Good morning and welcome to today’s foreign exchange market commentary on Thursday, the 19th of July.
Following Fed Chairman Ben Bernanke’s testimony before the US Congress yesterday where the central banker said US job growth has been “tepid” in the first half and economic growth has been “modest to moderate,” questions over US recovery are being raised again. Also German Chancellor Angela Merkel’s comment that the euro is yet to take a final shape revived worries of the single currency’s subsequent break-up. Slowing down of the Chinese economy only adds to the ongoing crisis.
The trajectory of global recovery will depend on how we handle the current situation. The world economy has nonetheless entered a longer term difficult growth phase not seen since the World War II.
Irrespective of how the problems are approached, Europe and America will witness high debt and low growth rate that will be compounded by contentious domestic policies. The US economic policy will continue to suffer due to polarisation of ideals between Republicans and Democrats while Europe will face the herculean task of rebuilding a shattered union, considering the euro survives the current turmoil.
Scarce fiscal resources will fuel conflicts in virtually all advanced economies, primarily due to high levels of inequalities, ageing populations and a hard-pressed middle class. This will in turn make them inward looking, making them less ideal international trading partners that create trade barriers unilaterally for perceived damaging economic policies elsewhere. The large emerging markets are unlikely fill the void as they will be busy protecting their sovereignty, reducing global cooperation on economic matters and diminishing potentials for growth further.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.2731
GBP/US$ – 1.5654
GBP/CHF – 1.5307
GBP/CAN$ – 1.5814
GBP/AUS$ – 1.5065
GBP/ZAR – 12.7642
GBP/JPY – 123.07
GBP/HKD – 12.1453
GBP/NZD – 1.9532
GBP/SEK – 10.8591
EUR: The single currency weakened against its peers yesterday after media reports suggested German Chancellor Angela Merkel has remarked uncertainties over euro still persists. Though Merkel eventually went on to reaffirm German commitment to the single currency, the comments did cause unease among the investors. The GBP/EUR climbed to 1.2771 subsequently, but not before touching a low of 1.2704 after Bank of England minutes revealed that MPC members had discussed cutting interest rate below the present 0.5 percent at their last meeting. The tier-1 economic data calendar from Europe is light on the ground today though focus will remain on the Bundestag as German leaders debate Spain’s €100 billion bank recapitalization program. GBP/USD opens at 1.2750 this morning.
USD: Cable declined in early trading yesterday after Bank of England minutes revealed the central bank contemplated cutting interest rates further and the decision for additional assets purchase was not unanimous. GBP/USD dropped to 1.5581 but recovered soon thereafter as risk sentiments improved and finished the day on a high of 1.5642. One of the catalysts for sterling’s strength was stronger than expected UK employment data. The greenback also softened on decent US housing and strong corporate earnings numbers from the tech sector. UK retail sales number from June is due today with some analysts predicting a pick-up due to the queen’s diamond-jubilee celebrations while existing home sales and the Philadelphia Fed Survey is due from the other side of the pond. The GBP/USD pair opens at 1.5676 this morning.
Have a great day!
