Central Bankers and their impact on your pension payments
It used to be a pretty obvious calculation; the interest rate goes up and the currency of that country strengthens; the interest rate goes down and it weakens. But things are not quite so clear-cut these days. Changes in perception are more influential now that interest rate changes are themselves, much rarer. Nevertheless, it all has an impact on your international transfers and that can be significant if you are on a fixed income.
Since the economic crash of 2007/08, interest rates around the globe have slumped and remained at virtually 0% in many domains. In the US, the base rate is a variable 0-0.25%, in the Eurozone 0.05%, in the UK 0.5% and in Japan 0.1%. There are exceptions of course; Australia is sporting a 2.0% base rate and New Zealand is higher still at 2.75% but these are still record low levels for the countries involved.
What is more relevant is that many interest rates have remained at these exceptionally low levels for 8 years in some cases while the economic recessions and then the fragile recoveries have taken place. So, as it is pointless for traders in the foreign exchange market to focus on actual interest rate changes, they have resorted to speculating based on the perception of the date of the next change and that is moving exchange rates.
The big two, as far as the UK is concerned are the US Federal Reserve and the Bank of England. Whilst, for obvious reasons, the BOE’s interest rate decisions directly impact the Pound, the Federal Reserve’s rate setting plans have a more substantial global impact and that indirectly affects Sterling. The $4.5 trillion of cheap money the US central bank has poured into the US economy over the last 8 years has fuelled not just the balancing of the US economy but rises in stock markets across the globe as well. Any tempering of those sums or the straightforward action of making borrowing in USD more expensive will reverse some of that positive impact.
The knock on effect is that what the US Federal reserve does will have implications for sentiment in the financial centres around the globe. As London is by far the largest of these centres, when Fed Chair Janet Yellen finally does pull the trigger and start the rise in US interest rates, we will all be buffeted by the ripples.
How that will manifest itself is not certain but the joint effects of growing confidence in the US and concern over the fragility of investor markets elsewhere will undoubtedly cause volatility in all markets. In equities and bonds, volatility is seen as a negative whereas in foreign exchange markets, volatility means buyers can capture the top of a spike and sellers can offload their currencies at the bottom. If well managed, it can be a win-win but that is the challenge and, as with so many things in life, from boilers to cars and from electrical to legal matters, most people who need to exchange funds can improve their lot through the help of a specialist.
To find out how you can take advantage of positive fluctuations in the market and exchange your currency at the right time to get the best possible rate, call 020 7350 5474 or visit www.halofinancial.com
Authorised by the Financial Conduct Authority under the Payment Services Regulations 2009, FRN: 528727.
Her Majesty’s Revenue & Customs MSB registration No. 12197454.
© 2015 Halo Financial Ltd. Registered in England No. 5155787.
The contents of this article are for reference purposes only and do not constitute financial or legal advice. Independent financial or legal advice should be sought in relation to any specific matter. Articles are published by us without any knowledge or notice of the circumstances in which you or anyone else may use or rely on articles or any copy of the information, guidance or documents obtained from articles. We operate and publish articles without undertaking or accepting any duty of care or responsibility for articles or their contents, services or facilities. You undertake to rely on them entirely at your own risk, and without recourse to us. No assurance of the quality of articles is given or undertaken (whether as to accuracy, completeness, fitness for any purpose, conformance to any description or sample, or otherwise), or as to the timeliness of the publication.
Latest posts by Sally - Silversurfer's Editor (see all)
- Will you tune in to the first General Election televised debate? - November 18, 2019
- Rick Stein’s fig and frangipane tarts - November 18, 2019
- Lost Love Stories - November 18, 2019
- Are you planning to shop on Black Friday? - November 18, 2019
- Did Prince Andrew’s Newsnight interview make his predicament better or worse? - November 17, 2019
Leave a Comment!
Community Terms & Conditions
These content standards apply to any and all material which you contribute to our site (contributions), and to any interactive services associated with it.
You must comply with the spirit of the following standards as well as the letter. The standards apply to each part of any contribution as well as to its whole.
be accurate (where they state facts); be genuinely held (where they state opinions); and comply with applicable law in the UK and in any country from which they are posted.
Contributions must not:
contain any material which is defamatory of any person; or contain any material which is obscene, offensive, hateful or inflammatory; or promote sexually explicit material; or promote violence; promote discrimination based on race, sex, religion, nationality, disability, sexual orientation or age; or infringe any copyright, database right or trade mark of any other person; or be likely to deceive any person; or be made in breach of any legal duty owed to a third party, such as a contractual duty or a duty of confidence; or promote any illegal activity; or be threatening, abuse or invade another’s privacy, or cause annoyance, inconvenience or needless anxiety; or be likely to harass, upset, embarrass, alarm or annoy any other person; or be used to impersonate any person, or to misrepresent your identity or affiliation with any person; or give the impression that they emanate from us, if this is not the case; or advocate, promote or assist any unlawful act such as (by way of example only) copyright infringement or computer misuse.
Nurturing a safe environment
Our Silversurfers community is designed to foster friendships, based on trust, honesty, integrity and loyalty and is underpinned by these values.
We don't tolerate swearing, and reserve the right to remove any posts which we feel may offend others... let's keep it friendly!