Foreign Exchange market update for March
WorldFirst brings you a brief insight into the activity in the foreign exchange markets (FX) and what it means for accountants and their clients.
March has been largely directed by the conflict in Ukraine, with the USD dominating across the board as investors fled to its relative safety. Since the start of the hostilities on the 24th of February, GBP/USD had lost just over 4%, falling from 1.3550 to a low of 1.3000 in the space of two weeks. The euro struggled the most against the dollar, falling 4.4% from 1.1310 down to 1.0810, the lowest rate in just under two years. The rates have followed the headlines closely, with noticeable drops during extreme periods of uncertainty. When it was reported that a nuclear power plant in Ukraine was on fire, the GBP/USD and EUR/USD rates both suffered as a result, and only began to recover once it was confirmed the fire was out and the site was stable.
Moving away from the headlines, we saw the central banks of the UK, EU and US decide on interest rate policy moving forward. Central banks use interest rates to control inflation. Each of these central banks targets a 2% annual increase, but most are seeing increases of between 5%-7%, and as a result, have begun to raise interest rates again to curb the rises.
On the 17th of March, we saw the Bank of England raise interest rates a further 0.25%, pushing up to 0.75% in total. Generally, when a central bank raises interest rates, the domestic currency appreciates as it becomes more attractive to investors, though we saw a steep 50 pip drop off for the pound against the USD and euro right after the decision. This was due to the rhetoric from the BoE shortly after, after a member was quoted saying market expectations for the interest rate in the UK to reach 2% by the end of the year were ‘extreme’.
If you’re looking for expert support and guidance on ways you can be more efficient and save your clients money on their FX needs, get in touch with WorldFirst.
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