Currency Exchange Rates Update
Halfway through the month and still no sign of a let-up in activity in the global currency markets.
Against the Euro, the Pound fell steadily in the first half of the month. Dropping over 1.2% from the July highs. But it is now showing signs of stabilising and is still trading over 2.8% up on the year to date.
Against the US Dollar, the Pound fell sharply in the first half of the month. Dropping over 3.8% from the July highs. But again it’s stabilised in the last few days. Now trading over 5% up on the year to date.
Much better news for the Pound against the Australian Dollar. Last week, it touched its highest level against the Aussie since April 2020 on no fewer than 3 occasions.
What’s In The News?
In The UK…
In between concerns over persistently high inflation and the threat of a recession, the UK economy continues to robustly outperform.
The Office for National Statistics (ONS) reported last week that the UK economy grew faster than expected in the second quarter of the year. The economy proving itself more resilient to rising interest rates than many had expected. This helps to reduce the risk of recession.
In the second quarter of 2023, the economy grew by 0.2% following a 0.1% expansion in the first quarter. Across the period, production, which includes manufacturing saw the strongest growth with an expansion of 0.7%. With services growing by 0.1% and the construction sector by 0.3%.
Whilst not a stellar growth rate, it demonstrates that the UK has managed to withstand the pressure that rising interest rates have put on it.
ONS director of economic statistics Darren Morgan said “The economy bounced back from the effects of May’s extra bank holiday to record strong growth in June. Manufacturing saw a particularly strong month with both cars and the often-erratic pharmaceutical industry seeing particularly buoyant growth. Construction also grew strongly, as did pubs and restaurants, with both aided by the hot weather”.
Data from the UK manufacturing sector was particularly impressive with a record-breaking 1,667 aircraft orders placed in the first half of 2023. At current production rates, the global aircraft backlog represents more than ten years’ worth of work. Providing a value of £218 billion to the UK. The UK’s world-class aerospace sector has an annual turnover of £28 billion and employs more than 108,000 people.
In addition, UK car production soared by 11.7% in the first half of the year to 450,168 units. With June, an increase of 16.2% and its fifth consecutive month of growth.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the figures are “probably the start of a sustainable recovery”. Tombs pointed out that household consumption grew 0.7% in the second quarter despite the impact of soaring inflation. He argued that going forward households will be able to fuel expansion as cost-of-living pressures ease. Figures out this week are expected to show that wage growth surpassed inflation. “Looking ahead, we expect households’ real incomes to continue to rise further, as prices continue to rise less quickly than wages,” he argued.
Since Brexit, the UK has joined the CPTPP (The Comprehensive and Progressive Agreement for Trans-Pacific Partnership) a trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam and signed free-trade agreements (FTAs) with New Zealand, Australia, and Japan. The UK is also at the closing stages of FTA negotiations with India and the UK-Gulf Cooperation Council.
Three of Britain’s biggest lenders (Nationwide; TSB & HSBC) have announced mortgage rate cuts for the second time in two weeks.
At their last policy meeting on 3 August, the Bank of England’s (BoE) raised interest rates by a further 0.25%. A 15-year high of 5.25%, its fourteenth consecutive increase.
The UK inflation rate dropped to 7.9% in June 2023. Its lowest level since March 2022 but still nearly four times the target 2% rate.
The BoE next meet on 21 September.
Sadly, it’s not all good news. Retailer Wilko entering into administration, putting thousands of jobs at risk after it failed to secure a rescue deal. The privately owned, low-cost retailer has appointed PwC after potential buyers withdrew their interest in recent days. They have about 400 stores employing around 12,000 people.
The Royal Institute of Chartered Surveyors (RICS) house price balance fell to -53 in July. Its lowest since March 2009, reflecting subdued demand in the domestic housing market.
In Scotland, the SNP government has admitted to felling 16 million trees to develop wind farms, the equivalent of more than 1,700 per day.
The John Muir Trust, a conservation charity, has warned the new threshold for allowing wind farm companies to build turbines on wild land is so low that it appears impossible for them not to meet it.
In The USA…
The latest US employment data report showed the US labour market remains incredibly tight with an elevated wage growth rate of 4.4% and the unemployment being only 0.1% higher than the 50-year low reached in April. However, the jobs growth rate has continued to disappoint and has been revised to the downside for six consecutive months now with the US economy added just 187,000 new jobs in July, a 30-month low.
US headline inflation rose less than forecast in July with the core inflation rate rising by 0.2% for a second month, the smallest back-to-back gains in more than two years and reinforcing speculation the US Federal Reserve (Fed) can hold interest rates steady at its next meeting due on the 20th of September.
The leading credit rating agency Fitch is less confident the US, the world’s largest economy with a debt pile of over $30 trillion will make good on its debts and downgraded the US credit rating one notch from its highest rating of AAA to AA+ citing an “erosion of governance”.
Meanwhile, potentially fantastic news in the announcement that US government scientists have achieved a net energy gain in a fusion reaction for the second time this year, a result that is set to fuel optimism that progress is being made towards the dream of limitless, zero-carbon power.
In The EU…
The downside surprise on US inflation begs the question of what the European Central Bank (ECB) will do next with their interest rate policy. According to economists polled by Reuters, European policymakers will follow their US peers in stopping their tightening cycle to evaluate the impact of monetary policy on the real economy.
The case for a pause is less clear cut for the ECB than it is for the Fed. Core inflation is still running near an all-time high of 5.3% and wage growth continues to remain elevated. Economic growth has decelerated with Germany not having grown for three consecutive quarters. However, as the ECB started raising rates after the FED, its late beginning of the tightening cycle gives the ECB less flexibility.
The ECB next meet on 14 September.
A combination of falling demand and new orders together with weakening global consumer demand are seen as the main culprits behind a stagnating German economy, the EU’s largest.
The IMF (International Monetary Fund) now expects the German economy to contract in 2023.
Others
China’s economy has fallen into deflation as consumer prices contracted for the first time in more than two years. The consumer price index fell 0.3% year on year in July. The producer price index, a gauge of prices as goods leave factory gates, was down 4.4% in July. The figures come amid mounting fears that China is entering an era of much slower economic growth akin to the period of Japan’s “lost decades” since the 1990s, which saw consumer prices and wages stagnate for a generation. Last week, China also revealed poor import and export data.
Natural gas prices are rising sharply once again in the global commodity markets caused by the threat of energy workers in Australia striking. The possibility of a potential output loss from the second largest exporter of liquefied natural gas (LNG) has seen prices for the commodity rise by as much as 9% in recent trading, the most since early 2022. Australia is responsible for providing over 10% of global LNG supplies.
THE COSMOS OFFER
Of course, currency market volatility can bring trouble but with careful monitoring can also bring opportunity.
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Quote
This week’s quote is from the business magnate, investor, and philanthropist Warren Buffett
“Price is what you pay; value is what you get.”
