This report will examine the movements seen in exchange rates what the driving factors have been and how this influences your decision when buying foreign currency
- Double dip fears for the US
- EU bank stress tests
- Japans public debt
Below the chart shows the % movement between the high and low of last weeks trading and the extra currency you could have benefited from.
| Currency Pair | % Change | Difference on £200,000 |
|---|---|---|
| GBPUSD | 3.42% | $10,240 |
| GBPJPY | 1.60% | JPY 426,000 |
| GBPEUR | 1.67% | €3,980 |
| GBPCAD | 3.49% | CAD 10,880 |
Double dip fear spreads to the USA
Concerns about the US economy are mounting, replacing the euro zone crisis as the biggest fears for the markets.
The release of weaker than expected US data shows the US could be heading for a double dip recession.
Belief that the euro zone has improved after successful government bond auctions and the expectation that the anticipated results of the bank stress tests on the 23rd of July will be relatively problem-free.
Greece’s central bank governor said at the weekend that he expected a clean bill of health for all of his 6 banks and that he felt upbeat about his countries finances.
Analysts are empathising that the crisis in the euro zone are from over, however an easing of worries about the single currency helped the euro to 2 month highs against the dollar and by comparable margins against other currencies.
Key events for the markets this week will be the testimony to congress from Ben Bernanke, chairman of the Federal Reserve board.
Last week the fed reduced its growth forecasts following weak housing data, plummeting consumer confidence and disappointing news on jobs.
BoE’s Sentance says a gradual rate increase in the UK would assist recovery. He said a gradual rate rise from the record low would help to support economic recovery.
Sentance is the first of the 8 policy makers to push for a rate rise, the other seven policy makers opted to keep rates at the current 0.5% as they balanced the risk of inflation against the danger that the deepest public spending cuts since World War II would kill economic recovery.
Consumer prices have risen by more than the governments 3% limit in every month since Feb. The statistics office said on Friday that they had increased to 3.2 % in June, which was more than economists had forecast. If you are looking to sell GBP it may be justifiable to secure the best exchange rates today at FCD. Call 0800 328 5884 to speak directly with your account manager.
Canada’s Rate decision
Canada’s dollar dropped against all of its major counterparts on evidence of weakness in the U.S., the nation’s biggest trading partner. The loonie lost 3.8 percent to 1.619 against the GBP.
Bank of Canada policy makers are expected increase the target lending rate by a quarter-percentage point to 0.75 percent at their meeting on July 20th, according to economists. The central bank became the first among the G7 nations to lift borrowing costs when it increased its benchmark rate from a record low of 0.25 percent. This decision is likely to strengthen CAD, if you have a CAD requirement, call to speak to your dealer to discuss the savings and favorable currency rate.
Japan’s record debt
Japan needs strong leadership to tackle its economic problems, It currently has debt of Near $10 Trillion, public debt is already 180% of GDP, and is projected to grow to 200% over the next few years, the highest among developed countries. Japan has had 6 prime ministers in 4 years. The Japanese government is planning to implement austerity measures, but political stalemate and election pressures will make this difficult to achieve. All three of the rating agencies have issued stern warnings, and downgrades could soon follow.
As you can see from the chart above, time is also quickly running out for the majority of EU countries, where debt is now rising faster than GDP. For many investors, default seems the most likely outcome since such countries lack the political muster to reduce their budget deficits. Thus, the consensus (for now) is that the Euro’s run will soon come to an end. The market has digested a lot of the bad news about the euro and there’s not a great deal of optimism about the future of the Euro.
Data watch this week
Tuesday 20th July 2010
CAD
2pm – BOC rate statement and the overnight rate
GBP
9.30am – Public sector net borrowing
9.30am – Prelim mortgage approvals. Number of new mortgages approved for home purchases during the previous month.
EUR
9.30am – German PPI. Change in the price of goods sold by manufacturers.
AUD
4.05am – RBA governor Glenn Stevens speaks regarding the long-run effects of the financial crisis.
2.30pm – Reserve bank of Australia Monetary policy meeting. A detailed record of the reserves bank most recent meeting.
