Sterling Steady as China Is Downgraded
The Pound is trading stronger against the Euro after today’s European Central Bank (ECB) minutes warned of a series of risks ahead. Sterling is making gains on the US Dollar, ahead of today’s release by the US Federal Reserve which might hint at a June interest rate increase. The big event across global markets today, however is that ratings agency Moody has downgraded China’s status, which makes it more expensive for the government to borrow.
The US Dollar hasn’t been affected by China’s downgrade, yet. The president’s budget plans favour increasing military spending, slashing social services and they rely on the economy to expand by more than projected, in order to balance.
Pound Sterling – UK Markets
On Wednesday, the British Pound increased its value against the US Dollar by 0.15%. The exchange rate between them was set at $1.29, failing to hit the $1.30 mark. Sterling rallied against the Euro with the exchange rate set at €1.16.
News of China’s downgrade by Moody’s didn’t seem to affect the Pound, which outperformed its competitors on a difficult day for the global economy. Analysts at Lloyds Bank suggest that the overall growth is expected to be weighed in by slower consumer spending growth, which appears to be one of the key problems of the UK’s economy.
Lloyds Bank analysts forecast the Pound to Euro exchange rate to be around €1.16 at the end of the year. On Thursday, the UK’s GDP figures are going to be announced, with investors and traders focusing their attention there.
US Dollar – US Markets
The US Dollar remained stable against the Euro trading at €0.89. President Trump’s administration revealed its plan for the US budget. Donald Trump plans to cut $3.6 trillion in spending over the next ten years. However, the presented austere budget will boost the military.
The biggest victims of the planned cuts are the healthcare and food assistance programmes for the poor citizens, some of them having been introduced during Barack Obama’s presidency. The biggest savings would come from cuts to the Medicaid healthcare programme. Trump seeks to balance the budget in the next ten years.
The Congressional Budget Office projects the US economy to grow at an annual pace of 1.9% over the next decade. There would be also a $1.6 billion down payment to begin building the US-Mexico wall. Another proposal that surprised oil markets foresees selling half of the US emergency oil stockpile.
Euro – European Markets
The Euro remained stable against the US Dollar at $1.11, but lost ground against its British counterpart being traded at £0.86. Economic data coming from the Eurozone indicates that the economy is recovering after some countries such as Greece, Portugal, Ireland and Cyprus faced severe problems.
Eurozone’s PMI data showed that businesses are hiring employees at a rate not seen since before the start of the financial crisis. The two biggest economies in the single market currency area, the French and the German, have been growing at the fastest pace in the last six years.
The European Central Bank (ECB) said in its regular stability review that financial stability risks in the Eurozone are contained, but remain significant and have even increased in some areas over the past six months. The ECB also suggests that the clean-up of the banking sector is slow. The ECB’s warnings raise expectations that it could soon start to unwind its stimulus measures.
Other Currencies – Highlights
The Australian Dollar slumped against the Pound with the exchange rate set at 1.73 AUD. The Aussie’s good performance in the last two days stopped on news coming from China. Moody’s Investor Service downgraded China’s long term credit rating. Westpac’s strategists believe that the downgrade won’t hurt the Aussie in the long term.
Sterling increased its value against the New Zealand Dollar. The exchange rate was set at 1.85 NZD. The Kiwi proved stronger than the Aussie, reacting calmly to China’s downgrade by Moody’s. New Zealand’s goods trade surplus announcement, for April, hammered expectations. It was the highest monthly surplus since March 2015 and the largest April surplus for the last six years. The official statistics office said that there were significant increases in exports of dairy products, along with timber and wine.