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25 Eastcheap 2nd Floor
London EC3M 1DE
United Kingdom

+44 (0) 20 3880 0575

help@privalgo.co.uk

Office Hours
Monday - Friday
8:00am - 5:30pm

Last week, we talked about data releases in the UK and US and discussed what they could spell for the value of the pound and the dollar. What we didn’t account for – as not many experts did – was the Evergrande crisis. News was released that the Chinese real estate behemoth is hugely overleveraged, and investors panicked the company could default on its enormous $300 billion in estimated debt.

The news sent ripples throughout the currency markets as investors panic-moved their assets into the safe-haven dollar. This week, our Currency Specialists discuss where major currencies stand in the wake of the Evergrande crisis, upcoming central bank meetings and more.

If you feel your business could be affected by any of the subjects covered here, get in touch with a Privalgo Currency Specialist today. Follow the link below, request a quote and we’ll be in touch with you to discuss your requirements.

Request a quote

Brendan Leonard
Business Development Manager

Looks like history may not be set to repeat itself.

As you’ve likely seen, Evergrande – China’s massive, $300bn-in-debt construction company – sent shockwaves across the globe when the Chinese government hesitated in bailing it out. Markets panicked that we might see a repeat of the 2008 financial crash.

The difference here, however, is that unlike, say, the subprime mortgage crisis, Evergrande doesn’t have explicit connections to global banks. Consequently, it looks like this crisis should continue to be contained in China. That’s the story so far, anyway.

As far as the currency markets go, a global anxiety attack like this did what you’d expect it to do – safe-haven USD rallied while risk-on currencies GBP and EUR tumbled. GBP/USD sunk to 1.365, the lowest it’s been this month.

Now, the markets have found some tranquillity as the fears about Evergrande have subsided. Cable has bounced back somewhat but has not made a full comeback. With China on holiday today (a fact that’s adding to the uncertainty), markets will be looking towards Wednesday for the People’s Bank of China decision on the matter.

This story is far from over. Now is a crucial time for you if your business deals in GBP. Drop me a call and we can discuss it.

Harrison Hickey
Business Development Manager

The Evergrande meltdown isn’t the only thing that’s keeping GBP bulls up at night. After Russian state supplier Gazprom forced a supply bottleneck, Europe – and in particular, the UK – has been plunged into an energy crisis.

The result of which could send gas and electric prices rocketing in the UK. There’s the potential that some consumers may be cut off as we go into the winter months. And on a larger scale, it threatens to hamper industrial output.

This adds to GBP’s struggles and plays a part in the cable’s downfall below 1.37.

However, markets can’t seem to work out what way this will push the Bank of England’s decision-making. In one sense, supply bottlenecks such as these exacerbate inflation. An increase in prices could persuade the BoE to tighten monetary policy sooner rather than later, providing support for the pound.

Then again, if prices rise too high, it could dampen consumer spending – and in turn, hamper the UK’s economic recovery. In short, bad news for GBP.

Right now, only time will tell. But that doesn’t mean you need to sit and wait for the market to determine the value of your transfers. Call or email me today and we can discuss potential hedging strategies.

Patrick Oakley
Business Development Manager

Cable is at an inflexion point with a big week ahead – both the Federal Reserve and the Bank of England are meeting to discuss monetary policy in their respective nations.

Theoretically, GBP bulls will be in a good place going into Wednesday’s BoE meeting. Last week’s CPI report showed that consumer prices were rising at a higher pace than what economists expected. Furthermore, unemployment numbers have dropped once more.

Despite the strong data, GBP bulls will know from history that there’s no point holding your breath. With the UK economy under threat from a European gas crisis and the Evergrande crisis looming over global markets, a dovish message from the BoE could push cable lower.

Meantime, the Fed is also backed by some strong data. Despite inflation reportedly slowing down in the US, last’s week’s retail figures showed that consumers in the US still have the appetite to spend money.

Then again, Jerome Powell has the reputation of being a dove. Now, with verification that US inflation could indeed be transitory, further delays to monetary policy from the Fed could push the dollar down.

The lack of concrete answers makes the currency markets prime for some volatility. If your business is dealing in pounds and dollars, get in touch – we can discuss potential hedging solutions.

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