Good morning and welcome to today’s foreign exchange market commentary on Friday, the 17th of August.
Yesterday’s US housing-sector data brought much relief for global markets. German Chancellor Merkel’s some straight talk also boosted sentiments. That being said, the core questions remains; will the euro survive in its current form and will the US get back on the path of growth? Will China be able to reverse its slowdown?
The answers to the three questions will decide the growth trajectory of the global economy. However, irrespective of how these immediate challenges are resolved, it is becoming increasingly clear that the global economy is entering a long-term difficult phase. The European Union and America will continue to be mired in low growth and high debt while being bogged down by contentious domestic politics.
All the advanced economies are expected to witness a disenchanted middle-class, high levels of inequality and aging populations. The more these democracies look inward, the more hostile they become to multinational trades, tending to respond unilaterally to economic policies in foreign shores that they perceive detrimental to their interests.
Such economic environment hampers the growth prospect of all countries around the world. The high growth rate seen before the financial crisis may well be a thing of the past and some countries will be more severely affected by others.
Economies that will do well are likely to display three broad characteristics. First, they will not be overly reliant on exports and will depend on domestic demand instead, second they will have manageable levels of public debt and third, they will have robust democracies.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.2705
GBP/US$ – 1.5712
GBP/CHF – 1.5262
GBP/CAN$ – 1.5519
GBP/AUS$ – 1.5034
GBP/ZAR – 12.9672
GBP/JPY – 124.79
GBP/HKD – 12.1936
GBP/NZD – 1.9438
GBP/SEK – 10.5358
EUR: German Chancellor Angela Merkel said Berlin knows its political responsibilities and is aware of the time constraints yesterday on her official trip to Canada. The euro gained against most other currencies over heavy buying in the EUR/USD pair after a former Reserve Bank of Australia member said AUD must be depreciated to enhance competitiveness. Markets will focus on Producer Price Index and current account and trade balance figures from Germany and positive data may push up the single currency further against both the GBP and the USD. The EUR/USD pair closed at 1.2370 yesterday and has remained well-supported overnight to open at 1.2355 this morning. The GBP/EUR pair is off yesterday’s high of 1.2795 and the pair opens at 1.2725 this morning.
USD: The Pound witnessed sell-off yesterday after UK retails sales data for July cam in higher-than-expected at 0.3 percent in July, triggering a short-squeeze as euro-shorts ran for cover. The GBP/USD gapped 1.5710 on the news and inched higher as the day wore on, with some support from MPC member Weale who said Britain is not witnessing a double-dip recession, but a temporary stagnation. Risk sentiments got further boost over German Chancellor Merkel’s forthright answers on the current crisis during her trip to Canada. US building permits hit a four year high in July indicating a recovery in the housing market. The economic data calendar is light today and the GBP/USD opens higher at 1.720 this morning.
Have a great weekend!