Market Snapshot 12/03/09GBP – EUR -0.45%GBP – USD 0.35%GBP – AUD -0.13%GBP – NZD -0.13%
Quantitative easing – How does it work and what does it mean for the U.K??
It would be hard to miss the fact that the Bank of England have decided to embark to unmarked territory and have put quantitative easing into action. The first part of this report is designed to educate readers into how they will go about this and the effects it may have on the U.K economy. Alongside what it might mean for those readers who have an upcoming requirement to buy foreign currency and send money overseas.
What is quantitative easing?
The aim of quantitative easing is to stimulate the U.K economy by effectively creating more money and injecting it into the system by means of buying out government bonds from financial institutions and funds. Slowly but surely the plan is that by selling these funds it will slowly filter more money into the system therefore encouraging banks to partake in greater lending.
How does it work?
To start off with the BOE will be holding auctions twice a week to sell the bonds and those who sell the bonds will use the money from the bank to lend to individuals or companies or to invest in business activity. This in turn should bolster the economy and start things moving at a greater pace again eventually pulling us out of this mess.
Will it work?
To be honest…. Not even the top analysts could give you a straight answer at the moment.
David Page an economist at investec says “the big unknown for us and the MPC is how much of the additional base money commercial banks would lend on and how much they will hoard”
In general terms we just do not know how much of the money the banks will hold on to and how much they will release. Should the banks hold on to most of the released funds then the BOE could well find themselves in a really sticky situation with a severe inflation headache in years to come which in turn could really have a poor effect on the value of the Pound.
The worst example to date of Quantitative easing not going to plan would be Zimbabwe, where things have gone terribly wrong and you actually now need a wheelbarrow full of cash in order to buy a loaf of bread. Japan also tried this method in 1991 and economists are still divided as to whether or not it was a success – extremely worrying for those of you with upcoming currency transfers either in the near future or indeed in the next few years, as should this policy not work then who knows where Sterling could end up. Mervyn King – the governor of the Bank of England has recently admitted he does not know how long quantitative easing will take to have an effect but that it will “eventually work”.
Here at FCD we do have tools that can protect you against adverse market movements, so that you know exactly how much that requirement will cost allowing you to work to a budget accordingly just in case this extreme attempt to bolster the economy takes a lot longer to work than first predicted. Feel free to contact one of our dedicated traders today who will happily explain our services including a forward contract – this allows you to fix a rate for anything up to two years in advance for just a small deposit eliminating that gamble that your budget becomes completely unachievable.
Automotive industry in crisis
Further releases yesterday announced that Toyota were due to be cutting staff hours and general production to try and keep afloat in these testing times alongside Land Rover receiving up to £27 million from the government to work on a new model. This is all came as motor industry representatives met in London to discuss a possible £2.3 billion support package.
This news really does sum up the problems we have over here at the moment and all point to a possible ‘summer of discontent’ for people in almost every industry, so why take that chance and leave your funds in the U.K where interest rates are at record lows – it may be time to consider shifting that hard earned cash to safer investments overseas where you have the piece of mind that your funds aren’t being used to help keep the bank above water.
Here at Foreign Currency Direct we do not speculate with your funds. We do not do loans, purchase debt or take any risks whatsoever with your money and pride ourselves as an execution only service – we only buy the currency upon your approval therefore eliminating the risks of ending up in the same situation that many previously secure and financially sound banks have found themselves in.
If you have an upcoming currency requirement and are worried about how the recent findings could affect the cost of your transfer do not hesitate to contact one of our experienced and friendly traders and they will be more than happy to discuss the various options available to you including limit orders, stop losses and oco’s.
Today’s data and breaking news
Last night the Royal Bank of New Zealand gave a minor surprise to all by only cutting their interest rates by 0.5% to 3% instead of the projected 0.75% cut. This has meant that in early morning trading today Sterling has gained ground against the New Zealand Dollar so now may be the time to secure your funds should you have an upcoming need for New Zealand Dollars.This morning sees the release of the Swiss National Bank interest rate decision at 9am. Expectations are for a 0.25% cut down to the low levels of 0.25%. Expect high volatility should the release differ from the market predictions.
The other main market mover of the day is U.S retail sales due to be released at 12:30pm. Expectations are for sales over the pond to have dropped dramatically so expect high volatility upon the release of this data.
If you are worried about how this data may affect the markets or purely would like a full explanation of what it means and how it may affect any transfers you have be sure to contact one of our experienced and friendly brokers on 0800 328 5884 and we will be happy to explain the complicated facts in simple terms.
This is a brief summary of todays report. Click here to read the full report on our main website
If you are buying a property abroad, and want the best exchange rates, just click on the links below to go straight to our main site, or Email Me
Have a great day and thanks for reading!
Daniel Wright
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