Speculative investors moving large sums of money are those who influence how currency markets are behaving and this week they are starting out in a positive and risk taking mood. In currency terms, this means that currencies seen on the risky side, such as the Euro, are strengthening at the expense of the safe-haven currencies including the US Dollar, Japanese Yen and Swiss Franc.
Why has this happened? A spate of positive data has shored up investor confidence that the global economy may in fact be recovering rather than heading for the much feared double dip recession. US joblessness figures from last week were better than expected and Japan’s GDP figures were also very positive. The most important economic data however has come from China – this is because after second quarter moderation, the economy seems to be speeding up so investors are gaining faith that other economies around the world may also be able to follow this pattern. Chinese imports swelled, industrial production grew 13.9 percent from a year earlier and consumer prices jumped the most in twenty two months.
Another reason that the Euro is strengthening is due to some relief spreading regarding the European banking situation. New regulations have come in from the Basel Committee on Banking Supervision – these regulations are giving banks the ample time of eight years to raise the additional funds required to comply with the new requirements introduced to prevent another financial crisis.
And where is the Pound in all of this? A little muddled is the honest answer with data being mixed and investors not sure how to react. The general sentiment surrounding Sterling is that the UK economy is significantly cooling which is putting downwards pressure on the Pound. This was made much worse last week by the UK trade deficit reaching its highest point in five years. Despite last week’s decision by the Bank of England to keep the interest rate at the record low of 0.5 percent not being a surprise, this will do nothing to help give the Pound a boost.
If you are transferring Pounds into another currency, speak with a broker about how to protect yourself from the current Sterling weakness and volatility.
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