Country: Australia; France; New Zealand; Portugal; Spain; United States
As the UK attempts to realign itself after a period of tight fiscal restraints and failures within the banking sector the ramifications have been felt in the financial markets.
Sterling’s performance highlights its susceptibility to any negative data, whilst short-term gains may look promising for its long-term prospects the underlying issues with the UK economy still remain.
Whilst the rates appear to be heading in the right direction, a currency pair will never move in a straight line especially heavily traded and data sensitive pairings as far as sterling against the euro and US dollar is concerned.
There was bad news for Brits seeking to buy property in the eurozone – French property, Spanish property, Portugal property, among others, along with USA property, as sterling fell to a six month low against the euro, and a four month low against the dollar last month.
In addition to on going data the run in to the next general election looms large on the political and economic horizon. However, the hysteria surrounding our senior banking figures, who make up the MPC, may have been unfounded as the immediate actions taken may have secured the strength of sterling in the long-term as short-term prosperity makes way for consolidation.
The GBP/USD rate over the past year or so has been linked to movements in other currency pairs, most notably EUR/USD. The decline in the USD has wider implications on the world’s markets, where two camps attempt to tussle for the mid-long term position of the dollar.
Whilst the dollar has remained relatively secure due to its safe haven status as the chosen FX reserve currency for the world’s leading nations, and the currency chosen for oil and gold, the market has been very dollar negative with the greenback falling 13% against the euro between April and October.
With the prospect of US interest rates remaining low for the foreseeable future, the dollar has been undermined, making US property more affordable. With global central banks looking to cover their risk and diversify there reserves, the outlook for the Dollar remains bleak.
The trading range for GBP/EUR over the past economic year has left many financial commentators shocked at the pace at which the euro has shattered previous technical trading levels against the pound. However, Jean Claude Trichet, haed of the European Central Bank, has openly questioned how long the eurozone countries can sustain these levels. The doom and gloom around the pound has been replaced with a quiet optimism, with many economic commentators believing fair value in GBP/EUR, of circa 1.25-1.30, returning as the economies realign to cope with their individual problems. This would make buying property in the eurozone far more affordable, once more.
The two countries closely aligned to us as former Commonwealth members, Australia and New Zealand have preformed remarkably over the past year, as the balance of world industrial power shifts from the US to China.
Australia has proved to be a success story among a batch of failing economies. It has been claimed that the Australia property market and economy is as much as 12 months ahead of the other developed nations in the economic cycle. With unemployment peaking in early September, in stark contrast to the US and the UK, the increasing commodity demand from China has seen the Australian Central Bank be the first to raise their interest rates, which have been supported by the largely unaffected Aussie banking sector. A RBA spokesman stated, the ‘basis for such low interest rate setting has now passed’.
The underlying reason behind the major shift in the New Zealand dollar and Australian dollar has been their high yielding status. Central Banks and major investors have looked to sell the US Dollar and diversify their currency portfolios. However it is not all rosy, a slowing of the Chinese economy could have a profound affect on demand for Australian property and New Zealand property, among other goods.
With anyone exposing themselves to the volatile world of FX markets, as is the case with an overseas property investment, moving capital in stages understanding the reasoning behind the fluctuating exchange rates is extremely important in timing your venture into the markets.
See Also: Australia, France, New Zealand, Portugal, Spain, USA
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