FX: The calm before the storm
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Foreign Exchange

FX: The calm before the storm

It appears to have been a relatively calm week in FX, which, as I’m in France trying to have a holiday, suits me. The calmness seems at odds with what is happening in the wider world.

Banks continue to write off unbelievable amounts of money, which appears to have led to a new trend of ‘blame the traders’; oil has reached new highs; inflation has become a bigger concern; and the world waits with bated breath to see if the US can avoid falling into recession.

Still, it’s not all doom and gloom. At least the weather has been nice in the French Alps, although I couldn’t but help notice that sterling has been moving against me. It is really beginning to look like the sick dog many analysts and strategists had predicted at the start of the year. I’m fortunate that I’m largely naturally hedged and derive some income in euros. However, this year I have a slight imbalance in receivables and payables and I will have to enter the FX market, albeit in small size.

Hindsight is a wonderful thing and it’s now even more obvious that euro/sterling has a solid base at 0.7400. I couldn’t bring myself to pull the trigger and do the trade when it was down there barely a week ago, and a major reason is I hate being ripped off on exchange rates.

As I’ve mentioned before, best execution does not exist in FX for small amounts. It’s always struck me as ludicrous that I could buy a few shares at the same price as an institution buying a load but buying foreign currencies results in me having my arms and legs ripped off. The equity exchanges have been right to trumpet the fact that in this regard they do provide everyone with a level playing field.

As many dealers find out every year when they repatriate their bonuses or buy their second (or third) homes abroad, the same is not true in FX. As a result of this anomaly, most of us get ripped off when we do a physical FX transaction. I can’t wait for the day when I’ll be able to access fairer rates. I don’t mind paying a bit of a spread, but I loathe one that is wide enough to drive a bus through. I hear through the grapevine that my wish will soon be fulfilled. Watch this space, as they say.

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