While Wimbledon has dominated the sports pages, the Federal Reserve has held the financial pages to ransom this week as investors prepositioned themselves for, and digested results of, the US interest rate decision. With the Fed failing to either raise rates or commit more funds to quantitative easing, currency exchange rates ended up little changed, as markets sighed a collective "hmmmm" and contemplated recovery prospects in the global economy.

And this is where the jury is still out. This week the OECD has suggested that the recession is bottoming out, yet negative data continues to flow from the major economies, illustrating that they are still firmly entrenched in recession territory. Although this is partly due to the time lag in data releases, with many first quarter statistics at odds with more positive figures from May and June, it is still fuelling uncertainty and despite summer being in full swing, many economists are yet to be convinced we have seen green shoots of recovery. 

The UK has been light for economic data this week, with the eyes of investors firmly fixed on the US interest rate decision. The CBI survey showed a worse than expected outlook for retail sales and the upward trend in sterling exchange rates has stalled following three months of gains. The OECD forecast a 4.3% contraction for the UK this year with zero growth in 2010. This, combined with Bank of England governor King's recent comments on the "uncertain" state of the economy have reduced sterling support, although the pound remains supported at 1.16 against the euro and 1.60 against the US dollar. 

The Federal Reserve opted to leave interest rates on hold at 0.25%. This was largely expected and the accompanying statement was of more interest to foreign exchange markets. The fed noted that interest rates are likely to remain low for an "extended period" yet neglected to expand on their quantitative easing programme. This roughly translates into 'things are not getting worse, but they are certainly not better' and the middle of the road policy failed to inspire confidence or panic in markets, meaning currency exchange rates generally kept within recent ranges.

The single currency has benefitted this week, capitalizing on its reserve status to gain on the pound and US dollar. ECB president Trichet commented that the bank would not be expanding their stimulus programme and individual governments should reign in their burgeoning budget deficits as this could threaten recovery in future. The ECB has also announced their first re-financing programme, adding EUR 442.24 billion to European banks and this news supported the euro against the dollar.

OECD predictions were distinctly downbeat for the eurozone forecasting a 6.1% contraction for Germany and industrial new orders have fallen ahead of market predictions. However despite this, confidence remains surprisingly high with the IFO German business index improving for the third consecutive month.

Elsewhere, demand for the higher yielding Aussie and Kiwi currencies has been subject to international risk appetite. The Czech central bank voted to keep interest rates on hold at 1.5% amid inflation concerns, despite predictions that the economy is to contract 3.4% in 2009.

At present the global economy remains in a state of uncertainty. While recently markets have rallied based on global confidence, lately this has been cast into doubt leading to a greater degree of risk aversion. For anyone conducting currency transfer, timing and the right information remain crucial. Currency Solutions has personal dealers who can act as your eyes and ears on the currency markets and help you make the most for your currency transfer. Give us a call to see how we can help with your currency requirements.

Have a good weekend!