Expat Currency Corner Archive
Due to its long standing reputation as the world’s cornerstone reserve currency, it’s no wonder why many expats choose to invest their money in US Dollars.
Disappointing retail data in the UK is determining the movements of the Pound Sterling this morning. The Office of National Statistics, ONS, revealed not only lower than expected results but also lower results than August, causing the Pound to slip against the US Dollar and the Euro, by 0.3 percent and 0.37 percent respectfully. High inflation and low wage growth result in less disposable income for normal people. This effect is believed to be part of the reason for the decline in retail spending. Samuel Tombs, from Pantheon Macro, similarly claims that the fall in spending was ‘driven by retailers implementing large price rises.’ There has, however, also been some discussion on a natural decline between the end of the summer spending and the beginning of the Christmas period. Analyst Michael Hewson said ‘the last three months have seen positive months for retail sales and with Christmas coming it wouldn’t be too much of a surprise if we were to see a pause in September numbers.’
Following a fractious week in Spain, Madrid has made a move to suspend Catalonian autonomy after regional president, Carles Puigdemont, refused to abandon his bid for an independent republic ahead of the 10 a.m. CET deadline this morning. The Spanish government is set to meet on Saturday to propose enacting Article 155 of the constitution, which would allow Madrid to take control of the region, while stripping it of some of its power, pending approval from the Senate. In a letter to the Prime Minister, the Catalan leader said that although the independence declaration had been suspended, the regional parliament, over which he presides, would vote in favour of independence if Madrid was not willing to talk and continues to repress the region. The Euro fell sharply against the US Dollar immediately following Puigdemont’s failure to comply with the deadline and Rajoy’s statement. This was corrected, however, within the hour, with the Euro trading back at levels closer to those before the announcement. The temporary weakness could be attributed to an overreaction from the market following the news, which was quickly rebuffed.
While Japan’s election has remained headline news, the threat from Pyongyang to ‘sink’ Japan into the sea, while it fired missiles over northern Japanese islands, is fast gaining traction. Polls are still suggesting Prime Minister Shinzo Abe’s Liberal Democratic Party is set to win in the election on Sunday, with the latest numbers suggesting that he should take 300 of the 465 seats. Abe takes an uncompromising position on North Korea, wanting to exert concentrated pressure on the regime. Abe is also looking move away from the self-defence line that Japan currently takes towards their own military and adopt a more offensive position. This proposition has recently faced criticism for being too provocative. Following WWII, Japan has adopted a pacifistic approach to its military strategy, a policy supported by a large proportion of the Japanese electorate.
The Japanese Yen strengthened against the US Dollar, following the release of the Japanese Balance of Trade data today. Japan’s exports rose by 14.1 percent, falling short of the expected rise of 14.9 percent and far less than August’s results of 18.1 percent. Economist Hiroaki Muto, from Tokai Tokyo Research Centre Co, claimed the slowdown was only temporary. He said, ‘data measuring manufacturing activity in overseas economies shows we are in the middle of an expansionary phase. Exports will continue to support Japan’s economy.’ Data from the finance ministry showed that exports were affected by a decline in shipments of cars and electronic parts as well as TVs, audio equipment and ships.
Despite each of these idiosyncrasies, the overall trend of US Dollar strength still prevails. This is unsurprising considering the reputation of the US Dollar being the most stable currency, that facilitates one of the largest markets, in the world.
Amazing food, superb weather and beautiful landscapes; it is no surprise that, last year alone, over 5 million expats made Europe their home.
The last week has seen a captivating jostling of pre-existing underlying trends within Euro currency crosses. Despite staying fairly static, due to a cooling down period since the Catalonian Referendum, the Euro has been manipulated by the Pound Sterling, US Dollar and Japanese Yen.
The recent Brexit talks in Brussels have been described as being in a deadlock. Still stuck at stage one of negotiations, squabbling and semantics are precluding any ‘divorce deal’ progress. Despite a positive joint statement assessing the progress to be ‘constructive and friendly’, some EU leaders believe the approach to negotiations that May’s government has taken is so chaotic that it ‘must be part of a cunning plan’. The lingering cloud over the UK economy set to stay, meanwhile, the Pound will continue to struggle against the Euro.
The US Dollar strengthened against the Euro this week, following the Federal Reserve’s minutes that shifted the market-attributed probability of a December rate hike to 80 percent. Fed officials are said to be worried that “core inflation might not rebound quickly but that isn’t going to stop them from continuing to normalise interest rates, particularly not when the unemployment rate is getting so low,” according to Paul Ashworth of Capital Economics.
Surprisingly, following favourable opinion polls, Prime Minister Shinzo Abe has set a date for Japan’s snap election. Despite Theresa May proving last June that no contested democratic result can ever be guaranteed, Abe’s win has been increasingly priced into the market, further endowing the Yen with a value of certainty. Abe has proven his commitment to new and overdue market policies, making the value of a Liberal Democratic win even greater.