Save £1300 more per year on food with these tips

by Magical Penny on February 24, 2016

shopping tips for supermarketsHave ever walked out of a supermarket with some GREAT DEALS but by the time you got home you’ve realised that you’ve spent way more than you had intended? You thought you were saving money but instead your budget is completely blown?

A new study has confirmed what many of us, already know: Supermarkets are the experts at getting us to spend more money than we intend to!

In the study, it was found that special offers make us spend £1300 more per year. That’s 21% more than we intend to!

The research comes from the Money Advice Service, which found more than three quarters of shoppers (76%) regularly spend more on food than they planned because of all the special offers presented to them in-store, leaving the supermarket having spent an extra £11.14 on average.

Even those who try to work out if something really is a good deal often find it hard to calculate, with the value of a single item versus an item in a multipack causing them to fall into a maths trap.

The study asked more than 2,000 consumers to select the best value options when presented with four sets of offers commonly found in the supermarket. Only 2% correctly identified the best deals in all four cases.

The results also showed differences between the genders. Women tend to go for snacks such as chocolate or sweets (60% vs 51% of men) and baked goods (43% vs 35%) — whereas men are more likely to buy meat (26% vs 21% of women), alcohol (27% vs 17%) and ready meals (24% vs 19%).

How To Keep Your Food Budget Under Control

Don’t shop when tired

Shopping when tired and bored will also result in the average shopper buying three additional items – spending up to £14.53 extra each time.

Make a shopping list

Preparation is the best way to guard against overspending. Those who always make a shopping list are three times less likely to overspend than those who don’t, spending close to £200 less on groceries over the year. Of those who make a shopping list or work out the meals they’re going to make before they go to the supermarket, most (61%) say it makes them feel more in control of their money.

Check Like With Like

When it comes to checking prices, look at the price per unit or compare the prices of similar weight products to make sure you are getting value for money.

Don’t shop with your kids if possible

‘Pester power’ can add to your bill. 26% admitted to giving into their children and buying £15.50 worth of items each time they hit the shops to keep the children happy.

Don’t shop with an empty stomach

After special offers, close to six in 10 (59%) shoppers say shopping on an empty stomach makes them spend more.

 

John Penberthy-Smith, Customer Director for the Money Advice Service comments:

“The problem is that quite often we see a special offer at the supermarket and we don’t want to miss out – so we throw it into our trolley without really thinking about whether it is a good deal or whether we actually need it.  “Often deals can be difficult to understand and compare with other prices. Then there’s waste – even if the offers are cheaper, bigger packets or 50% extra are not always good value for money if we end up chucking most of it away. The best thing to do if you want to save cash is to write a shopping list and try to stick to it. You can also try shopping when you’ve just eaten and you’re not tired. Just remember, buying own brands and being savvy when it comes to tempting ‘offers’ will save you money in the long run.”

 

 

For more money saving tips to help you shop smarter visit the Money Advice Service website.

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From Financial Struggle To Thriving – Play to Win

by Magical Penny on February 24, 2016

footballThe distance between financial struggle to financial thriving can be short or long, depending on your circumstances, skill-level and persistence. But wherever you are today, the most important thing is making a promise to yourself that you will continue moving forward one day at a time. If you’re reading this and money is so tight that you’re worried you won’t last until your next pay day, one idea is to consider registration loans using your car as collateral on a loan. Using your car reduces the risk for the lender allowing them to provide a lower interest rate than might otherwise be available for the loan.

If you’re doing a little better with your money and don’t need to use your car’s title to get a loan but still wish to improve your circumstances it might help to think about your financial situation like it’s a competitive sport such as football.

Personally, I’ve never been much of a fan of watching football but I still know the best teams don’t rely simply on a good offense or good defence. They need both. Certainly, some teams manage to dominate the game by focusing their efforts on a strong offensive strategy, but in almost all teams there must be a basic level of defence to ensure that the game is won.

It’s the same with your money. 

People with less money can save interest on debt by looking into secured loans, like the car example above. They also need to play a strong offensive game to try to raise their income level. That said, a great income is no substitute for having a strong defensive money strategy. You need to recognise your money needs all the help it can get to protect it from the many threats to growing wealth.

Even if you are or have been doing well financially, i.e. you are the star striker in your financial life you may need help taking your money-game to the next level. You need to put in a place a financial plan to map out a way to reach your  goals in the best way possible. Talking with a professional financial planner can be particularly helpful as they understand the rulebook and can save their clients from getting the red and yellow cards of excessive tax and penalties.

Some say a good offence is the best defence, but this is only true up to a point especially for more affluent soon-to-be retirees. This stage of life is when developing a strong defence is particularly important to ensure money is not lost to the tax man in various guises, from capital gains and breached income tax thresholds, to local authority care fee demands and eventually to inheritance tax at the end of life’s 90 minutes.

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The Death of Cash: Why the Next Generation Will Never Touch Physical Money

by Magical Penny on February 19, 2016

Using credit cardsThe writing is on the wall for the concept of physical cash. Sure, it may have served us well for the past several centuries but in a digital age, cash is becoming obsolete at such a rapid pace that the only way our children’s children will ever get to see coins and notes will be in a museum.

At least, that’s likely to be the case if Apple CEO Tim Cook is to be believed. Speaking this past November at Trinity College in Dublin, Steve Jobs’ successor boldly predicted the death of cash, telling students ‘your kids will not know what money is.’Of course, we could always dismiss Cook’s claims as merely marketing propaganda; he was, after all, speaking to Trinity students to promote the launch of Apple Pay, the contactless payment system serving as an alternative to paper and sterling in over 250,000 shops and counting.

To do so however, would be to ignore the fact that there are many others out there without Cook’s agenda who backup his statement. In an August 2015 survey carried out by Lloyds Bank, 39% of those questioned believed that they would not need cash at all in a decade’s time. For Lloyds and their fellow retail banks, this kind of news could come as something of a tough pill to swallow. Surely the death of cash would also spell the death of high street banking branches where the majority of activity still revolves around processing and managing cash transactions.

Spending and saving moneyIf Lloyds and their ilk were far from on the ball, it could well do, certainly, but something tells us that isn’t going to be the case. That something? This, from Lloyd’s Bank Head of Personal Current Accounts, Claire Garrod: “People are increasingly expecting to use new technologies to make payments rather than rely on cash. The benefits of these new developments are gradually being understood and embraced by banks and their customers, to make payments more convenient without compromising security.” (link)

Ms. Garrod’s statement, taken from the press release which accompanied the publication of the Lloyd’s August 2015 survey, is perhaps typical of the current mindset of many of our banks: it’s time to evolve.

To evolve successfully in a climate where the worlds of finance and technology are rapidly merging, outfits like Lloyds, Barclays and their competitors should now be channelling their efforts into joining forces with the big name players in the FinTech sector. One of the most talked-about industries of the last several years, so-called FinTech Unicorns (startups valued at more than $1 billion), have attracted some serious investment as of late as they continue to find innovative new ways to help every day consumers manage their finances. Investment specialists estimate that this kind of high level funding is only going to increase over the coming 12-18 months, ultimately putting new ventures like credit processing firm WePay alongside successful financial tech veterans like financial software specialists Misys and posing what – on the surface at least – seems like a serious threat to banks.

 

Over in the United States for example, global investment bank Goldman Sachs recently predicted that further FinTech innovation would “steal” around $4.7 trillion from the coffers of retail banking, not that financial technology and the banking industry need necessarily approach the continued evolution of both sectors as a case of “Us vs. Them.”

 

Indeed, whether the untimely demise of money really is nigh, or whether it will still exist in some reduced form, the move to contactless payment systems like Apple Pay represents not the end, but the beginning of a new way that both sectors can ultimately achieve their primary purpose: serving customers. And that brings us back to our earlier question: Will the move towards greater innovation in financial technology ultimately render retail bank branches obsolete?

 

autumn statementNot necessarily.

 

As Nic Merriman – CTO of Financial Services at Avanade UK – predicted in an article for Media Planet, branches are still likely to be around albeit in a much different role from the days of housing and processing cash transactions. Instead, Merriman suggests that the branch of the future will deliver services primarily through smart devices, with “customers given access to information and services they can interact with on the go.” In other words, whilst Tim Cook’s bold predictions may yet come to fruition over the next ten years, we wouldn’t start dusting off those funeral suits to mourn the demise of the modern bank any time soon.

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How to Become a Currency Trader in Three Simple Steps

by Magical Penny on February 18, 2016

The world of the foreign exchange is fast-paced, volatile, and tempestuous, and its speed and complexity can be incredibly daunting for would-be traders. It’s true that it requires skill, time, and talent to master it, but with enough determination and a strong desire to succeed, anyone can make their mark on the markets.

The foundations of your future successes will lie in your strategy, and this is largely determined by three key components: your knowledge, your currency pairs, and your broker. If you can get these right, then your path to profits should be smooth, straightforward, and extremely lucrative.

To help you get started, here are three simple steps that you need to follow…

Step One: Educate Yourself

 Forex trading is essentially an academic pursuit, and like science or maths, the best way to master it is by taking the time to educate yourself. There is no denying that the markets are complex, intricate, and difficult to unravel, but with the right resources and a hefty dose of determination, anyone can wrap their heads around the central concepts of the foreign exchange. Take the time to do your research before you even think about trading, educating yourself on tactics, terms, and everything in-between. Once you feel that you’ve mastered it, go over it all and again, and only then embark on the next step in the process.

 

Step Two: Choose Your Currency Combinations

Once you’ve taken the time to educate yourself on the world of the foreign exchange, you’ll need to choose your currency combinations, and your newly acquired knowledge should stand you in good stead when it comes to making your decisions. You’ll soon discover that there are dozens of combinations to pick from, and not all of them will suit your preferred tactics or personality type to the same degree. Although the more common combinations are often a good starting point for beginners, it’s handy to try giving a few different pairings a theoretical run through, writing down how you would choose to trade them, and then logging whether or not your strategies would have delivered success.  This will soon help you to discern which combinations work best for you.

 

Step Three: Choose a Broker

 Once you know which currency combinations you wish to add to your portfolio, you need to do your research and shortlist a variety of brokers who offer them. You’ll often find handy reviews of their professional practices online, and should do some background digging to help you determine how successful they are. Don’t forget to consider the type of service that they offer too (execution-only, advisory, or discretionary), as these will offer varying levels of support, and it’s important to realistically assess how much help you’re going to need from the professionals.

 If you can get these three simple steps right, then you’re off to the very best of starts when it comes to achieving trading success. 

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Bad credit and its effects

by Magical Penny on December 17, 2015

Using credit cardsMany people find the option of purchasing items on credit very attractive.

This can be very helpful in certain circumstances. For example ‘buy now pay later’ enable people who have no free cash to buy larger items such as sofas or electrical goods to get the items right away without paying for them straight away, you would pay for them at a later date or the option is often there to pay it in instalments over a set period. These payment plans can be great as long as you stick to the payments or don’t forget that you need to pay back the initial amount by the set date. If you miss payments or fail to pay the full amount on time it’s easy for the payment amount to rise substantially in a short amount of time. There will be interest added and late payment fees. If you are going to go ahead and use one of these plans then you need to ensure you can make the payments or you could get into financial distress.

 It’s things such as the above that can affect your credit score. Having a poor history of reimbursing back your borrowings makes it more problematic for you to borrow in the future. This is why it is so important to keep track of everything and make your payment on time.

 Put simply bad credit is the consequence of making poor financial choices one after another. If you borrow money whether it’s a loan or store credit or credit card it will be assumed that you are going to pay it back one way or another. Whether it has been set up via monthly instalments or paying back the total by a set date. This was the condition that you were allowed to borrow the money/given the credit in the first place and it’s vital you stick to this agreement, otherwise your credit score will be affected. Furthermore not sticking to this means you will incur further fees. It is very important to only apply for a loan when there aren’t any other routes otherwise you risk putting yourself in a worse financial position. To put it frankly having a poor credit history deems you to be ‘untrustworthy’ by lenders as you aren’t someone who is seen to be a good person to lend to as it may be unlikely that you will make the repayments. Therefore you may not be someone they will allow to have a loan or credit or if you are approved you will have a much higher interest rate than someone with a good credit rating.

You should make it a priority to repair your credit score fast. Pay off your existing debt and get yourself a plan to make the debt in your life a thing of the past. It may take some time but you could eventually reach a place where you have a good credit rating once more, and your debt has become much more manageable, and eventually, totally gone!

Good luck!

 

 

 

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Spending Review and Autumn Statement 2015 

by Magical Penny on November 25, 2015

Today was a big day for people working in Financial Services, and for the clients that we serve.

The Chancellor has today delivered the Spending Review & Autumn Statement 2015. Whilst the speech set out his spending plans over the next 5 years, there were other announcements made including those relating to pensions and taxation. Here’s a summary and some comments by Jonathan Watts-Lay, Director, WEALTH at work, leading providers of financial education, guidance and advice in the workplace.

 

State pension

The Chancellor confirmed they will maintain the triple-lock (the higher of price inflation, earnings growth or 2.5%) and that the basic state pension will rise by £3.35, bringing it to £119.30 per week. However, if you are retiring on or after the 6th April 2016, the new single tier state pension will be no less than £155.65 and will depend on having 35 qualifying years of National Insurance contribution.  There will be a deduction for those who were contracted out of the Additional State Pension.

comments, “In reality, not everyone will be eligible for the maximum amount of the new state pension. Therefore, it is important that you check your State Pension record and National Insurance contribution history early; if you have any gaps you may still be able to make up the difference. We urge everyone approaching retirement to make an enquiry to find out what they are going to receive. You can request a State Pension statement using a form called a BR19, which is available online or by calling the government helpline on 0345 3000 168.”

Buy-to-let

Some people plan to use buy-to-let properties to fund their retirement as an alternative to saving towards a traditional pension pot.  However the Chancellor has continued the theme, set in the summer Budget, of making such investments less attractive from a tax perspective.

In the summer the removal of the wear and tear allowance was announced. Previously, landlords of furnished properties could claim 10% of their rent as tax relief for wear and tear, but this is no longer the case. Instead, the allowance is being replaced by a system that only allows landlords to deduct costs they actually incur. Also, the tax relief landlords receive on their mortgage interest payments was to be cut from 40% or 45% to 20%.  Today it has been announced that the purchase of additional residential properties, such as buy-to-lets, will be subject to higher stamp duty, 3% above the current rates.  Additionally and under consultation, capital gains tax on the disposal of a second property will be required to be made within 30 days of the completion of the disposal as from April 2019.

Watts-Lay comments, “It is clear the Chancellor has targeted the buy-to-let market and is reducing the previous tax breaks. These changes may put off new entrants to the market who were relying on the tax breaks to make the investment viable. Although there are other considerations to take into account, I believe there are other more tax efficient and flexible methods of saving for retirement. Make sure that if you are still working you have maximised your pension savings on which valuable tax reliefs are available, depending on individual circumstances. Making use of generous ISA allowances also tend to feature high on most agendas and both spouses should utilise the annual tax free limits.”

Secondary annuities

The government will remove the barriers to creating a secondary market for annuities, allowing individuals to sell their annuity income stream. Further details on this measure will be set out, including the framework for the consumer protection package, in its consultation response this December.

Watts-Lay comments, “Once introduced, it could be good news – allowing individuals to sell the income they receive for a cash lump sum. However, the ‘sting in the tail’ is what value they are likely to be able to get, and in reality this may not be good.  In addition, caution is required because once the money has gone, it’s gone.”

Watts-Lay concludes, “It looks like the Government is waiting to respond to the pension tax relief consultation in the next Budget. High earners might want to consider making the most of the next few months in case higher rate tax relief is removed.”

 

WEALTH at work is a leading provider of financial education in the workplace. It provides a service which helps employees to understand how to maximise the value of their benefits by delivering financial education tailored to the needs of individual companies and of different employee groups within those companies. This can then be supported by online guidance and an advice service which allows, for example, the linking of company share schemes to pensions and ISAs, retirement income planning for retirees and specialist support and guidance for senior executives. For more information, visit www.wealthatwork.co.uk

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The changing face of personal loans

by Magical Penny on November 19, 2015

autumn statementGeorge Osborne’s Autumn Statement is only days away, but few members of the public will be expecting too many early Christmas presents when he addresses the nation. Much of the circling opinion suggests it will be more a case of finding a place to plunge the axe, and with reducing the fiscal deficit being the main priority, working people won’t be holding their breath for much in the way of handouts or relief.

And the inevitable bitter aftertaste will no doubt centre on the extortionate cost of living facing Brits today. The Chancellor has rightly pointed out that the relationship between wage growth and inflation is as favourable as it ever has been at the moment, but it isn’t nearly enough to offset the concerns of a generation struggling to provide the life they imagined for themselves and their families – let alone climb aboard the housing ladder. Indeed, debt, rather than growing net asset value, is the reality facing many of us.

Consumer-friendly credit

On a positive note though, consumers can at least take solace from the fact that if turning to a helping hand is a necessity, the market for credit isn’t the overpriced minefield it once was. In fact, the combination of record-low base rates and an increasingly competitive landscape has created a perfect storm for an abundance of low interest loans.

The premier source of such improved competitiveness – and, by extension, improved value – has been the rise of alternative finance providers, with peer-to-peer lending (P2P) platforms in particular leading the way. Such online lenders conduct their business by matching money from those consumers willing to lend as an investment directly with those in need of a loan.

The chief selling point of such a model is its efficiency, with any middlemen or red tape eliminated in this most natural of interactions. The platform acts purely as a mediator, ensuring that controls are in place to ensure that only creditworthy applicants make the cut. But, other than a small admin fee for this service, they leave the resultant value to be enjoyed by both borrower and lender.

For the borrower, this means receiving a low-cost loan with a favourable APR, with the ensuing monthly repayments allowing the lender to benefit from returns on their money typically in excess of 5 per cent. And as a borrower, there are further advantages to be had too in terms of flexibility.

Loans can be taken out for a variety of purposes including debt consolidation, home improvements, car finance or holidays, and you also have a good degree of choice in both the loan amount (£1,000 to £25,000) and the loan term (1-5 years). Some peer-to-peer platforms such as Lending Works even offer the option to make overpayments or early settlements at no extra cost.

And it requires the minimum amount of input to set the ball rolling too, with an online application form usually needing no more than two minutes to complete. The approval process then takes no more than a solitary working day, and if the desired decision on the application is returned, a borrower can expect to receive the funds overnight. Quick, simple and affordable – just as a loan should be.

Loans that work for you

So while Wednesday’s Autumn Statement is unlikely to give you the lift you need with the festive season ahead, there is no need to feel too disheartened. Being debt free will always be the primary objective for all of us, but the perception of loans as some sort of financial straitjacket is fading. Instead, they can be a sensible way of making proactive decisions – with nothing more than reasonable repayment plans as a consequence.

Be sure to do your homework, and always check the fine print when perusing the offers from various lenders. But there are great deals to be had out there, and they aren’t all that difficult to find. The power, for once, is in the hands of the consumer.

 

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5 Ways You Can Afford to Buy a New Car

by Magical Penny on October 29, 2015

 

CarNew car sales in the UK are on the up this year, and the new 65-plate has taken UK car registrations to a September record. More and more people in the UK are buying new cars due to the array of offers and payment packages available.

For most, searching for a new car is an exciting time, but as it is arguably the second-biggest purchase after buying a house, it can also be very expensive.

So how can you afford to buy a new car?

Scrap your car for a new one

Scrapping your old car for a new one is a great way of getting a discount on the overall cost. The only scrappage scheme currently running is being offered by British automotive manufacturer Vauxhall, so if you’re after a brand new Vauxhall, you’re in luck!

If you scrap any old car, Vauxhall will give you £2000 off a new one, provided you have owned the old car for at least 90 days and you buy a new Vauxhall. There’s no upper age limit and you can scrap a car from any manufacturer, so if you have an old car lying around this is a really good deal to take advantage of.

Go electric with the Government Plug-in Grant

The Government Plug-in Grant encourages drivers to buy a new plug-in vehicle by contributing to the cost. For example, if you want to purchase a new electric car, you can apply for a grant to cover 35% of the cost, up to a maximum of £5000. The rules are slightly different for electric vans; the grant will cover 20% of the cost up to a maximum of £8000. The ‘cost’ is the full purchase price you pay for the vehicle, including number plates, vehicle excise duty and VAT, though does not cover any extras such as delivery charges or first registration fee.

It’s not just applicable to electric cars (EVs) – the grant also covers plug-in hybrid electric vehicles (PHEVs), hydrogen fuel cell vehicles and other technologies.

The grant is currently expected to run until February 2016, though the grant will become tiered towards the end of 2015, so if you’re interested in making use of this offer, now is the best time to do it.

Sign up to a Personal Contract Purchase (PCP) scheme

The Personal Contract Purchase scheme is particularly useful for people who want to change their car every few years. This is an attractive option to many buyers as you are renting the car rather than buying it outright.

This scheme works when you pay a deposit of around ten per cent, agree to pay monthly instalments over a fixed period (usually three to five years) and defer paying a lump sum to the end of the contract.

At the end of the fixed term you have a choice either to pay this lump sum, give the car back, or sell it privately to clear the outstanding balance. If you do go for this scheme, though, it is vital that you maintain the cost and stick to the agreed millage to avoid incurring extra costs.

Apply for a Car Finance Deal

The most common way motorists can afford to buy a new car is through car finance and the number of deals available through manufactures, brokers and dealerships.

There are a number of car finance deals available and they all depend on the manufacturer and dealership, but you can expect to benefit from offers such as interest free, low monthly payments and no deposit deals. Because there are so many great offers right now, more and more finance packages are becoming available as the competition gets stiffer. In some cases you can also trade in your current car as a full deposit to keep monthly payments of a new car to a minimum.

Apply through a Bad Credit Car Finance Specialist

You may struggle to be accepted for car finance if you have suffered with a low credit rating. If you have had missed payments, defaults or arrears, a CCJ, suffered a bankruptcy or had an Individual Voluntary Agreement (IVA) you are eligible to apply for Bad Credit Car Finance.

If you apply for bad credit car finance with Stoneacre, they will initially do a soft search on your credit profile, meaning that it will not appear on your credit history. If you are eligible, you could also sign up to Black Box Car Finance. You will have a black box fitted on your vehicle, which will alert you every time a payment is due to avoid missed payments, thus helping to improve your overall credit rating. You should only do this if you can afford it, though, as if you do not pay your monthly payments, the black box can prevent the car from starting and it will be unusable.

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Third Party Problems: All About Restrictive Covenants and Your Property

by Magical Penny on October 26, 2015

mortgageIf you are in a position where you are selling a parcel of land that you own but still want to exercise some control over what the buyer will be able to do when they want to develop it and build, this would be one example of where you would use a restrictive covenant.

When you are searching for a property through a site like hamptons.co.uk and others, you will almost certainly come across properties and development opportunities where some sort of restrictive covenant is in place.

You will find that restrictive covenants cover a broad range of issues and it doesn’t necessarily mean you can’t make alterations to a property that you want to, but it might mean that you have to get permission from a third party in order to do so.

Checking for restrictive covenants

The solicitor or conveyancer that you use to help you buy a new-build or older property should check to see if there are any restrictive covenants in place when they are reading through the deeds to the property as part of the conveyancing process.

It is vitally important that the conveyancer you use checks all of the documentation thoroughly and makes you aware of any issues that they discover which might affect your ability to develop or make alterations.

If they fail to do their job properly by making you aware of any restrictive covenants, once you sign the title deeds you will have confirmed your agreement to the terms contained within the title deeds, regardless of whether you were made aware of them or not.

Suddenly discovering that you have to tear down an extension to your property which breaches the restrictive covenant might seem an extreme example, but sadly there are plenty of examples of scenarios like this occurring.

This is why checking for restrictive covenants is such a critical aspect in the buying process.

Building regulations & boundaries

There is often some confusion amongst homeowners with regard to planning permission, which is actually entirely different from restrictive covenants.

A key point to remember is that obtaining planning permission from your local authority or obtaining building regulation approval are completely separate from applying for covenant consent, which you will have to do as well if you do not want to fall foul of any restrictions.

Another common scenario area where you might encounter the use of restrictive covenants is to settle a dispute with a neighbouring property.

Someone living next door to you might decide they want to erect a fence along their boundary line and it could well be that there is a restrictive covenant in place to prevent them from building it above a certain height.

Getting legal help

The time to find out about any relevant restrictive covenants is before you buy a property and of course it might be that you are affected by them if you rent and want to make some alterations.

The enforcement of these covenants is sometimes a complex affair and employing a professional conveyancing solicitor might potentially be able to identify any loopholes or mistakes in the documentation that might render the covenant unenforceable.

The best advice is to not leave a possible third-party issue to chance of course, and that means checking for restrictive covenants at the outset.

After setting out and creating his own property portfolio, Ellis Mellor now enjoys sharing his research and property investment ideas through consulting. Ellis also likes presenting his ideas and industry trends commentary through blogging.

 

 

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Euro Loses Ground As Dollar Rallies On Poor Euro Inflation

by Magical Penny on September 24, 2015

business IPODespite making decent gains in August, following the Chinese bank’s decision to devalue the Yuan, the Euro slipped back again as European bankers cut growth forecast figures and left interest rates unchanged. The Dollar also improved amid positive employment figures. On a wider scale, the reduction in growth forecasts has raised some serious questions over the validity and effectiveness of the trillion dollar asset acquisition plan, which was meant as a means to stimulate economies and encourage growth in the region.

The bank cited low oil prices and a slowdown in emerging markets as the reasons for the reduction, with China being a primary reason for both of these factors. During a speech given by European Central Bank President Mario Draghi, where the new forecast figures were announced, the euro dropped 1.4%, especially as investors and analysts saw the announcement as an indication that the central bank would have to increase its financial support in asset investment.

Positive figures for the U.S. helped to ensure that the dollar performed well against most major currencies, buoyed by positive employment figures and a reduction in the trade deficit, although there are still some fears that the trade deficit will increase further now that the Yuan has been devalued and buyers are likely to invest in cheap Chinese products once again.

The Chinese economic crisis, which has drawn some comparisons with the early stages of the global economic crisis in 2008, has seen oil prices drop as demand from the world’s largest oil buyer dropped considerably. Chinese businesses have also suffered as the Yuan has been dragged upwards by its loose link to the Dollar over the past year. This increase in the cost of the Yuan means that companies have not been able to benefit from the low prices typically associated with Chinese manufacturers and Chinese services, and in turn this means that those businesses have had less to spend.

The result of the Chinese economic problems has been a huge drop in crude oil prices, as well as a reduction in the money spent by Chinese businesses. According to the European Central Bank, these are the two main reasons that the Eurozone has underperformed when compared to its earlier forecasts. As a result, forecasts for both inflation and economic growth were reduced.

Exchange rates closely follow forecasts, and where an economy fails to meet forecasts or is forced to revise forecasts, the market reacts. In this case, with both reductions being seen as a negative indicator of the region’s economic performance, it meant that the Euro slipped in value, undoing the gains it had made in August.

The Euro had performed well in August, following the breaking of the news of Chinese problems. Investors moved away from the Chinese economy, both in terms of stocks and foreign currency, and they moved towards the low yield Euro. The move represented investors looking for less risk and greater stability, but there had been signs that the market was becoming less risk-averse, and with poor inflationary figures around the corner, the lack of potential reward has put many investors off.

In contrast, the U.S. released positive employment figures, which led to positive sentiment regarding economic growth for the country. An increase in exports also meant that the trade deficit for July fell, and sentiment was firmly behind the USD from that point on.

Sweden’s decision to keep rates unchanged meant that Swedish crown also performed well, although this is not considered one of the major currencies. The crown hit a six week high, proving once again that interest rates really do matter to foreign exchange investors looking to turn a profit.

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