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Dramatic week in the markets… Currency report 16 Aug

By • Aug 17th, 2010 • Category: Currency

The Coracle Online Currency podcast for Aug 16, 2010 in association with Crossbar fx and sponsored by ShipServ

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Full transcript :

Thank you for downloading this foreign exchange podcast from CoracleOnline.com, professional development specialists, in association with Crossbar fx, for August 16th 2010. This podcast is sponsored by ShipServ, the world’s leading e-marketplace for the buying & selling ship supplies. You can find out more at ShipServ.com.

The US Federal Reserve was at the centre of a dramatic week in the markets last week as it significantly downgraded its outlook for the US economy and thereby heightening fears that the global recovery was losing steam. They maintained their level of quantative easing by re investing some paid-back funds, so effectively keeping the policy from tightening. As a result there was a lot of safe haven buying of Yen and US Dollars. Dollar bonds also did well as the prospect of interest rate hikes are so far away in the US that the small yields on Treasury Bills looks appetising.

Slowing domestic demand in China also spooked the markets. If they are not buying, and the US consumer isn’t either, then economic growth looks difficult to achieve. Worries about peripheral Eurozone economies also returned : Germany may be growing 2.2%, but Spain, Portugal and Greece all registered near zero or contraction. Fears about the bailing out of allied Irish Bank also spooked the markets – so the euro saw weakness while the US Dollar saw safe haven buying. Holding euros now is not being seen as a smart idea in banking circles.

Sterling’s recent progress against the Dollar was halted when the equity markets reacted to the news about the economy and the prospects going forward. In times of uncertainty it still pays to own Dollars.

So, where next for Sterling? Most forecasters think weakness is on the cards again when the cuts due in October are announced, that job losses are expected to rise and that growth shows no sign of appearing and that quantative easing may be extended. As always there are those who think sterling should strengthen against the euro based on the “they are worse than us” argument (which does seem valid) and that sterling will do well against the Dollar once we begin putting up interest rates, but as that seems unlikely until 2011 the uncertainty continues and Sterling adjusts as each new headline grabs hold.

Thanks for listening

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