Today we'll have quick look at where the markets stand after yesterday, the look at the effects Swine Flu are having on the currency markets and finally today's data and what it may hold in store for Sterling exchange rates.
GBP/EUR
As we correctly predicted yesterday, Sterling to Euro rates rose throughout the day, making back some of the pounds fall from last week. This morning however, rates have started to come back down due to fears over the Swine Flu, and also figures that showed even though UK house prices still fell year on year, it was the slowest decline in 12 months, which gave positive signals for the UK economy.
However, other figures have cast doubt on a housing sector recovery. The British Bankers Association said the number of mortgages approved for new property in Britain fell by a quarter year-on-year in March. So, markets wait for further figures to gauge which direction things may be going.
We may see more decline in the GBPEUR rate today due to swine flu affecting the market, as outlined below. However, as I stated in yesterdays report, there are lots of economic data releases for the Eurozone tomorrow and Thursday, and it's very possible the figures will be worse than predicted. This may cause the Euro to weaken and rates to rise. I think the best we can hope for though will be 1.12 to 1.13.
GBP/USD
Despite making gains against the Euro, the pound fell against the dollar due to the reasons outlined below, and continuing fears over the UK's debt.
Swine Flu
Concerns that an outbreak of swine flu would hit the global economic recovery have also affected the value of the pound. What's happening is investors are getting rid of riskier assets for the perceived safety of the US dollar and Japanese yen.
As I said in yesterdays report, 3 things tend to happen when we have the risk of a pandemic like this; equity markets fall, the US dollar strengthens, and there's a flight to quality. So, the pound was sold off as traders moved back to the safe haven dollar - this is why the GBPUSD rate dropped yesterday.
Global shares also fell yesterday as the oubreak continues to weigh on the world markets. The FTSE 100 index was down 1.4% , and the Nikkei earlier closed down 1.7%. Hong Kong's Hang Seng shed 1.4%. Finally, the Dow Jones index lost 0.6% in New York on Monday.
"We had finally begun to see a bottom for the global economy and that has been ruined by pigs," said analyst Tsuyoshi Segawa of Shinko Securities. Airline shares also tumbled as investors fear people will put a halt to global travel until the outbreak is contained. Expect volatility and US Dollar strength to remain while this issue remains.
Recession news
On a light hearted take on the global downturn, there are reports this morning that sales of Y-fronts have increased by over 35% since the recession began, according to Debenhams. In March the store said that Y-fronts outsold boxer shorts for the first time in 20 years, which incidently is the last time the UK was in recession.
A spokesman for the store said the success of Y-fronts sales were probably down to the "greater sense of security" they provide. I'm not sure that this is a reliable tool to measure when the recession will end, and I certainly won't be using it as a tool when reviewing where exchange rates may go, but it made me laugh!
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