Sterling falters with threat of double dip recession

An interview in The Times this morning with the newest Bank of England committee member, Dr Martin Weale, has hit the headlines with the ensuing hype influencing currency markets and causing a drop in Sterling. The article focuses on Weale’s comments that there is a ‘significant’ risk that Britain could fall into the second phase of a double dip recession.

Pound Sterling – UK Markets

The Pound has fallen to a four week low following Weale’s comments about the threat of a double dip recession in The Times today. He cited the largest dangers to the economy as rising unemployment, house price declines and a new crisis in the financial sector. Although Weale also discusses his support for the current policies and support they give to the economy, the mention of a return to recession is what has moved the currency markets. The Pound has dropped against both the Euro and the US Dollar this morning, trading at 1.2205 and 1.5399 respectively at 11am. Weale’s comments will set up Friday’s GDP figures for even more scrutiny.

US Dollar – US Markets

The US Dollar has continued to strengthen, benefiting from being seen as a ‘safe haven’ currency as focus shifts to the slowing global recovery despite the fact that that much of the poor news is coming from the US itself. The negative news is expected to continue today with sales of existing homes forecast to have dropped by 13 percent in July. The Richmond Fed manufacturing index is also expected to show declines in this sector. Markets will be watching this data and waiting for the second quarter GDP figures on Friday for the suggestion of any potential policy changes in the US.

Euro – European Markets

The Euro has lost out against the Dollar and gained on the Pound this morning. Second quarter GDP figures in Germany have been released and have grown in line with expectations despite poor PMI manufacturing figures yesterday which grew to 2.2 percent from 0.5 percent in the first quarter. The next batch of more revealing data from Germany are Thursday’s consumer confidence figures.

Other Currencies – Highlights

The Yen has continued its rally rising to the strongest level against the Euro in eight years – a strong indication of current sentiment with investors turning their back on any currencies seen as risky. Yesterday’s meeting between the Bank of Japan and the Japanese Prime Minister failed to result in a plan being formulated to curb the Yen’s recent strength. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000