Summary Of World Currency Markets For August 2008

Wednesday July 8, 2009

Our monthly look at the currency markets was rather interesting last month, giving us an idea that the threat of a recession in several regions of the world wasn’t too far away.

In some countries it didn’t feel as if much was happening at all – almost as if the world was holding its breath to see what was going to happen and waiting for other currencies to make the first moves.

So what would August hold?  Would we see some upward movement at last, or would things continue to go downhill?  If they did, which currencies would fare the worst?

It is certainly advisable to keep an eye on your currency converter if you are planning a late summer holiday, just in case you can get better value for money in a different country to the one you were planning on visiting in the first place.

So let’s take a look at last month’s news - and make sure you keep that currency converter close at hand.

An overview of the currency markets during August

The rise and rise of the US dollar

There almost didn’t seem to be too much to report last month, but if you take a look at the figures for the US dollar against the British pound during August, you will see that they only go in one direction.

The 1st of the month saw an exchange rate of 0.5058 against the British pound, but it would only be four days before that kind of figure would become a distant memory.  The figure hit 0.5119 on the 5th of the month, and that started a trend that would only continue – providing good news for any Americans coming over to the UK, but not such great news for Great Britain, which was already struggling to keep some kind of control over its exchange rate.

By the time we got deeper into the month it looked as if the US dollar had total control over the situation, leaving the pound floundering.  By the 13th – which would prove to be no less unlucky for Britain than any other day this month – the exchange rate had gone to 0.5329.  If that wasn’t bad enough it looked as though there was more bad news to come.

The US dollar continued to look stronger and the British pound continued to go downhill as the month went on, leaving 0.53 territory on the 26th to reach 0.5448.  The question now was just how much further it could go.

We had something of an answer by the end of the month, as the exchange rate on 31st August was 0.5463 – a full four cents up on what it had been just thirty one days previously.  And what’s more, it is widely believed that the pound will carry on going down, because of the ever increasing certainty that the UK is surely and squarely heading for a recession.

One thing is certain though and that’s the fact that we’ll be back here next month to see how much lower the pound can go.

So did the US dollar have a good month against the Euro too?  As it happened, the graph showing the results for August looked very similar to the graph showing the results for the US dollar against the pound.  We started the month off with an exchange rate of 0.6420 Euros to the US dollar, but as with the pound, the Euro was really struggling before too long.

On the 7th the exchange rate finished at 0.6463, and by the very next day it was standing at 0.6633.  This was just one surge ahead by the US dollar as it was able to claim more to the dollar with virtually every day that passed.  On the 12th of the month it had left 0.66 territory behind and surged into the 0.67 range, coming in at 0.6708 and leaving us wondering whether it could do even better by the time the month was up.

The answer was that it could.  It surpassed the 0.68 mark briefly around the 18th and 19th before slipping back again, and then managed to finish at a respectable 0.6786 on the 31st.

So it was clearly a good month for the dollar, and as the race for the White House continues apace as well, it’s clear that the Americans have plenty to get their teeth into at the moment.

But how did the US dollar do when it went up against the Hong Kong dollar?  It was something of a tussle last month although the US did come out just a little in front by the end of it.  August started with a reasonable exchange rate as the US dollar claimed 7.8037 against the Hong Kong dollar, and that improved to 7.8136 just a week later.

Then the pattern of ups and downs began as we went between 7.80 and 7.81 for some considerable time, with each country claiming slight increases to and fro as the month went on.

But on the 31st August we were left with an exchange rate of 7.8068, a slight increase over the course of the month for the US dollar, although it wasn’t able to keep hold of those precious 7.81 figures that it had attained earlier during the month.

Finally for this month we take a look at the US dollar’s performance against the Japanese yen, to see whether it could round off the month’s great performance on the whole with a good outing against the yen as well.

107.51 yen to the US dollar was the figure we started with at the end of day one – slightly down on the end of July’s figure of 108.26, but still not anything to be worried about, especially given the performance that the dollar was putting in at the moment.

Things were a bit up and down over the next few days, and then the US dollar made a run for it and was up to 109.34 on the 7th.  Could it break through the 110.00 barrier?

The answer took a few days but perhaps not surprisingly it was a yes.  110.46 was the figure we were left with going into the weekend at the close of play on the 15th, although it did drop back again a few days later and closed out the month at 108.73.

Not a bad month all in all for the US dollar; it will be interesting to see how much better it might do next month.

Meanwhile, over in Europe…

As we saw last month, the Euro and the British pound have been struggling on the world stage recently, although in their head to head in July they were both pretty much at loggerheads for the whole time.  Which currency – if any – was going to press the advantage this month?

One Euro would have got you 0.7878 British pounds on the first of August, and for much of the month we saw ups and downs as both currencies struggled to get the upper hand.  The exchange rate would go up to 0.79 one day, and then the next we’d see a fall back to 0.78 again.

This looked set to continue and you would have been forgiven for thinking that it wasn’t going to point to anything spectacular happening all month.  And then we saw a last minute spurt of energy from the Euro, as it decided to claim 0.8050 to finish off the month.  There was no knocking the fact that the pound was having a bad month, and even the Euro had found enough in the tank to win the day right at the end.

The Euro didn’t do too well against the Hong Kong dollar last month, but that was nothing compared to August’s performance, when the Hong Kong dollar certainly got the upper hand.  12.153 was the exchange rate we had on the 1st of August, but that was soon a memory as the Euro lost ground and could only claim 11.778 Hong Kong dollars by the 8th. 

It continued to lose ground steadily until the 19th, when it stopped at 11.463.  The next day it managed to regain a little ground but things went up and down marginally before ending the month on 11.503 – a drop of 0.65 over the course of the month.

So it was certainly not a brilliant month for the Euro, and it will be interesting to see how things continue to pan out as the world struggles to get to grips with the credit crunch that most people are currently feeling.

Elsewhere last month…

The Canadian dollar had an equally choppy month against the Japanese yen in August; one Canadian dollar would have got you 104.78 Japanese yen on the 1st of August, but while it pushed that up to 105.01 on the 4th August it was back to 103.32 the very next day.

A similar picture continued over the course of the month, with the dollar claiming anywhere between 101, 102, 103 and 104 yen depending on what day you looked at the figures.  And by the 31st of the month the Canadian dollar was pegged at 103.30 Japanese yen, so overall it had dropped over the course of the month and there was plenty of ground to make up in the future.

The Japanese yen against the New Zealand dollar also made for interesting viewing throughout the month, as a figure of 0.0127 on the 1st of the month went up to 0.0130 on the 12th.  From there it was back down to 0.0127 again on several occasions before climbing back up again and finishing on 0.0130 on the final day of the month.  So once again a choppy month of exchange rates that seems to be indicative of many currencies at present, although that is probably somewhat better than being on the wrong end of a downward trend, much like the pound is at the moment when it is put up against the US dollar.

The British pound against the Japanese yen looked almost as bad (if not worse) as the chart which represented the pound’s performance against the US dollar, for example.

You would have got 212.52 yen to the pound on the 1st day of the month, and that would have been just about the best time to exchange your money if you were in the UK, because by the end of the month that had gone down to just 199.03.  Amazingly, that was a difference of 13.49 yen in the space of just thirty one days.  How much further can the pound fall, we wonder?

Looking forward

August has been the month that those using the British pound and hoping to get a good value holiday by converting their money to other currencies abroad would rather forget.

It is certainly clear that it is a trend that is likely to carry on, at least for the moment, but while some currencies are firmly in the doldrums, others (like the Euro) are having good days and bad days, and others still (perhaps most notably the US dollar) are able to do no wrong.

Of course the very nature of the currency market means that it is forever fluid and forever changing, and while there will always be winners there will surely always be losers as well.  That’s how things balance out and you wouldn’t expect it to ever be any different.

But for Forex traders this is a time to watch where you put your money, because without expert knowledge you could stand to lose a lot.  The safest place to watch what is happening at the moment is from the safety of your own home, although it’s obvious that everyone is affected by this as they are wondering what kind of effect the exchange rates are going to have on holidays more than anything else.

Whatever happens during the next month you can rest assured that we will be here once again next month – and we suspect it will be more bad news as far as the pound is concerned.

See you then!