I have almost bored myself to death (and probably many clients!) in recent years debating the merits of QE, Quantitative Easing. One of the UK’s now infamous institutions, that backbone of the economy, provider of growth, the last chance saloon for an economy brusied and battered by the global financial storms. Like it or loathe it, it is here to stay and we are sure to see more soon. The Bank of England has made clear by precedent that this is how they plan to respond to continued pressures on the UK particularly from declining Eurozone trade weighing on UK plc.
Quantitative Easing is the process whereby the Bank of England buy up UK government bonds providing liquidity in the financial system to help boost growth. It has weakened the pound in recent years as it increases the money supply and is a sign conventional stimulus measures (cutting interest rates) are not working.
It is a sign of the uncertain and fragile economy that the government has succumbed to 3 separate rounds in the last few years totalling £325 bn. As long as the UK is suffering low growth and international demand is low we are unlikely to see the Bank of England adopt a different stance. Mervyn King famously warned of a ‘zig-zag’ economy in the coming months and years and this will likely be (and is indeed being) reflected in the price of the pound. If you are considering any currency transfers understanding the peaks and troughs of the value of sterling, as well as what is driving the movements is key to getting the best rates.
Part of the highly personal service we can offer is to keep clients informed and aware of these movements so they can not just secure a commercial rate, but also do so at the right time. The actual timing of an exchange is where a currency broker like myself can really add value. There are many companies that claim to offer the very best levels and on a like for like basis I am always able to beat them. But rather than beat the competition by half a cent, I will always look to provide a forecast which clients can use to potentially improve the rate by many cents!
The National Institute of Economic and Social Research did offer a ray of light this week with a GDP estimate for Q2 in the UK at 0.1% growth. The figures would pull the UK out of the technical recession and reduce immediate calls for further QE. I think over time the pound will claw back value against most currencies but it will probably take a good few more years of this uncertainty. And of course there is the elephant in the room in the form of the Eurozone debt crisis. The UK which relies so heavily on overseas trade cannot afford to have its biggest trading partner in crisis.
So I think that we are now looking at a situation where things will probably get worse before they get better. The pound is still holding many of the gains seen in the last few months that saw it soar to close to a 3 year high on a trade weighted basis. The prime example is against the Euro, although today we are two cent off the best GBPEUR rates all year, and that is with the prospect of a ‘Grexit’ on our hands. I personally cannot see how Greece can be allowed to leave the Euro and think this weekends news may be a bit of a non event. Don’t get me wrong it is big news but I think there is much more to come down the line and we are not at the edge of the cliff yet. The Eurozone have shown last week with the Spanish bank bailout they are prepared to accomodate the needs of their members even if it is an eleventh hour move. To do any less would be to undermine the authorative approach they need to keep up to keep everyone in line.
If you have any currency transfers to consider I would be delighted to speak with you as I am very confident I will offer you a much better rate than you are currently achieving via your bank or another broker. I will also be happy to provide a forecast and currency audit to ensure you do not suffer from bad rates or from a lack of understanding of what is driving your exchange rate.
Do you think the pound is bound to climb further in the coming weeks, particularly against the Euro? Many do for obvious reasons but I personally think the rate may be hampered. I would wholly welcome any discussion on the topic below 🙂
For more information please contact me directly on 01494 787 478 (overseas clients welcome just use 00 44 1494 787 478) or email [email protected] quoting PSF
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Hope to speak to you soon!