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HSBC profits fall by 28%

News already out this morning confirmed that HSBC’s half-year profits fell by 28%; the main leakage occurred in its North American arm which made a $2.8 bn loss.  HSBC warned that the current financial markets are the toughest for several decades.  The forex markets digested the news by selling the pound against both the dollar and the euro from earlier gains.

The problems in the global banking sector seems to be escalating and this is very apparent in eastern Europe as many currencies have fallen to their lowest levels for years over concerns in the banking sector.  On Friday a €24.5bn package was unveiled from multilateral lenders: the World bank, The European Bank for reconstruction and Development and the European Investment Bank.  It is hoped that this united front and direct stimulus will help the beleaguered sector to recapitalize and start lending; the Polish Zloty, Czech Koruna and Hungarian Forint bounced higher on the news.

The main focus this week will be on the interest rate announcements from the UK and the ECB.  It is expected that both central banks will cut rates by 50 basis points; this is no surprise for the UK, however it will indicate a realization that the ECB are looking to act more aggressively than previously and this could weaken the euro.   In the UK it is expected that plans will be initiated to commence quantitative easing as another measure alongside policy easing. 

In the forex markets this morning we are seeing weakness in the higher yielding currencies as the ZAR, NZD and AUD and CAD slump on the back of a slump in Asian equities.  This has caused USD strength as USD/ZAR hits 10.30 and USD/CAD reaches 1.28; however the pound is also testing better levels against the higher yielders with GBP/NZD hitting 2.90 and GBP/ZAR breaking above 14.50.

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