Brit gain, Indian currency pain in 2008

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LABOUR PAIN: Expat labourers will continue to feel the currency crunch.

Life, as Forest Gump once said, is "like a box of chocolates - you never know what you're going to get". While the same could be said when you convert your dirham or riyal on a daily basis, the trend lines for expatriates planning to remit earnings to the UK, India and to Europe in 2008 are becoming clearer.

In short 2008 will be kinder to the Brits, crueler to Indians - and confusing for continental Europeans.

HSBC recently predicted the possibility of a "perfect storm" for the UK pound. With confidence in the British economy waning, and interest rates on a downward trend, the UK headquartered bank's end of year report argued the ‘hot money' invested in the country could leave as fast as it arrived, causing the UK pound to fall sharply.

However, while the decline will be marked, it will not be a collapse. By the end of 2008 HSBC, with the most pessimistic forecast, estimates the pound will fall to $1.80, Lehman $1.85, Investec has penciled in $2.03 and RBC $1.96. That's a fall of around 10 to 13% from sterling's peak of $2.11 in November - or a gain of 10 to 13% in terms of UK purchasing power with the dirham or riyal.

Meanwhile the euro is expected to end 2008 as it started the year, but the currency will swing widely in between. Bank of New York Mellon, one of the largest foreign exchange traders, sees the euro surging through $1.50 and peaking at $1.54 by the end of the first half of 2008 and ending the year on $1.45.

With the euro presently trading at 1 euro for $1.44 that means by the end of next year things should be pretty much as they are now, but expatriates would do well to avoid sending currencies home during the first half of 2008.

Finally while the British will be able to afford a second helping of Christmas pudding next December, Indian expats will have to cut back. Most analysts, including ABN Amro Bank's newly-appointed India chief Meera H Sanyal, are predicting the continued appreciation of the rupee. "We expect the rupee to appreciate vis-a-vis the dollar through 2008. However, the appreciation will be gradual and perhaps, not as rapid as it has been in the last few months."

HSBC's currency team agrees, expecting the rupee to appreciate against the US dollar over the coming year, but at a much slower rate than in 2007.

Indian expatriates were particularly hard hit by the appreciation of their currency in 2007, and its continued rise will be sobering news for both non-resident Indians, and recruiters looking to bring in subcontinent labour.

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