Currency Exchange Rates Update
As we start the last week of the month, shortened by the UK Summer Bank Holiday. August has been far from quiet in the currency markets.
Against the Euro, the Pound sank on the 11th of August to trade at its lowest level since May. It then gained nearly 2% in value in the following 13 days. Hitting a 51-week high on the 23rd of the month. Before falling nearly 1% in the following 24-hours with the most serious recession warning to date out of the UK economy.
Against the US Dollar, the Pound fell by over 2.5% as we went through the month. Hitting its lowest level since mid-June last week.
Against the Australian Dollar, the Pound hit its highest level on the 19th and 20th of the month since April 2020. Before promptly falling over 1.9% at the end of last week.
What’s in the news?
In The UK…
The current base rate set by the BoE (Bank of England) is 5.25%. The BoE next meet on 21September.
Panmure Gordon, the leading UK investment bank estimate that 60% of the impact of higher interest rates “is still to crystallise for the household and corporate sectors.” In other words, there is still a lot of pain to come from the fourteen consecutive rate rises imposed by the BoE.
- The UK consumer remains less gloomy than expected according to the latest GfK consumer
confidence reading for August.
- The biggest improvement in housing affordability for more than a decade after record pay rises and the slide in property prices.
- Jobs in the finance sector hit a record high. Climbing to a record high of 1.2m in the first quarter of this year.
- UK exports both to the to EU and to the rest of the world continue to increase, despite Brexit.
- The Sunak government also announced that Banks will be forced to provide customers with free access to cash within three miles of their home. Under new laws to preserve paper money. Those that fail to comply will face limitless fines. Banks will have to provide cash services within three miles of customers who live in rural areas. And just one mile for those in towns and cities. They will not be allowed to close branches until they have put in place
alternative provisions to ensure people can still access paper money. Ministers have handed the FCA (Financial Conduct Authority) sweeping new powers to enforce the rules including the ability to levy huge fines.
Not so good news
- Flash PMI (Purchasing Managers Index) data for August revealed manufacturing output fell to a 3-year low and the services sector is also in contraction.
- The CBI’s (Confederation of British Industry) monthly balance of retail sales indicated that trade has fallen at the swiftest pace since March 2021. Their outlook remains notably pessimistic.
In The USA…
The current base rate set by the Fed (Federal Reserve) is 5.5%. The Fed next meet on 20 September.
The message from the Fed seems clear enough. To stay the course. Fed Chair Jerome Powell said “the US central bank is prepared to raise interest rates further if need be and intends to keep borrowing costs high until inflation looks on track for 2%”. At the central bank’s annual conference in Jackson Hole, Wyoming Powell said “Although inflation has moved down from its peak—a welcome development—it remains too high”.
In The EU…
The current base rate set by the ECB (European Central Bank) is 4.25%. The ECB next meet on 14 September.
ECB President Christine Lagarde echoed Powell in projecting a cautious stance. Saying “the inflation triggered by Covid-19 and its fallout has not been fully conquered”. Lagarde added that the ECB will set borrowing costs as high as needed and leave them there for as long as it takes.
This despite the problems facing Germany, the EU’s biggest economy. Its economy has stalled in the three months through June, having now recorded three quarters of no or negative growth. A steep manufacturing recession and weaker consumer demand has led to a decrease in demand for German goods. Private consumption remained flat in Q3 after two consecutive quarters of negative growth.
The Bundesbank, the German central bank, is forecasting industrial production will most likely continue to remain under pressure from global headwinds. Leading Germany to stagnate in 2023.
Both the IMF (International Monetary Fund) and the OECD (Organization for Economic Cooperation and Development) have predicted Germany will be the worst-performing major advanced economy in 2023.
Italy the EU’s third-largest economy has also been teetering on the brink of recession. After its economy shrank by 0.3% in the three months to June.
Economists are warning that a global recession is looming. As rising interest rates and the cost-of-living crisis eat away at the remaining strength of the post-Covid rebound across the globe.
Analysts at Zurich Insurance said China is facing a “downward economic spiral.” Amid a mounting crisis in its debt-laden property sector. Plus seven City of London banks have slashed their growth forecasts for the world’s second-largest economy.
It comes amid growing concerns about a crisis in China’s huge property sector. Which is struggling under the weight of huge debts as interest rates rise. A crunch in the industry has hit growth and contributed to the country falling into deflation.
For example, Country Garden, the once largest property developer in China is desperately trying to stave off a downward spiral with 40% of Chinese home sales having already defaulted and the Evergrande Group has filed for Chapter 15 bankruptcy protection in a US court.
A fifth of young people in China are out of work.
Global investors have sold the equivalent of more than $10 billion of Chinese blue-chip stocks over a record 13 days. The 10 most-sold stocks by foreigners in the latest rout were among the 50 largest ones in the benchmark CSI 300 Index. Which has extended its loss this month to almost 8%, among the worst performances in global equity markets.
Turkey’s central bank raised interest rates from 17.5% to 25% in the sharpest rise since 2018. The Turkish lira, one of the world’s worst-performing currencies, surged the most in almost two years, gaining almost 8% against the dollar.
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This week’s quote comes from US President Ronald Reagan
“Recession is when a neighbour loses his job. Depression is when you lose yours.”