Pound to Dollar Exchange Rate Jumps on Job News
The pound is strong against the dollar because investors are very cautious given the swiftly rising geopolitical tensions. Sterling rose again today against both the dollar and euro after employment figures show less of a slowdown in wage growth than had been expected.
The US dollar is weak as most Asian currencies are stronger, based on concerns that President Donald Trump’s inexperience with foreign policy will lead to increased US military intervention worldwide. It also looks unlikely that his tax reform policy will pass quickly, so the US economy is set for slow growth ‘get-rich-quick’ campaign pledges. Trump’s scheduled interview on Fox News today will be scrutinised for clues about his promise to be ‘unpredictable’ regarding foreign policy.
Pound Sterling – UK Markets
Sterling dropped, recovering quickly yesterday after UK inflation came in unchanged for March at 2.3%. Some investors hoped that it would be higher, since that would put pressure on the Bank of England (BoE) to raise the interest rate. With inflation higher than interest rates, people who have savings accounts aren’t getting a return on their nest eggs. The lower interest rates also cut incomes for pensioners who rely on funds that have been invested in government bonds that don’t offer returns.
Today’s jobs release shows that wages grew by 2.2% in the three months up to February, which, given the inflation rate of 2.3% in February, shows a fall in real pay in February. The Office for National Statistics previous report showed pay growth of 2.4%, so the trend is toward a further drop in incomes, in what’s expected to be a short-lived trend that won’t hurt the economy. Unemployment remains at 4.7%, a rate which economists say is low enough to drive up the lagging service sector wages. However, since the lowest pay growth is in retail, restaurant and hotel jobs, and retail sales have plummeted, it can be argued that the UK’s service sector will shrink.
In other UK economic news, the UK government’s deal with Microsoft will save treasury coffers £15 million by avoiding sharp hikes in the fees for Microsoft technology licenses. With almost 200,000 government workers using Microsoft, the company considered raising prices to offset losses caused by the decreased value in the pound.
US Dollar – US Markets
The US dollar is the weakest of all major currencies due to on fears that the US and North Korea may come to blows. This comes after US President Trump responded to Pyongyang’s defiant stance by saying that North Korea is ‘looking for trouble’. It had appeared that in his summit with Chinese president Xi Jinping, Trump and Xi came to agreements on defence and trade. Now he’s said that he’d told the Chinese leader he’d get a better trade deal if he would ‘solve the North Korean problem’. China had acted, however, by banning imports of coal, North Korea’s key export, on 26 February. Then, 7 April, China sent back a fleet of coal vessels, refusing the shipments. China’s replacing imported North Korean coal with American coal, which helps President Trump’s plan to bring back the industry. China had already imported 400,000 tonnes of US coal by late February of this year. Today, the Chinese leader phoned Trump, urging him to open a dialogue with North Korea.
In other political news, US secretary of State Rex Tillerson isn’t likely to be meeting with Russian President Vladimir Putin today, on his visit to Moscow. The Russian leader has increased his support of the Syrian president, saying that Bashar al-Assad’s opposition was responsible for the chemical weapons attack against civilians. Putin predicts there will be an escalation of chemical weapon attacks in Syria. Tillerson has said Assad must step down, which Russia disagrees with. The Japanese yen is expected to fall against the US dollar today if the US and Russia manage to improve their diplomatic relationship today.
Euro – European Markets
The euro spiked yesterday, performing strongly against the weak dollar and strong pound. This was on the back of a better than hoped for Eurozone economic outlook report. The ZEW Sentiment survey collects the opinions of 300 financial experts, sharing their economic expectations for the short-term future. Economists showed 4.1% improvement in the current economic conditions across the Eurozone. In France and Germany expectations of improvement picked up by 6.7%. France’s positive sentiment about their economic prospects weren’t backed up by the Industrial Production release that came out on the heels of the ZEW release. France’s factory output fell by 1.6%, while Germany’s grew by 0.8%. These economic releases aren’t weighing as heavily on the single market currency as the larger geopolitical concerns including the recent diplomatic crisis between the US and Russia. Also, the French elections continue to worry the market, as British MPs are considering the possibility that Russia and China may have influenced the Brexit vote.
Turkey’s referendum on Sunday may give President Tayyip Erdogan the increased political freehand he wants but it’s not likely that his winning will help Ankara’s hopes of entering the EU. First, Erdogan has yet to smooth over the dispute he recently had with EU leaders after Dutch officials refused his attempt to influence Turkish voters living in Holland. The vote threatens regional stability, whatever the outcome. His winning means he’d have almost unlimited power, making Turkey far less of a democracy than it is. If he loses, he’ll crack down harder on opponents, of which 36,000 are already in prisons awaiting trial after the coup. The Council of Europe says that over 100,000 workers were suspended or dismissed, charged with opposing president Erdogan.
Other Currencies – Highlights
With North Korea warning of a nuclear strike if provoked, it’s little wonder that investors are diving into safe-haven currency, the Japanese yen. The yen is at a 4-month high against the euro and up around 0.4% to the US dollar. Japanese shares fell as did South Korean stocks which have been steadily sold off in the six days since the US bombed the Syrian airbase. The stronger yen won’t be good for Japan’s export sector, but in the short-term the economy is still making steady progress according to yesterday’s data releases. Domestic Corporate Goods Prices rose by slightly more than had been expected, which is a sign that the country is finally moving towards much-needed inflation.
The long economic depression has taken its toll of one of Japan’s biggest businesses. Venerable Toshiba Corporation, Japan’s 142-year-old conglomerate, warned yesterday that it’s days may be numbered. It made the statement as it released third quarter earnings showing a loss of ¥576.3 billion (around $5.2 billion). The announcement came without an endorsement from Toshiba’s auditor, PricewaterhouseCoopers (PwC). PwC issued a disclaimer, saying they were unable to form an opinion of the release, which puts Toshiba’s stock at risk of being delisted from the Tokyo stock exchange. Toshiba’s balance sheets had been delayed twice earlier as Toshiba’s US subsidiary, Westinghouse Electric, ran into massive budget increases in building 4 nuclear reactors in the US. Accountants speculate that Toshiba lost around $9 billion a year on the projects. Westinghouse has filed for bankruptcy and Toshiba’s memory chip unit is one of the assets it had to put up for sale.