Perhaps Marvin Gaye was a currency expert

By DAVID JOHNSON [email protected]

David Johnson is a Director of Halo Financial Ltd, a company which provides money saving foreign exchange facilities for migrants, international property investors and companies involved in international trade.

His lyrics ‘Believe half of what you see and none of what you hear’ couldn’t be more apt in the current rumour laden markets.

In the closing days of 2008, we all encountered comment from ‘experts’ telling us that parity between the Pound and Euro (one pound to one euro) was inevitable. There were even a few who warned of the Euro pressing through to make itself worth more than the Pound. None of this would be quite so interesting were it not for the fact that the ‘experts’ were wrong.

As 2008 drew to a close, they nearly got it right; the Pound sank seemingly inexorably towards the ignominy of parity with the Euro and then, just as the exchange rate started to read 1.02 euros, traders came to their senses and took their profit on the fall from October’s 1.30 euros rate, pocketing their gains before the close of the year.

And none of this is a problem unless your decision to exchange your Sterling into Euros was taken as a result of the ‘expert’ opinion in the press. How galling it would have been to see the Pound rally by 10 percent in a matter of days and know that you could not take advantage of that desperately needed bout of good fortune.

The bounce in the value of the Pound was less to do with positive sentiment towards Sterling and more about concern that the Eurozone’s problems have been underestimated. 2009 started with dire German industrial production data, the icing on a cake of recession, rising unemployment and sinking retail spending. Arguments are raging about just what EU member states should be doing to restore confidence, and just how far each go to bend the restrictive EU stability pact rules to reflate their individual economies.

Understandably, such news played on the minds of traders and investors who sold some of their Euro holdings and bought back their Sterling sales. A sprint from 1.02 euros to 1.12 euros ensued and the potential exists for a further rally to 1.20 euros and perhaps a tad higher as technical trading levels take over from fundamental analysis.

The future of this pair is uncertain. Speculation ranges from those who see the Euro ceasing to exist within the next decade as the strains of an economic downturn tear at the seams of the EU pacts to those who see the Euro replacing the US Dollar as the world’s most widely used currency in years to come. All of these people will be described as experts but the traders who buy and sell these currencies at the sharp end tend to be far less certain. They know, as I do, that the spikes and troughs in this currency pair will occur based on accidents of timing over when data and rumour hit the newswires.

A few days of stronger than forecast UK data which coincide with poor EU news will offer Euro buyers the opportunities they need whereas a bout of encouraging EU data accompanied by dire UK reports will create a dive in this pair and offer those moving funds from Euros into Sterling, a chance to make hay with the sun on their backs.

The best exchange rate can come and go in the blink of an eye and can certainly do so during 40 winks as overnight trading volatility is often more alarming than that which happens during EU trading hours.  

The antidote to this particular headache is the automated market order which offers the opportunity to capture the advantage from such spikes on a 24 hour basis. That is the key to securing the right exchange rate in these volatile times.

For more information, please email [email protected] or call 0044 207 350 5474