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Posts Tagged ‘euro’
Return of the real money?
Well on Monday of this week in the US they have been celebrating Labour Day which is traditionally the end to the summer holiday period and a time when the “real money” returns to the global markets. The big question is how the markets will pan out as we head into the end of the year. Friday’s much anticipated jobs number out of the US satisfied both the pessimists and optimists. Optimists will point to fewer jobs being lost than expected, pessimist’s will point to the fact that at the current rate of recovery it will take at least 5 years for the US to get back to the kind of growth that would signal a healthy, functioning economy. The equity markets have staged an impressive 5% growth during the period May to August compared to a historical average of 1%, however volumes are down 31%, a bit like walking on a sheet of ice that is steadily getting thinner and thinner.
Just to complicate matters even more, we have the mid term elections in November, and it’s widely expected that President Obama will get trounced and will become a lame duck president for the rest of his tenure, not something the world’s largest economy exactly needs right now.
In the UK, October sees the comprehensive spending review that will lead to the start of budget cuts and job losses that will be needed to bring down the UK’s structural deficit. Mr Osborne has pledged to reduce this by 8% during the coalition’s parliamentary term.
The data out of the Eurozone over the summer period has been a two-tier story. Germany and France have seen great numbers if taken at face value, but the rest of the Eurozone is still mired in a de-leveraging phase that could take generations to work through. For example Spanish unemployment as measured between the ages 18-24 is running at 40%. On the back of this the problems for the Eurozone are far from over.
However, the optimists still paint the picture that the world is improving, which to a point it is, but it is very specific and the next six months that will take us to Q1 2011 will once again see the global economy face a series of head winds and challenges, and the answer most central banks will take will be to embark on another series of quantitative easing, something that so far has keep interest rates low but has not seen the growth the market expected.
The markets are back and summer is finally over.
Kind Regards,
Keith Spitalnick LLB (Hons)
Regional Sales Manager
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Keith reviews the summer currency market and shares his views of what the autumn holds for the euro and the pound.
Pound enjoys improved summer
Although the pound enjoyed a sustained 1.20 – 1.22 range against the euro throughout the much of the summer, the beginning of Autumn will prove somewhat troublesome for strategists, economists and policy makers as holding at this higher level will exacerbate fears of a double dip recession and cause concerns over the fragility of the UK’s economy, thereby undermining consumer confidence and alienating the private or retail investor.
Double-dip recession?
The potential for a double-dip recession is the most prevalent concern for the Government at the moment. The Con-Lib coalition has until recently been ignoring the effect of its austerity measures on growth, preferring to talk up their moral compulsion to act swiftly, but glossing over how significant an impact they will have on unemployment and consumer confidence in the wider economy. Credit and access to liquidity for small to medium sized businesses is still a very big issue and has been since the beginning of the financial year. Whilst one should remain optimistic about Britain’s ability to weather a potential return to negative growth in the long term, in the short term the pinch is genuinely yet to be felt by many households. Youth unemployment is the highest it has ever been, and this is not because employers don’t want to take on new staff out of principle, it is because their access to cash has been cut off by the banks who are challenging the viability of the majority of SMEs based on their disappointing performance over the past 18 months.
Retailers have benfited
Over the past two years retailers have benefited from an increase in the foreign footfall in high profile shopping destinations like London. The weakness in the pound meant that retail sales figures were higher than expected over the summer of 2010 with an influx of foreign money coming from Europe, the US, Australia and South Africa; but the improvement of the pound against a number of major currencies since Prime Minister Cameron came to office, coupled with a rather inflexible attitude towards visa applications for tourists and students from the emerging markets, may cause the MPC and the Government to take a closer look at who, if anyone, is really benefiting from a stronger pound at this stage. It is fair to say that importers are enjoying a little respite because they are able to buy cheaper within the EU, but the exporters are increasingly worried that the pound’s improvement since May has already dented the UK’s chances of a sustainable recovery and its competitiveness globally. It must be conceded that 14% of British GDP is based on the export market, but UK Plc needs all the help she can get given fierce competition from Germany and the Far East.
Speculation of UK interest rate rise
One of the main drivers behind the improvement in the pound has, and continues to be, speculation over the increase in UK interest rates. Traditionally an increase in interest rates is the default measure used to curb inflation. Strangely though, the Governor of the Bank of England stated earlier in the year that he expects inflation to settle down by the end of the year anyway, which highlights a stale mate between liquidity and risk within the banking sector. More money being brought into the markets would grease the wheels of the retail sector because small businesses are able to borrower at fairer rates. Quantitative easing is likely to be raising its ugly head again over the coming few months, precisely because the Bank of England can’t afford to use interest rate increases as a weapon against inflation. One has to question why the market is so optimistic about rates going up, and going up quickly in the beginning of 2011. Banks including RBS are widening their margins when it comes to loaning to individuals. House prices are in fact dropping fractionally despite limited stock that would normally see demand increase and thusly values go up. So we are still clearly sitting very much in a credit dry market.
For more information on currency exchange you can click here.
For more information on currency exchange you can click here.
For more information on currency exchange you can click here.
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