march 2012 - outlook

March 2012

In this month’s issue:

• Latest on the Greek €130million bailout

• Liquidity in the US economy

• Bank of England’s quantitative easing tranche of £75 billion

Smart Currrency Business

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ContentsWelcome letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 3

Where to next for sterling, the US dollar and the euro? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 4

Euro zone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 5

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 6

United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 7

Other Currencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 8

Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 9

Graphs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 11

Client Support – Contact Details . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 12

Contact usSmart Currency Business

1 Lyric Square

London

W6 0NB

Tel: +44 (0)20 7898 0500

Fax: (0) 870 285 0365

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Monthly Outlook March 2012

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Dear Reader,

Welcome to the March edition of Smart Currency Exchange’s

Outlook, a monthly update on currency markets and an

invaluable resource for any company that does business in

more than one currency.

As a leading international payment specialist, here at Smart

Currency Exchange we make sending payments between two

countries hassle free and save our customers money in the

process. How can we do this?

When our customers transfer Sterling abroad or repatriate another currency to the UK for business

purposes, we ensure they always receive the best exchange rate available. We can do this as we

have access to “live” market rates and can negotiate on behalf of our customers.

But there’s a bit more to what we do than consistently offer better exchange rates than the banks

and quickly and safely transfer money from one account to another. We value long-term business

relationships and integral to our service is gaining an understanding of each of our customers’

individual requirements, so that we can formulate a strategy based on the frequency and volume

of their international payments. While our customers are specialists in their chosen industry, my

team’s expertise is in currency markets – by combining our experience and working together, we

are regularly able to save customers thousands of pounds and help them grow.

The following pages collate information about how the world’s key currencies have performed

against each other over the last month, as well as predictions by leading financial institutions.

Whichever industry you work in, if you make international payments, you should find it useful.

We currently have clients from a wide range of industries, from manufacturers of plastics to wine

importers and art dealers. If like them you make international payments, why not call my team

today for a no-obligation chat about how we could help you.

Enjoy this month’s Outlook.

Carl Hasty

Head of Trading


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Where to next for sterling, the US dollar and the euro?

The week ending February 24th 2012 saw the euro has enjoyed a good week strengthening against

both sterling and the US$. This reversed the trend of the previous six weeks and was triggered

when Greece finally agreed its bailout package of €130 billion. Few believe that the Greek debt

problems have finally been solved and we have to remember that the debt problems elsewhere in

the Euro zone are very significant and will continue to rumble along and undermine the euro.

City experts still believe that the euro will weaken against sterling over the coming year. This would

suggest taking advantage of any short term euro strength if you need to sell euros.

Against the US$ the markets’ expectations over the longer term are mixed with some seeing the euro

stronger against the US$ and some weaker. The overall consensus is for the US$ to strengthen.

All is not rosy for the UK economy but at least the UK government was quick to identify the depth

of our problems and acted accordingly. We also have a banking system that is ahead of the curve

in being bailed out. Therefore, unless there is a very significant deterioration in the UK’s economic

performance, any weakness from sterling is expected to be limited especially against the euro.

Market forecasts see the euro weakening in the next 12 months to €1.25/£1 plus.

Risk appetite/risk aversion seems to be having a significant influence on the US$ in the short

term. Economic data is more positive than negative at the moment. Market forecasts for the next

12 months show limited upside for sterling against the US$ with a maximum value around the

US$1.60/£1 level. The downside market forecast though is as low as US$1.40/£1. I think this is

somewhat extreme but shows the full possible range of movement. Short-term expectations are to

stay around current levels.

”As a manufacturer, we import a great deal of materials and making sure we get

the best price for them at the right time is critical to our business. Since using

Smart’s service we have saved thousands of pounds when making international

payments. These savings have helped ensure we maintain the healthy profit

margin needed to remain competitive and grow stronger as a business“

Jon Partridge, Operations Director, RS Sailing

To sign-up for your free, no-obligation trading account with a dedicated account manager and access to a trader, call 020 7898 0500 or go to

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Euro zone

Summary

The euro had a surprisingly “steady” January given the extent of the debt problems and the

seemingly never ending saga of the extended Greek bailout. However, the depth of the Euro zone

debt problems means that any upside for the euro is limited against most if not all other currencies.

This is unlikely to change any time soon and most market commentators see on-going weakness for

the euro. If the debt problems do blow up then we could see the euro in free fall, a bit like sterling

in 2008.

Economic activity has been affected by the uncertainty and growth at best has been slightly positive.

Until all debt problems are resolved, it’s difficult to see much growth in economic activity in the

Euro zone this coming year.

The Greeks came bearing gifts

The renegotiation of Greece’s bailout package of €130 billion from the European Central Bank and

The International Monetary Fund seems to have gone on forever. With default day fast approaching

for Greece’s next debt repayment, pen has finally been put to paper by the Euro zone finance

ministers. The trouble is that very few people believe that Greece will ever be able to repay these

debts as the Greek economy is already in recession and the required austerity cuts will only make

matters worse. Also, a lot of conditions have been applied which means that on-going tranches of

bailout funds will only be released if all these conditions are being met. It is probably a case of trying

to avoid good money after bad.

So what was the alternative? Very simple - Greece would have been unable to pay and would have

therefore been bankrupt and probably forced out of the Euro zone. Such an event would have

been very messy and caused huge problems for both Euro zone and world financial markets.

The domino effect

The hope is that Greece’s bailout will make it easier for the next tier of troubled countries to borrow

and finance their debts as it shows the Euro zone’s commitment to keeping all euro member

countries together. I think this is wishful thinking because the problems in Portugal, Spain and Italy

are still very significant. I think there is a real chance of a domino effect with probably Portugal

being the next in the firing line. This may not happen quickly but statistically I think the probability

is high.

Call your account manager to mitigate your currency exposure, call 020 7898 0500 or to request a call from the team visit

www.smartcurrencybusiness.com/requestacallback.aspx

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United States

Summary

There has been limited momentum either way for the US$. Economic data is broadly positive and

unemployment is falling. Interest rates are to be kept on hold for at least two years..

Election year – so many promises

The amount of liquidity that has been pumped into the US economy is staggering and it would be

truly remarkable if there hadn’t been some growth in the US economy. Unemployment is apparently

falling, housing starts increasing and other economic indicators being ahead of expectations. But as

we know, statistics can be very misleading.

Also we are in election year which means that the rhetoric will sharpen and the promises become

ever more enticing. The Democratic President is putting forward various proposals on cutting

corporate tax, reducing government expenditure and increasing taxes for the rich. The problem

is that the promises the Democrats make will have to be supported by the Republicans and the

chance of that must be less than zero. And then we have the Republican candidates for President,

slugging it out as to who will run against the President. Again many promises are being made which

seem at best wishful thinking.

Risk aversion/risk appetite

Given the depth of the US’s economic problems, including its balance of payments and budget

deficits and high levels of unemployment, it is surprising that the US$ seems to be holding its own

against most currencies. This comes back to the US$ being viewed as a safe haven asset and if you

are to hold any asset then holding highly liquid US treasury bonds makes the most sense of all.

So what we see happening is in times of increased risk appetite the US$ weakens and in times of

risk aversion the US$ strengthens.

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”Smart ensures we consistently buy above budget levels.

I cannot recommend their service and proactivity highly enough“

James Goodhart, Director, Wine and Spirits Industry



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United Kingdom

Summary

Sterling had enjoyed a brief period of strength relative to the US$ and the euro but was undermined

when two members of the Bank of England Monetary Policy Committee voted for a higher than

announced increase in their programme of quantitative easing. This raised worries about the UK

economy. I’m not sure why, as we all know that the UK economy is close to a double dip recession.

My feeling is that sterling is in a “reasonable” position as the government recognises the severity

of the problem, the banks have on the whole been refinanced and tax receipts were higher

than expected.

Half a step forward/half a step back

Sterling gained ground against both the euro and the US$ in late December 2011 and held steady

for most of January and February. Even when the Bank of England announced a further tranche of

quantitative easing of £50 billion at the start of February it had been so well published that sterling

hardly missed a step. Then we had better than expected public sector borrowing requirements for

January as tax receipts exceeded expectations.

The minutes of the Bank of England meeting were released showing that two members of the Bank

of England Monetary Policy Committee had voted for a £75 billion increase. This was a complete

surprise and undermined sterling on two fronts. The first fear is that further quantitative easing

could happen sooner than expected and the second that the UK economy is in a worse state than

thought and therefore needs greater help.

”We are very impressed. Smart’s staff are highly efficient,

knowledgeable and courteous at all times“

Janice Price, Accounts Manager, Plastics and Rubber Industry

”Everything worked out well. Thanks for getting in touch

with us in the first place!“

Florian Simm, Director, Art and Antique Industry

Call your account manager to mitigate your currency exposure, call 020 7898 0500 or to request a call from the team visit

www.smartcurrencybusiness.com/requestacallback.aspx

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Other Currencies

Commodity backed currencies

Australia, New Zealand, Brazil and Canada have enjoyed record exports of their commodities to

China over the last few years. The appreciation of these currencies, especially against sterling, has

been extreme over the last few years and they are close to either multi year or all time highs. Interest

rates are also higher than in the US, UK and the Euro zone. Against expectations the Australian

Reserve Bank recently kept interest rates at 4.25%. The market was expecting a cut to 4%.

On-going strength is very dependent on China. Although the Chinese economy is still growing,

there have been one or two signs of a fall off in Chinese demand. China’s central bank has cut

the reserve requirement ratio to boost lending and manufacturing while the Purchasing Managers

Index figures released showed a contraction for the fourth straight month.

Therefore be wary of expecting any further significant appreciation in these currencies relative to

the US$, € and £. Current probability would seem to be weighted more towards the commodity

backed currencies weakening.


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”The service we’ve received from Smart has been great since day one.

Not only do our contacts there keep us up to date with changes in the

world of currency through daily emails, they also call us when they feel

particular changes in the markets could benefit our business“

”With their help we have saved thousands of pounds, compared to the

rates offered by our bank. I would recommend Smart’s service to any

company with currency exchange and international payment needs“

Gavin Baldwin, Accountant, Trinity House


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Forecasts

Making assumptions is usually best avoided. This is impossible if you want to predict the future.

Therefore be very careful in assuming that the following predictions have any merit. History has

also shown that predicting exchange rates can be a fool’s game as they move in the opposite way

to that expected, even though all the assumptions made are totally logical. Sterling is expected to

make gains against the euro in the coming months, but it is worth noting that this has been the story

for the last three years and that sterling spent much of 2011 under €1.15/£1. As a result it pays

to be prepared and take advantage of better rates through hedging strategies. Against the US$

the expectation is to stay at current levels although UBS are forecasting a much stronger US$

over the coming months. Call in now to speak to one of the team for a live update on current

market expectations.

Our expectations for 2012

1 Month 3 Months 12 Months

GBP/USD 1.56 1.55 1.52

GBP/EUR 1.19 1.23 1.25

EUR/USD 1.32 1.30 1.26

Barclays Capital forecasts for 2012

3 Months 6 Months 12 Months

GBP/EUR 1.19 1.22 1.25

To keep up to date with current interbank exchange rates, go to www.smartcurrencybusiness.com/iapp to download our

free iPhone and iPad real-time currency convertor apps

Free apps


GBP/USD Bank Forecasts for 2012


Barclays Capital 1.57 1.55 1.50

BNP Paribas 1.59 1.58 1.65

HSBC 1.55 1.56 1.60

UBS 1.56 1.54 1.44

RBC Capital Markets 1.55 1.55 1.59

TD Securities 1.53 1.50 1.61

Source: FX Week

EUR/USD Bank Forecasts for 2011


Barclays Capital 1.32 1.30 1.20

BNP Paribas 1.30 1.28 1.40

HSBC 1.33 1.35 1.44

UBS 1.30 1.25 1.15

RBC Capital Markets 1.32 1.30 1.26

TD Securities 1.28 1.22 1.32

Source: FX Week

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Graphs

To keep up to date with current interbank exchange rates, go to www.smartcurrencybusiness.com/iapp to download our

free iPhone and iPad real-time currency convertor apps

Free apps

1.10

1.12

1.14

1.16

1.18

1.20

1.22

1.24

01 April2011

01 May2011

01 June2011

01 July2011

01 Aug2011

01 Sept2011

01 Oct2011

01 Nov2011

01 Dec2011

01 Jan2012

01 Feb2012

EUR/GBP

1.49

1.52

1.55

1.58

1.61

1.64

1.67

1.70

01 April2011

01 May2011

01 June2011

01 July2011

01 Aug2011

01 Sept2011

01 Oct2011

01 Nov2011

01 Dec2011

01 Jan2012

01 Feb2012

USD/GBP

1.17

1.22

1.27

1.32

1.37

1.42

1.47

1.52

01 April2011

01 May2011

01 June2011

01 July2011

01 Aug2011

01 Sept2011

01 Oct2011

01 Nov2011

01 Dec2011

01 Jan2012

01 Feb2012

EUR/USD

Client Support - Contact Details

Research Team:

Carl Hasty +44 (0) 207 898 0501 [email protected]

Corporate Sales:

Alex Bennett +44 (0) 207 898 0502 [email protected]

Nick Ryder +44 (0) 207 898 0503 [email protected]

Bryan O’Connell +44 (0) 207 898 0500 [email protected]

Nick Colling +44 (0) 207 898 0500 [email protected]

Corporate Trading:

Carl Hasty +44 (0) 207 898 0501 [email protected]

Siobhain Barry +44 (0) 207 898 0500 [email protected]

Address:

Smart Currency Exchange Ltd

One Lyric Square

London

W6 0NB

United Kingdom

Tel: +44 (0) 207 898 0500

Fax: +44 (0) 207 898 0557

Disclaimer:Smart Currency Exchange Ltd is authorised by the Financial Services Authority under the Payment Services Regulations 2009 (FRN 504509) for the provision of payment services.

Smart Currency Exchange Ltd is authorised and regulated by HM Revenue and Customs under the MLR no 12198457.

The information in this report is provided solely for informational purposes and should not be regarded as a recommendation to buy or sell. All information in this report is obtained from sources believed to be reliable and we make no representation as to its completeness or accuracy.


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march 2012 - outlook

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