Well if you thought 2010 was a tough year, 2011 will probably bring much the same for the currency markets, with volatility certain to be the ongoing theme; all of which can cause unexpected and unwanted surprises for the business traveller.
To predict the direction of Sterling is certainly a tricky call to make this year. Despite the UK economy struggling and unemployment levels rising, inflation in the UK remains way off the Bank of England target of one to three percent and is likely to increase even further in 2011.
Whether inflation rises or falls is crucial for sterling, because if it remains around the three percent mark in the medium term, pressure is going to mount on the Bank of England to raise interest rates.
We have already seen two members of the Bank of England Monetary Policy Committee, Andrew Sentence and Martin Weale, calling for an interest rate hike and there is a growing belief that when rates do rise in the UK they will go up very quickly which should have a positive effect on Sterling. However, realistically any rate increase will probably not come until late 2011, possibly not even until early 2012, and when you couple this with the latest set of GDP figures showing that the UK economy in the fourth quarter of last year was at best flat, and at worst, actually contracting once again with the threat of a double dip recession looming as the harshest winter in a century hit retail and service sectors, the business traveller is often left not knowing which way to turn when budgeting for those important business trips.
Planning your trip in advance and taking advice from a currency broker such as Currencies Direct can help you get the best foreign currency exchange rates when you travel overseas on business.
Because currency brokers deal directly with the currency markets they can offer the best foreign money exchange rates that the banks find hard to beat meaning that you get more for your money, increasing your spending power overseas.
Prepaid cards are perhaps the most secure way of taking money abroad. Customers can only spend what is on the card, so there is no chance of going overdrawn and being stung by hefty charges when you get back. A number of cards are specifically aimed at overseas travel, such as the Currencies Direct Prepaid MasterCard, and can be a great alternative to using your own cards or traveller’s cheques.
Cards can typically be purchased in pounds, euros or dollars, meaning you can select the appropriate currency for the country you are visiting and are designed to help you avoid these hidden merchant and banking charges. Moreover, as most Currency Cards are prepaid cards, you will not be able to spend more than the balance available in the card.
And should an airline crisis develop unexpectedly such as a volcanic ash cloud or an airline strike (stranger things have happened!) you won’t need to feel helpless without access to funds abroad; you can simply add more funds to your card either online or over the phone.
The challenges facing the euro in 2011 will be much the same as in 2010 – the need to service the debt of the southern European states. Italy, Spain and Portugal have to finance in excess of €800bn of new and existing debt and should they find the market has no further appetite then the euro could really start to fall apart.
China could come to the rescue of the euro, as they certainly do not need their biggest trading partner imploding, and the Chinese are also keen to move away from having a huge dependency on the value of the US dollar.
The global economy is very different from two years ago when, post-Lehmans, Central Bank intervention to slash interest rates and flood the markets with liquidity was an easy and obvious action.
The US is out on a limb with its latest round of quantitative easing and accusations of causing “currency wars”. The eurozone and the UK are implementing austerity measures and avoiding stimulus at all costs, and the Asian economies are struggling with rapid economic growth and a constant flow of hot money into their economies which has lead to currency intervention and rate hikes.
So if you’re looking for certainty this year, the only thing we can really be sure of is that volatility will once again be the key driver in 2011 – all the more reason to mitigate your foreign exchange risk and remove the hassle from the complex world of international payments by talking to a currency specialist, allowing you to focus on your core business.
Keith Spitalnick is regional sales manager at Currencies Direct in Spain and Portugal. He enjoys a first-class reputation as a foreign exchange commentator and public speaker.
