Sterling’s Fragility Apparent Again

How the markets we live in can surprise us. Greece has turned the corner and will now simply receive the bailout they have been after. On the flip side sterling was living a secluded, peaceful life until approximately 09:30 this morning when mortgage approvals came in at an all time low. Furthermore, the dollar, on the back of serious debt concerns now appears to be surging forward. Bottom line: Whatever you assume to be the logical outcome, reverse it and you’re probably spot on! Pound Sterling Just as we thought sterling might be in for a nice settled ride today, come GMT 09:30 we were hit with some almighty news. Mortgage approvals and Purchasing Manager Index Manufacturing both came in much lower than expected. Within a matter of two minutes sterling dropped approximately 0.5 percent against both the euro and the US Dollar. Perhaps we shouldn’t be surprised. It’s on two fronts that I whisper words of caution; firstly, the fragile state of the UK economy means that any news could potentially have sharp catastrophic effects on our currency. And secondly, whilst the euro is fragile, what we must remember is that it is backed by a large number of countries making it far more resilient than our stand-alone-sterling. Dollar Instability in Europe has resulted in investors fleeing to the somewhat shaky dollar. However, on the back of this, whilst the greenback is struggling it still managed to outperform stocks, commodities and bonds to see its first monthly gain since November. The dollar index which tracks the greenback against a basket of six currencies showed an increase of 2.2 percent in May. Later today we are expecting two bits of data that often have a bearing on market swings. Employment change and ISM manufacturing are due mid and late afternoon respectively. It is worth speaking to your broker to gain a better understanding of what is to be expected. Euro Even with an almighty 17.5 percent drop in Greek consumer spending for March, markets across Europe surged yesterday. The single currency gained 0.9 percent against sterling and 0.6 percent against the US Dollar by yesterday evening as fresh Greek rescue talks lifted the market. Other Currencies – Highlights The Australian Dollar has snapped two-day losses despite the economy contracting by 1.2 percent in the first three months of the year. This is because the fall was less than many economists expected. As an economy that relies heavily on its natural resources, floods that hit Queensland and Western Australia severely hampered its growth. Future forecasts for the so called Aussie appear to be slightly dovish. As China and India grew, demand for Australia’s resources surged. However, with growth in these two nations now slowing, it is expected that demand for these resources will also fall. The Australian Dollar – one to watch in the coming months…