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| What has
caused EUR/USD to fluctuate over the past three months? |
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| The past three
months have seen the US Dollar (USD) fluctuate against the Euro
(EUR) between a low of 1.1881 (5th July 2005) and a high
of 1.2589 (2nd September 2005). Since the beginning of September,
we’ve seen Dollar strength filter back into the market coupled with Euro
weakness and at the time of writing, EURUSD is trading at 1.1960. |
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| Hurricane
Katrina had a devastating impact on New Orleans in late August and concerns
arose over the cost of rebuilding the State. There was speculation that
the Federal Reserve Bank of America (FED – responsible for setting interest
rates) would put interest rate increases on hold and there was uncertainty
surrounding the impact that the hurricane would have on the economy, consequently,
the Dollar weakened against all the major currencies including the Euro. |
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| However, the
FED
continued to increase interest rates at a “measured” pace as high
energy prices have caused concerns regarding inflation. In the end, fears
over the state of the US economy proved to be over hyped as US GDP
growth remained strong and the Organization of Economic Cooperation and
Development (OECD) maintained its 3.6 GDP forecast. |
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| This
in turn has lead to Dollar strength filtering back into the market as investors
are more willing to invest in a high yielding currency. |
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| The recent
move below 1.2000 was also a result of a weaker Euro. Political uncertainty
in Germany after the German election saw the Euro weaken as Schroder and
Merkel were unable to agree on a grand coalition. |
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| To see
how currency fluctuations would affect those buying real estate priced
in Euros, a property worth €200,000 at a rate of 1.2000 would cost
$240,000. |
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| However,
a five cent move higher would leave the same property costing $250,000.
Fluctuations in exchange rates can quickly put your dream property out
of reach, unless you manage your currency exposure effectively. |
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| A sensible
strategy for someone buying property in the Euro zone would be to secure
as much of the currency needed straight away – thus fixing the cost at
the outset. If all the funds are not available, the exchange rate can still
be secured by purchasing one or more “forward contracts”. This involves
putting down a 10% deposit to secure the current rate of exchange which
can then be held for up to two years, at which point the balance (the
remaining 90%) needs to be settled. |
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| This way
of buying currency is flexible and can accommodate changes in the time
scale originally agreed – due to house sales falling through etc. The worst
thing to do is sit back and do nothing! |
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| There are
often many factors that are influencing the foreign exchange markets
and because of this it is impossible to predict future rates of exchange
accurately. HIFX, however, are world renowned for their market views with
Reuters consistently ranking us in the worlds top three most accurate. |
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| Although
we cannot predict the future, our Private Client Consultants will implement
a strategy, free of charge, to help you manage your currency risk as efficiently
as possible. |
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| Douglas
Johnson works on the Private Client Desk at HIFX Inc. To contact HIFX,
or any of the Private Client Team please call: USA 415 678-2770 and ask
for Tatiana Bidgood, email enquiries to info@hifx.com
or visit the website: www.hifx.com |
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