Pound continues to fall
This week has been relatively uneventful in the currency markets, with economic figures providing little to write home about in the way of market movements. It seems economies around the world are gritting their teeth and getting on with the tough business of economic recovery and currency rates remain within recent ranges. At this stage, many of the major central banks are biding their time, waiting until recovery is sustainable enough to withdraw their emergency funding and the verdict, for the Bank of England, ECB and Federal Reserve at least, is not yet.
In the UK this week industrial and manufacturing production figures for July surprised markets positively, gaining 0.4% and 0.9% respectively in the last month. This sent sterling exchange rates briefly higher against the pound and US dollar, rising to around the level of EUR1.14 and USD1.65. The FTSE had a strong week, as did equity markets around the world with the MSCI index gaining ground from higher corporate earnings and increased commodity demand from China.
The Bank of England voted to leave interest rates on hold at 0.5% for the sixth consecutive month, and maintain the current commitment to GBP175 billion worth of quantitative easing. This had little affect on sterling exchange rates as it was in line with market expectations, although the weak retail sales figures and downbeat OECD predictions have also contributed to pressure on the pound this week.
In the eurozone the green shoots of recovery continue to show, with France recording improved industrial production in July. The German trade balance was little changed largely due to improved export levels and the outcome of the G7 meeting showed benchmark interest rates for the major economies are expected to remain on hold until 2010. The euro/dollar exchange rate remains firm above 1.44 at present and economists are predicting the euro could strengthen further as the recovery process gains a firmer foothold in Europe.
For the US dollar, currency rates have been relatively sensitive this week, losing over 1% to the euro and touching on a two-week low against the pound. The Fed's beige book was published with an overall tone of guarded optimism, as the pace of decline appeared to be contracting in most of the regions the economic snapshot covered. US equities have been strong due to rising demand from China, although the Fed remains cautious over recovery prospects.
Elsewhere, central banks in South Korea and New Zealand opted to leave interest rates on hold and Australian unemployment rate remained flat at 5.8% despite the economy shedding 27, 100 jobs this month. In eastern Europe the Czech inflation rate is falling, coming in at 0.2% in August, a decline of over 7% from a year ago.
So all in all, the global recovery is proceeding as expected by economists; rocky. Traders are still highly sensitive to risk in the market and any signs of recovery, good or otherwise usually lead to movements in currency rates. The pound, Australian, New Zealand and Canadian currencies often gain ground when market confidence is high, and tend to trim these gains when risk appetite diminishes.
As the recovery process continues, the economic forecast is expected to remain rocky and volatility will remain a feature of currency markets. For international currency transfer, your best bet is to use a foreign exchange specialist. Currency Solutions provide personal currency brokers who can monitor the markets on your behalf and provide you with up to the minute information. This will help you capitalise on peaks in the currency market and reduce your exposure to currency risk.
Have a good weekend.