The credit rating agency Standard and Poor’s continue to rock the European markets after downgrading Greece’s rating to “Junk” earlier this week. Subsequently Spain and Portugal have come under the spot light and there is a real concern that the focus could land on Britain; without a clear strategy to pay back our deficit, trouble could be on the cards.
Pound Sterling – UK Markets
Despite the turmoil in Greece and Spain, the future for Sterling against the Euro is still not clear. The concern for GBP is that the UK has invested heavily in both countries; and it appears that this debt is unlikely to be repaid (in the short term at least). This has put even more pressure on the pound at a time where a general election and the threat of the debit crisis spreading across Europe into the UK is creating continued uncertainty.
On a positive note, house prices in the UK have risen by 10.5% in the last year according to the Nationwide Building Society
US Dollar – US Markets
The US Federal Reserve is to keep its interest rate at around zero, saying it expects to hold it there for an "extended period." Despite keeping rates low to boost the economy, the Fed was nevertheless upbeat about growth.
It noted that consumer spending had "picked up," and there were improvements in the housing market. Today sees initial jobless claims figures released which are expected to show a very slight drop in unemployment. Positive reports and an expected positive consumer sentiment survey which is due tomorrow could lead to a strong Dollar which will negatively affect the purchasing power of other countries.
In line with this and Standard and Poor’s downgrade on Greece, the Dollar pushed to one year highs against the Euro yesterday.
Euro – European Markets
Yesterday Spain became the latest EU country to have its credit rating cut as the EU is struggling to come up with a rescue package for debt ridden Greece. Just before the markets closed last night Standard and Poor’s (the credit agency) announced that it was lowering Spain’s rating from AA+ to AA. The news shocked the FTSE-100 and was due to the opinion that Spain is “likely to have an extended period of subdued economic growth”. Portugal also faces a down grade of its rating to A-.
A large concern is the pressure this puts on the Euro as even Germany will not be able to sustain a huge bail out. This throws the spot light on other debt ridden countries including Britain meaning that certainly in the short term EUR and GBP could be set for very volatile exchange rates.
Other Currencies - Highlights
The Canadian, New Zealand and Australian Dollar continue to trade within ranges but sadly for those buying the aforementioned currencies, these ranges are the lowest they have been certainly in recent memory and do not look set to improve anytime soon.
With increased volatility in the exchange rates likely we urge clients to speak with their currency specialist to discuss ways to protect themselves from adverse movements in the markets.
US Dollar Under Pressure
The US Dollar Gathers Strength Ahead of Key Central Bank Events