Currency Exchange Rates Update
Two weeks ago, the pound was trading at its highest level against the US Dollar since April 2022. What a difference a fortnight makes!
Last week it hit a 7-week low.
It’s not alone.
As recently as 7 May, the Euro was trading at its highest level against the US Dollar since February 2022.
Last week, it hit an 8-week low.
The world’s financial markets have turned bearish increasing the demand for the safe haven status of the US Dollar as investors pull funds out of riskier assets like stocks, shares, and commodities.
What’s in the news?
The Institute of International Finance (IIF) reported global debt now stands close to $305 trillion! $45 trillion higher than its pre-pandemic level. Now facing a ‘crisis of adaption’ as interest rates have risen sharply in the last 12 months.
US interest rates now stand at their highest level since August 2007. In the UK, they are at their highest since October 2008 and in Europe since July 2008. Not only does this risk another credit crunch like we saw in 2008 following the demise of US investment bank Lehman Brothers but rising debt servicing costs are prompting ever higher debt default rates with an estimated 14% of US listed firms now classified as ‘Zombie’ firms.
The US Federal Reserve (Fed) next interest rate policy decision is due on 14 June. The ECB (European Central Bank) announce on 15 June and the BoE (Bank of England) on 22 June.
The other big factor driving the Dollar is concern over a possible US debt ceiling default. The debt ceiling is a Congress imposed limit on how much the US government can borrow. It currently stands at $31.4 trillion and has been raised 78 times since 1960. Once the ceiling is reached, the government cannot even pay back the interest on its loans. That will tip the country into default.
Borrowing has been steadily rising for the last two decades, most recently driven by the pandemic stimulus packages and President Biden’s spending plans. The Republicans want to tie the debt limit to spending caps. US Treasury Secretary Janet Yellen has warned that the US government could run out of funds as early as June.
The US has never defaulted, although it came close in 2011.
The consequences of a US default?
If the collapse of a single but big US investment bank like Lehman Brothers in September 2008 was enough to trigger a global credit crunch that tipped the global economy into a recession and saw various indebted Euro-zone countries like Portugal, Ireland, Italy, Greece, and Spain need bailouts between 2010 and 2012, imagine what a US debt default could do?
In UK news, the Governor of the Bank of England, Andrew Bailey, has admitted for the first time that the UK is fighting a wage-price spiral, so even as the headline inflation rate falls as global energy prices fall back down from their recent record high levels, the second-round effects of such a spiral were unlikely to go away as quickly as they appeared.
The latest ONS (Office for National Statistics) figures show job vacancies have fallen for the tenth consecutive month in a row. With the first quarter of 2023 seeing a record flow of economically inactive people to employment. However, there are still some 361,000 (about the size of the city of Nottingham) fewer people in the UK labour market than in the months leading up to the 2020 pandemic. The UK has the slowest return to pre-pandemic work levels in Europe. Long-term sickness rates have risen to a fresh record figure of 2.6 million, 440,000 higher than pre-pandemic levels.
Britain’s economy is struggling with so many off sick | The Spectator
The ONS also reported a total of 556,000 working days lost to strikes in March, up from 332,000 in February. At the same time, public sector wages grew by 5.6% last month, the largest nominal rise in 20 years, hence the wage-price spiral that is troubling the boffins at the BoE.
However, the same BoE in late 2022 forecast a huge recession lasting 2023 and into 2024 have now quietly dropped the threat of a UK recession altogether in the biggest UK GDP upgrade since it became independent in 1997.
Meanwhile, UK consumer confidence has increased for the fourth month in a row and is now at its highest level since early 2022.
Vodafone plan to axe 11,000 jobs and BT plans to cut up to 55,000 jobs or 42% of its workforce by the end of the decade. With 10,000 jobs to be replaced by AI (Artificial Intelligence).
Data from Kayrros, a satellite-based technology firm that independently measures the footprint of human activity on the environment at a global level has reported the mind-boggling fact that methane leaks alone from two main fossil fuel fields in Turkmenistan in central Asia caused more global heating in 2022 than the entire carbon emissions of the UK in the same period.
Global wholesale gas prices have fallen to £0.73 a therm. A two-year low but retail prices remain up at £2.50 a therm.
THE COSMOS OFFER
Of course, currency market volatility can bring trouble but with careful monitoring can also bring opportunity.
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This week’s quote is from Winston Churchill
“The further back you look, the further forward you are likely to see”.
