Currencies: A Global Review

A quiet day on Friday followed a week where the pound fell sharply after a senior Moody's analyst warned that the UK could lose its AAA credit rating if the government fails to hit its economic and fiscal targets. The impact of losing the highest rating would be devastating for the UK’s standing as a global financial hub and Sterling is still shaky. As we come out of the weekend the majority of sterling’s most traded counterparts remain heavily range bound. Furthermore, with ongoing talks in Europe taking the spotlight, the UK may well continue to take a back seat.

Pound Sterling – UK Markets

Sterling stooped to its lowest levels in more than two weeks against the US Dollar after Bank of England officials stated that although inflation is high, it is relatively well controlled making an imminent interest rise less likely. With growth also weakening, causing ten-year gilts to rise, this has helped fuel belief that interest rates will be kept at an all time low for some time to come. On the back of this sticky news the BoE has have not ruled out the possibility of further emergency bond purchases and although it rose at its fastest pace since 2008, the UK economy failed to grow in the six months leading up to March. Inflationary pressures are also expected to ease in line with external pressures from the global economy.

US Dollar – US Markets

Unfortunately for the US, a combination of fiscal concerns and a slowdown in China’s appetite has threatened to further de-value the already faltering currency. Adding to these woes, the US faces unprecedented levels of unemployment and consequently jobless claims are sky high. Whilst a measure of concern surrounded the record trade deficit, this has been given a helping hand with exports of US goods and services rising to a record $175.6 billion in April which consequently helped narrow the trade deficit by 6.7 percent. On the flip side, a fall in imports also helped these figures after the Japanese quake continues to affect supply issues.

Euro – European Markets

European Central Bank President Jean-Claude Trichet announced last week that there would be no direct relationship with the Greek bailout package. The comments have sparked stern discussions between the ECB and Germany; the only solution to which may be a huge amount of compromise. The bottom line is Trichet believes that enforcing creditors to pay some of the cost of a bailout would be a ‘huge mistake’. The row has threatened to halt the bailout saga that has been ongoing now for some time. The International Monetary Fund has also stated that unless a deal is struck it may withhold what is left of the initial 110 billion-euro bailout package. The argument still threatens to de-rail the euro, so investors still believe selling the single currency may not be a bad idea making now a good time for Euro sellers to speak to their broker.

Other Currencies – Highlights

Elsewhere, Japan’s machinery orders fell for the first time in four months in April giving signs that companies are sourcing elsewhere after the March quake. This only adds to concerns that suggest the recession will drag on into the currency quarter. On the back of this, there is speculation that the Bank of Japan will introduce more stimulus measures to boost economic growth. A further sign that the global economic recovery is slowing surrounds the recent slump in Asian currencies. Curbed demand for emerging market assets has caused 7 of the 10 most-traded regional currencies (excluding the yen) to fall last week.