Investor fears drive currency markets

By Lauren Buckner


The US Dollar has increased in value dramatically over recent days allowing it to move higher against both the Pound and the Euro. With very little clarity about the future for the global economy the traditional flight to safety has seen significant buying of the USD. This dropped rates below parity versus the euro and significantly below 1.20 with the Pound.


As the Chinese economy battles drought and typhoons, and the Russian war with Ukraine continues to drive up energy prices, the uncertainty facing the markets over coming months continues to heighten. With Chinese economic output being slowed by nature and global energy prices rocketing the outlook is far from clear. The USD, a traditional safe haven currency, is also being buoyed by expectations of a further 0.75% rise in interest rates by the Federal Reserve at their September 21st meeting.


UK consumer confidence figures reflected a similar story on their release at the end of last week. Sitting at their lowest on record (records began in 1974) consumers show concerns about both the economy and their personal finances, ahead of October’s increase in energy prices. With inflation at 10.1% and expected to continue to rise, it is uncertainty again that is dictating the mood. This has driven the sell off in favour of the USD.


However, GBP remains rather buoyant against the EUR. This is in significant part due to the pace at which the single currency has dropped in value against the US Dollar; GBP is not falling at such pace and therefore has held its value versus the euro.


With the Bank of England steadfast in their approach to raise interest rates in an attempt to tame inflation, the EUR took a blow yesterday afternoon as ECB board member Fabio Panetta indicated that the slowing economy in Europe could mean that the ECB need to adjust their current monetary policy and casting further interest rates rises into doubt. This allowed GBP to press higher against the EUR yesterday afternoon.


In a climate of increasing uncertainty fixing your FX costs up front are an increasingly popular option. If you have a transfer requirement in the coming months please touch base with us to discuss.