Foreign Exchange Midweek Market Update

Range of the week: 1.259 - 1.246
Variance of the week on GBP10K = 130 Euros

As the European worries continue and the Spanish Prime Minister’s insistence that a “bailout will not be sought” it has thrown another spanner in the works. Investors had been gearing up for a bailout and many officials in the country have mentioned the preparations that have been going on behind the scenes. One of the major signals was last week’s budget which saw greater than expected austerity proposed and most saw this as the biggest indication that a bailout request was impending. It looks as though for now that the largest cog in the single currency, Germany, who are heavily opposed to a Spanish bailout, has been able to apply its pressure and prevent it from happening.

The way the exchange rates have been behaving for the past few months suggests that only “concrete news” with “concrete evidence” is likely to start a shift to either end of the 1.20 to 1.30 range.

Around 3 trillion dollars, or equivalent, is being bought and sold every single day on the foreign exchange market. And 97% of that is speculative. So without a doubt, the investors have the last say in whether the exchange rate goes one way or the other. Sentiment drives the market the majority of the time, and if they were of the opinion that the Euro was about to explode, we would almost certainly be seeing more volatility in the rate.

The fact that the Euro is stronger now compared to 3 months back makes it difficult to believe the market is on the brink of collapse.