UK Faces A Tough Recovery

Whilst there is little data due out in the UK today, the International Monetary Fund is expected to deliver its verdict on our economy later. Yesterdays papers outlined the need for the government to come up with a ‘Plan B’ on economic policy, and whilst Chancellor George Osborne has faith in the current policy, it will be down to the IMF as to how they view the overall recovery. Pound Sterling Somewhat surprisingly after recent years, sterling held on to two-day advances against the US Dollar after the Engineering Employers Federation reported export factory orders increased in the second quarter. On the face of it you would assume the surprising factor would be that sterling held on to gains over the weekend. However, this has come as a welcome surprise to the British economy. As mentioned, there is little significant UK data due to be released today. Sterling has managed to hold on over the weekend against the US Dollar and perhaps more importantly, the euro. In fact, it could be a slow week for sterling as we aren’t due any potentially meaningful data until Thursday. Dollar The dollar remains a struggling currency as the US economy continues to slow and falling short term interest rates have forced investors to use the dollar to fund investments in higher yielding assets. A disappointing week in US data was capped off on Friday that showed US non-farm payrolls and jobs figures both came in much worse than expected. Economists have now called into question the robustness of the US recovery. Varied predictions for the year end dollar value have come in from major banks and investors worldwide. However, with forecasts ranging from appreciations, depreciations and parity to current values it is difficult to see just what the year holds for the greenback which is why we continue to recommend a protective strategy to clients looking to transfer money. Euro The euro touched one month highs versus the dollar as the prospect of a bailout draws ever closer. It wasn’t just the dollar that lost out to the euro. The single currency gained against the majority of its 16 major counterparts including sterling. With regards to the bailout, Germany would appear to be the major front runners in negotiations. German leaders held a total of $22.7 billion in Greek government bonds last year whilst France ran in second with $15 billion. Today saw European Producer Price Index figures come in slightly higher than expected. This bodes well for the euro as it is a strong measure of the change in prices received by domestic producers of commodities in all stages of processing. In the moments following this announcement, the euro gained slightly against most of its major counterparts. However, it will be interesting to see throughout the day if it begins to re-trace any gains. Your broker will be able to track these changes for you should you have any specific requirements involving the euro. Other Currencies – Highlights Based on what is occurring in the US, Australian assets have proven popular amongst investors. The Aussie pushed towards a three-week high versus the greenback. The Reserve Bank of Australia is due to meet tomorrow and with investors keen to hold on to the Australian Dollar, it suggests that they feel there are further gains to be made. Furthermore, the RBA has made inclinations towards a further rate rise in July or August. The reports come as a measure to counter soaring inflation fueled by the biggest surge in demand since 2009. As history would suggest, any talk of a rate rise will almost always be accompanied by an increase in value of the respective currency.