Don't look down
While just about every economy is shrinking during the current recession, reports this morning show the black market for fraud is positively thriving. With an estimated 2000 people a week being caught for insurance fraud one man reported his car stolen only to later admit he had pushed it off a cliff himself, bringing an entirely new meaning to the economy falling off a cliff!
This week has brought a significant boost for sterling exchange rates, which rallied to a 3 month high against the US dollar and a 6 week high versus the euro. The pound has benefitted from its position as a third option for investors wary of deflation in the US and distrustful of the ECB. Sterling has also been pushing the high end of trading ranges against the Australian and New Zealand dollars and the South African Rand.
Despite the recession continuing to deepen, the pace of the decline has slowed in both the US and UK. While unemployment is still set to rise and credit restrictions remain tight, there is rekindled interest in the property market. In the UK the Royal Institute of Chartered Surveyors announced an upturn in market sentiment for the first time in 13 months and new home loan approvals have risen 4%.
However despite the recent gains, the labour market in the UK remains grim and the annual budget announced next week could be a source of weakness for sterling. Independent analysts are predicting a 3.7% economic contraction in 2009 and government debt is likely to be significantly higher than forecast in the pre-budget report last November. Combined with the Bank of England minutes, this could bring Sterling back down from recent highs with a thud.
The week has been mixed for US markets and this has been reflected in risk appetite and currency exchange rates internationally. Goldman Sachs reported a $1.1 billion profit for the first quarter of 2009 and the Fed beige book revealed the economy is still in a state of decline, although this is proceeding at a slower rate than previously. The property market in the US is also experiencing a slight upturn in sentiment as low house prices and interest rates pique buyer interest and Ben Bernanke's speech mid week had a positive impact on markets.
Consumer inflation figures have turned negative in the US with a 0.1% drop in March, taking annual inflation down 0.4% on the year. However this decline is largely due to recent volatility in food and energy prices with consumer prices actually up 1.8% on the year. The Obama administration has announced plans to reveal details of the ‘stress tests' undergone by banks in an attempt to test their financial solvency and restore market confidence in the banking sector.
In the Eurozone this week Axel Weber, member of the governing council at the ECB has announced the adoption of ‘non-standard measures' in an attempt to stimulate the Eurozone economy. The ECB is expected to follow the Bank of England and introduce quantitative easing, with unease surrounding this prospect weighing on the euro at present.
Eastern Europe and emerging European economies are facing the prospect of having their credit ratings downgraded as recession deepens across the region. Slovakia is currently regarded as a relatively safe haven due to its Euro region membership while the Czech Republic and Poland are also regarded by economists as comparatively well placed but the emerging economies remain under pressure in terms of both economic growth and currency exchange rates.
China has posted its slowest quarterly growth on record, 6.1% in the first quarter of 2009, the lowest rate since records began. This news led to weakness in many of the Asia Pacific currencies as it heightened risk aversion internationally. The South African rand has also been subject to a wide range of volatility, boosted by demand for gold and grains but affected by flights to quality.
So while recession continues to deepen, there is evidence in the major economies that it may be losing momentum. Volatility remains a feature of the economic landscape affecting currency exchange rates throughout the world. While this is the case, stop loss and limit orders can be your best bet when it comes to buying currency as these ensure you get to take advantage of peaks in the market as and when they occur. Speak to your dealer for more information.
Have a good weekend!