Fed: A Long Road Back

The US Federal Reserve joined the growing list of nations now adamant on keeping interest rates low. In fact, the Fed has gone as far as to say that rates will stay at record lows until at least the middle of 2013. As well as this there is the devastatingly downbeat verdict of the US recovery, describing economic conditions as “slower”, “flattened”, “depressed” and “weak”. It’s almost as if they pulled out a thesaurus to determine the different ways they could say ‘rubbish’, or in fact the same mindset as the looters and rioters pillaging the innocent, hard working individuals in the UK. Stocks are down, confidence remains suppressed and a road to recovery looks about as likely as an overnight return to sanity in the UK.

Pound Sterling – UK Markets

Our dear old Bank of England Governor, Mervyn King, will today be faced with the task of announcing figures for UK growth forecasts. The poor old boy has had nothing but dovish views for us over the past year. In May’s report it was suggested that growth in 2011 was expected to be around the 1.75 percent mark. However, this estimate has now been cut to 1.4 percent following the report out at GMT 10:30 this morning. The Governor also suggested that inflation is likely to hit 5 percent before the end of the year. Despite all of this, Mervyn expects inflation to begin to fall as we enter the New Year. In fact, he went as far as blaming US bickering and the eurozones weak fiscal policies for this recent downgrade in the UK. It has long been suggested that our exposure to external factors is too great and this recent turn of events goes to prove that is the case.

US Dollar – US Markets

It is fair to say that the US Dollar going forward is likely to struggle even after overnight strengthening. The Fed’s pledge for record low interest rates has failed to convince investors that global growth will be sustained. This in turn has significantly boosted demand for the small number of haven currencies remaining in the market. The announcement has been met with widespread criticism and has even been labelled as “weak” by a number of investors.

Euro – European Markets

We are all quite aware of the struggles facing the peripheral nations of the eurozone. However, Germany’s second largest bank has seen its second quarter profits all but wiped out by a 760 million euro write-down of its Greek debt. This latest development just goes to show how easily the debt crisis can spread. Ireland, another debt stricken nation, has hit Danish bank Danske, Denmark’s biggest lender, with a 4 billion crown hit from Irish bad debts in the first half of this year. Going forward, expect more of the same, as there appears to no plug available to stem the flow of debt spiralling out of control.

Other Currencies – Highlights

A worrying picture has been painted for the once safe haven commodity currencies. The markets have stated that there will be a lack of demand going forward for commodities due to poor economic growth. Currencies such as the Australian Dollar and New Zealand Dollar are likely to be avoided by investors on the back of this news. Slowing growth in China and the US will be the likely cause of such a change in fortune. Stick close to the Swiss Franc as the safe haven currency, despite the government’s best efforts to continue to make strides towards euro parity…