Trump's attack on Fed Chair Powell further devalues the US & USD..
| GBP
| Firstly to say that I hope everyone had a good Easter break :)
Secondly, GBP v USD is trading at a 3-year high!!
If you buy $ regularly or have a large $ exchange in the pipeline, you are in a fantastic position on whether to bank the recent profit on a Forward Contract fully now or book at least some of your requirement now and then seeing if any further gains can be made.
£-$1.23 was the average rate in January this year (a large amount of UK importers decide to forward buy their currency for 12-months for 'convenience' reasons at this point) and this month it has been £-$1.31. The average rate for the pair in 2025 so far has been £-$1.27.
Here is a real life example of a Forward Contract being utilized at the right time and why buying at the right time beats everything else in this market. A customer of ours is buying a property in Florida in June for $500,000 -
£409,836 - This would have been the cost in January if the customer booked all their $ once the deposit was paid. Trumps trade wars were in full flow and it was a situation where it was both risky to do something and stand still. The client chose the latter as time was on their side.
£390,625 - This would have been the average cost in February & March if the customer exchanged. We suggested hedging some of the requirement as volatility was through the roof, no-one had a clue what was going to happen and nearly £20,000 was saved on the total purchase by simply doing nothing. But again, time was on their side, they have a flexible budget and in the higher risk appetite bracket.
£378,788 - This was the cost the customer firmly pulled the trigger on. A huge £30,000 saving compared to what they thought it was going to cost them when the offer was accepted. They secured their $ at a 3-year high and had no interest in waiting to see if more could be gained in the months ahead, this was their 'sweet-spot' moment, their 'best bang for your buck' decision and everyone's is different. A 5% deposit secured the rate (95% due on completion of the contract in June) and the customer will continue earning 4% interest for the next 6-weeks on the remainder of their funds.
£??? - May & June is yet to be determined of course, the rate could get better yet or it could fall and lose all of the recent gains and more. 'Hopium' is not something to rely on in our opinion and experience, especially when things are looking so good already.
Anyway, well done to them and hopefully this case study shows the power of a Forward Contract and buying at the right time on this market in preparation of when the £-€ rate recovers back to £-€1.20...
EUR
We mentioned before that during the pandemic, the Pound was following very closely the performance of the S&P 500 relative to the USD. Meaning, when the index fell, so did the £-$ in vice-versa. Well, in this period of Trump trade wars, the same fate has occurred for GBP, but against a completely different safe-haven currency.
The Euro has established itself as the Alpha against the Beta Pound & in fact the 'King' Dollar too. Meaning, when the S&P 500 goes up, the Euro devalues against both currencies and vice-versa. It's a mad world right now..
USD
Financial markets once again turned on President Trump following his latest attack on Fed Chair Powell. US stocks & the Dollar fell last week after investors get worried about the Fed's future independence.
"There is virtually no inflation" was the message from Trump (who does have a point) aimed at Powell. "There can be a SLOWING of the economy unless Mr Too Late, a major loser, lowers interest rates, NOW" was the warning (probably an accurate point).
Lower interest rates are required for debt reasons in the US, but Central Banks are independent (supposedly) to Governments and also follow different criteria. A lower US interest rate will further devalue the Dollar and eventually will have a knock-on effect to the UK/£. Something to be aware of in case the US moves before the UK. |
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