Currency bark is worse than its bite
Friday 10 March 1995
Since last week, the dollar has fallen 1 per cent against the pound, but the pound in turn has lost 2-3 per cent of its value against the mark and yen. Since last December, sterling has weakened 5-7 per cent against its strongest rivals.
The value of foreign shares is immediately and inevitably affected. But perversely, the impact of these latest currency changes has been largely offset by an opposite movement in the underlying value of shares.
The Japanese stock market has been distinctly listless, as Nick Leeson and his bosses at Barings discovered to their cost. The German stock market is close to its recent lows and it, too, fell out of bed on Friday, for reasons that are not altogether clear. It may have been rumours of a banking collapse, but it could have been the uncomfortable realisation that if the mark becomes too strong, German goods will price themselves out of markets at home and abroad, and even German companies with operations outside their home base will find their income flows diminished. For equal and opposite reasons, the New York stock market has been quite robust in relation to the weakness of the dollar. The dollar has fallen to historical lows against both the mark and the yen, but the US is still quite relaxed about inflation, and the risk of importing it is not yet seen as a threat. The Dow Jones is therefore still flirting with its recent record high of 4,011
Currency fluctuations have therefore had less of an immediate impact on specialist unit trusts and investment trusts investing in Tokyo, Frankfurt and New York, but denominated in sterling, than investors might have imagined. Currency fluctuations tend to have rather more impact on the price of investment trusts, if only because unlike with unit trusts, investment trust managers have the right to hold funds in cash and to borrow in various currencies.
Bond funds often reflect currency fluctuations more strongly, because a weak currency often brings rising interest rates and falling bond prices. But the purest reflection of currency fluctuations can be seen in the various money funds, mostly based in the Channel Islands or Dublin, which make their money out of a combination of currency values and interest rates.
Even they can be deceptive. Money funds invested solely in marks or yen will have reflected the currency gains in full, while dollar funds will have suffered, although the value of the funds in their constituent currencies will appear little changed. But managed and diversified money funds are invested in a range of currencies and denominated in sterling and will have shown perceptible changes depending on the mix.
- 1 Malaysian cyclist could face disciplinary action after 'Save Gaza' gloves protest
- 2 Is Gideon Levy the most hated man in Israel or just the most heroic?
- 3 Fifty Shades of Grey trailer provokes moral outrage from US parenting groups
- 4 McDonald’s removes chicken nuggets from the menu in Hong Kong amid major food scare
- 5 Students offered grants if they tweet pro-Israeli propaganda
Israel-Gaza conflict: Israeli targeting policy under scrutiny after shellfire hits a mother and child, a school full of refugees and a doctor’s home
MH17 crash: Investigators discover more human remains and 'huge section of plane'
Students offered grants if they tweet pro-Israeli propaganda
McDonald’s removes chicken nuggets from the menu in Hong Kong amid major food scare
Satellite full of sexually experimental geckos adrift in space, Russia loses control of mission
Malaysia Airlines MH17 crash: Vladimir Putin is given 'one last chance' to end hostilities in Ukraine
The 'scroungers’ fight back: The welfare claimants battling to alter stereotypes
The truth about conspiracy theories is that some require considering
Arizona execution lasts two hours as killer Joseph Wood left 'snorting and gasping' for air
Malaysia Airlines MH17 crash: Ukrainian military jet was flying close to passenger plane before it was shot down, says Russian officer
Malaysia Airlines MH17 crash: Massive rise in sale of British arms to Russia
iJobs Money & Business
£600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...
£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...
£280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...
£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...