Currency bark is worse than its bite

AS CRISES go, the currency storm that struck last week was - or has been so far - quite mild, and investors who were slow to react have probably saved themselves some anxiety.

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.

News
Shoppers at Selfridges department store in central London
black friday
Arts and Entertainment
Joel Edgerton, John Turturro and Christian Bale in Exodus: Gods and Kings
filmDirector said film would 'never have been financed' with ethnic minority actors in key roles
Life and Style
View of champagne glasses at a beach bar set up along the Croisette during the 66th edition of the Cannes Film Festival in Cannes on May 17, 2013
food + drink(and for now, there's a clear winner)
News
people
PROMOTED VIDEO
News
ebooksNow available in paperback
News
Irradiated turkey and freeze dried mash potato will be on the menu this thanksgiving
video
News
Andy Murray with his girlfriend of nine years, Kim Sears who he has got engaged to
peopleWimbledon champion announces engagement to girlfriend Kim Sears
Arts and Entertainment
George Mpanga has been shortlisted for the Critics’ Choice prize
music
Arts and Entertainment
Roisin, James and Sanjay in the boardroom
tvReview: This week's failing project manager had to go
News
Ed Miliband visiting the Holocaust museum in Jerusalem. The Labour leader has spoken more openly of his heritage recently
newsAttacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But are the barbs more sinister?
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Citifocus Ltd: ACA - Financial Reporting

£Attractive Package: Citifocus Ltd: Chartered accountant (ACA or CPA), must be...

Ampersand Consulting LLP: UI Designer/ User Interface Designer (UI, User Flow, Design)

£6000 - £60000 per annum + Bonus and Benefits: Ampersand Consulting LLP: UI De...

SThree: The benefits of Recruitment at SThree...

£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

h2 Recruit Ltd: Head of Regional Sales - Financial Software - £130,000 OTE

Negotiable: h2 Recruit Ltd: A rapidly expanding, global Software/ SaaS Vendor ...

Day In a Page

Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

Sol Campbell cries foul at Labour's mansion tax

The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

Sarkozy returns

The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
Is the criticism of Ed Miliband a coded form of anti-Semitism?

Is the criticism of Miliband anti-Semitic?

Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

Ouija boards are the must-have festive gift

Simon Usborne explores the appeal - and mysteries - of a century-old parlour game
There's a Good Girl exhibition: How female creatives are changing the way women are portrayed in advertising

In pictures: There's a Good Girl exhibition

The new exhibition reveals how female creatives are changing the way women are portrayed in advertising
UK firm Biscuiteers is giving cookies a makeover - from advent calendars to doll's houses

UK firm Biscuiteers is giving cookies a makeover

It worked with cupcakes, doughnuts and macarons so no wonder someone decided to revamp the humble biscuit
Can SkySaga capture the Minecraft magic?

Can SkySaga capture the Minecraft magic?

It's no surprise that the building game born in Sweden in 2009 and now played by millions, has imitators keen to construct their own mega money-spinner
The King's School is way ahead of the pack when it comes to using the latest classroom technology

Staying connected: The King's School

The school in Cambridgeshire is ahead of the pack when it comes to using the latest classroom technology. Richard Garner discovers how teachers and pupils stay connected
Christmas 2014: 23 best women's perfumes

Festively fragrant: the best women's perfumes

Give a loved one a luxe fragrance this year or treat yourself to a sensual pick-me-up
Arsenal vs Borussia Dortmund: Alex Oxlade-Chamberlain celebrates century with trademark display of speed and intuition

Arsenal vs Borussia Dortmund

The Ox celebrates century with trademark display of speed and intuition
Billy Joe Saunders vs Chris Eubank Jnr: When two worlds collide

When two worlds collide

Traveller Billy Joe Saunders did not have a pampered public-school upbringing - unlike Saturday’s opponent Chris Eubank Jnr
Homeless Veterans Christmas Appeal: Drifting and forgotten - turning lives around for ex-soldiers

Homeless Veterans Christmas Appeal: Turning lives around for ex-soldiers

Our partner charities help veterans on the brink – and get them back on their feet
Putin’s far-right ambition: Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU

Putin’s far-right ambition

Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU
Tove Jansson's Moominland: What was the inspiration for Finland's most famous family?

Escape to Moominland

What was the inspiration for Finland's most famous family?