Pound falls on weak economic data
Bank of England (BoE) data showed lending to UK businesses fell for the fifth month in July and home loan approvals dropped to their lowest in more than a year. This pushed the pound lower. Then, data from property website Rightmove showed property asking prices in England and Wales fell for a third consecutive month in September and have lost half the gains they made in the first six months of the year.
The bad data knocked the pound, and exchange rates have fallen. The volatility will likely continue while markets are unsure about the state of the economic recovery.
If you are worried about rates falling, then contact us today to discuss how we can help protect you against further losses.
Regular readers of this report will be aware that we always look to keep you abreast of all that is going on the markets. In addition today we have a broad overview of The FX markets in the current financial climate. This is useful given that all over the world different economies are using different tactics to try and avoid a second recession.
In the U.S various members of the Federal Reserve have suggested further quantitative easing may be necessary and as this would be the second round of QE, it has obviously been dubbed QE2 by traders who love an acronym whenever they can form one. Data last week will have added no clarity whatsoever to the plans as the trade gap widened but fresh unemployment claims stayed stable and while producer prices rose by the forecast 0.4 percent, there was little new news really so the USD direction seems likely to be heavily effected by news from outside the U.S., not least of all movements in China, where the Chinese government hold an enormous level of U.S. dollars in reserve.
Around the world, different tactics have been employed, in Japan the government has stepped into the markets to try and artificially weaken the currency, with the hope that this measure will make Japanese products cheaper on the global markets. In Europe very little is actually happening, while in the UK the coalition government is making every attempt to cut public spending as they do everything they can to avoid upsetting a public, they hope will start spending again, by introducing higher taxes. In China, where the economy is buoyant to say the least, officials are actually looking to slow things down by allowing their currency strengthen, albeit only slightly.
In reality, however, this move is more of a token gesture to the U.S. and Europe who have made no secret of their demands for further Yuan strength. The goal of global demand for a stronger Yuan is simple, by making Chinese products more expensive hopefully buyers of goods will look elsewhere for their products thus helping growth in other areas of the world economy, such a marginal strengthening of the Chinese currency makes this relatively unlikely and further grumblings from the FED and U.S. treasury are likely on the horizon.
What does this mean for other currencies? - Well long-term there is a risk that some of the strength that the U.S. dollar achieved through its safe haven status could be lost as a stronger Yuan may encourage the Chinese government to ditch some of their trillions of dollars in reserve. Elsewhere other safe-haven currencies such as the Swiss Franc and even commodity currencies such as The Aussie and Kiwi dollar may lose out as one of the world’s fastest growing economies draws the attention of investors who had been previously looking to either protect their assets or invest in commodities.
Given the state of global economy at the moment, and the fact that investors simply don’t know whether to expect a gradual recovery or another period of technical recession, the need to be in touch with your FCG account manager has never been greater. Your account manager will be able to keep you up to date with data releases and statements from key officials all over the globe and help you to interpret the information in order to ensure that you secure your currency with the best possible knowledge of what is happening on the most volatile markets in the world.
Those needing to buy or sell AUD should pay attention to the RBA minutes. Any comments on further interest rate hikes may knock GBP/AUD rates down. From the USA, we have Building Permits, Housing Starts, and also the interest rate decision from the FED. We expect a hold in rates, but any positive or negative comments may affect GBP/USD.
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Labels: FX Overview, Market Data, Pound falls