Exchange rates are driven by a number of factors including economic events, political events, acts of terror and acts of god. Traditionally it is the economic information which drives the market day by day but the others can also have a large impact, you just find yourself being reactive to them rather that proactive. For example floors in the UK impacting economic output. Recently political information has also impacted markets, I am talking about the Financial Stability Committee which yesterday come out with a proposal on how to avoid future bank bailouts. This being to stop the “too big to fail” banks which governments around the world were bailing out in 2008 which generations will be paying for. It seems unfair that the banks which can make lots of money when times are good need to be bailed out by the general public when it goes wrong. They have proposed that they key banks need to hold 20% capital to avoid this in the future, it is just a proposal at the moment but could be law by 2019, so five years away. If this does become law, expect the cost of borrowing to go up significantly as the banks try to raise capital.
For more information on how this could impact currency markets going forward please contact myself, Steve Eakins – [email protected]