Can the UK rise from the ashes?
Internationally, markets this morning are buoyant with optimism as recent figures suggest the major economies could be through the trough of recession. The Federal Reserve voted to leave interest rates on hold, while the French and German economies grew in the second quarter, technically ending their recession. It is just sterling that remains in the doldrums, under pressure from more negative data this week, though we may see an upturn in third quarter statistics.
This positive news has led to a rally in risk appetite this week, with the usual suspects - AUD, NZD, EUR - rallying against the yen and greenback. Commodity prices and equities also received a boost, as improved growth prospects mean demand for energy is set to continue.
In the UK this week the official unemployment rate came in at 7.8% or 2.44 million, reaching its highest level in 15 years. The Bank of England quarterly inflation report revealed a downbeat economic forecast and trade statistics show the deficit widened even further in June. This affected sterling sentiment, capping the pound's potential and confining it to slim ranges against the euro and US dollar this week.
The week has been packed with US data, causing a bout of volatility for US exchange rates. The FOMC decided to leave interest rates on hold, and noted that they will remain low for an "extended period" while markets continue to recover. The US trade deficit also soared to a whopping USD1.27 trillion reflecting the decline in exports and heavy government borrowing.
The euro has rallied this week, boosted by the unexpected news that the French and German economies grew by 0.3% in the second quarter. This ends their recession although euro area GDP shrunk by -0.1%. The situation in eastern Europe remains weak with the second quarter bringing deepening recession to Hungary and Romania. Poland is still yet to enter recession and the zloty advanced this week on the back of positive German growth data. Bloomberg has currently positioned zloty as one of the top performing emerging market currencies.
Positive news this week has added to the view that the tide of recession is beginning to turn. Economists are eager to stress that recovery could be weak, stilted and come from a very low base but the positive news has helped to boost market sentiment. This has driven exchange rate advances for the higher yielding currencies, notably the euro, aussie and kiwi dollars against the yen and US dollar.
Yet while markets and currency exchange rates are still particularly sensitive to data releases, an undercurrent of risk trading remains. For the best exchange rates and information when it comes to currency transfer, get yourself registered with Currency Solutions. Our personal currency brokers will monitor the markets on your behalf and ensure you get the best exchange rates in your required time frame.
Have a good weekend.