
I am well positioned to help anyone with a Sterling based currency requirement manage their exposure to the markets in the run-up to the new year and beyond in order to maximise your currency return in this volatile marketplace.
Contact me overnight on email@example.com to discuss the particulars of your transfer. I have never had an issue beating the rates of exchange on offer elsewhere, so a brief conversation could save you thousands on an upcoming transfer.
You can also contact me on 01494 787 478, and simply as the reception team for Joshua (me) and they will put you through to my line.