Reign of sterling over?
Recently, as summer has crept into the UK along with some positive economic data, markets have been of the view that we may be climbing out of the gloomiest period since WW2. This sense of confidence has boosted currency exchange rates, particularly for the pound which has reached multi-month highs against its international currency partners.
This week however, a nagging sense of doubt over the strength of global recovery has emerged. As the BRIC nations expressed doubts over the dollars status as a reserve and second quarter statistics continue to show economic decline, investors began to weigh recovery prospects for the future against negative results at present.
This has led equity markets to stall following their three month rally, as concerns emerge over whether the financial sector has enough legs to stage a complete recovery.
This week in the UK retail sales figures declined -0.6% in May, dropping back after a bumper Easter trading. This was opposed to a predicted 0.4% increase and as retail figures are an influential statistic, has served to weaken the pound.
Minutes from the latest MPC meeting showed the short-term outlook is unchanged for the Bank of England despite recent signs of recovery. The official UK unemployment rate rose to 7.2%, although new jobless claims were less than the market expected.
These figures have resulted in a tapering off of the bullish trend in sterling. There is a growing view among economists that risk aversion has peaked and sterling could continue to decline if profit taking occurs, in combination with heightened risk aversion.
In the US, negative consumer price index figures have put an end to speculation over US interest rate rises and doubt still surrounds the fiscal health of the US economy. The BRIC summit depressed dollar support as Russia expressed doubts over the status of the US currency as the global reserve. Russia and China also pledged support for their national currencies through closer bilateral relations.
The G8 meeting had little in store in terms of currency exchange rates and the euro weakened slightly on the back of profit taking from investors. European payrolls declined by record levels in the first quarter, German ZEW economic confidence leapt to 44.8 in May and the EMU annual inflation rate is currently at 1.5%. Also this week the Swiss national bank left interest rates on hold at 0.25% and this strengthened the CHF.
In terms of the higher yielding currencies, the Aussie and Canadian dollars have sunk this week following declining commodity prices with the Aussie reaching a two-week low against the greenback. However, the recently upgraded Chinese growth rates, which have risen from 6.5% to 7.2% according to the World Bank, could spur demand for the commodity based currencies in future.
Following the recent rally in equities, improvements in currency exchange rates are tapering off amid profit taking from investors and a heightened sense of risk in the global economy. As currency exchange rates often hinge on confidence in the market, important data releases detailing the state of national economies can have significant affects on currency exchange rates. By gaining the services of a personal dealer, not only can they provide you with up to the minute information on factors that might affect your currency, but they can help you get the best exchange rates for currency transfer.
If you haven't already, get registered with Currency Solutions and ensure you get the best rates for all you currency exchange.
Have a good weekend!