Will Volatility in the markets take a holiday this year? currency matters

Will Volatility In The Markets Take A Holiday This Year?

Currency Exchange Rates Update

Today marks the end of yet another volatile month in the foreign exchange or currency markets.

The Pound hit its highest level against the Euro since August 2022 on 11 July. By 20 July, it had fallen to its lowest level against the Euro since May. Its since reversed again and heading upwards.

Against the US Dollar, the Pound hit its highest level since March 2022 on 14 July. By 28 July, it had fallen to a 3-week low.

Against the Australian Dollar, the Pound hit its highest level on 11 July since May 2020. By 20 July, it had fallen to a 4-week low but is once against heading upwards.

What’s In The News?

In The UK…

Thursday, 3 August brings the next Bank of England (BoE) interest rate decision. Another rate increase seems inevitable, but will it be a 0.25% or a 0.5% rise? And what will Governor Andrew Bailey say about the outlook for the UK economy, inflation, and future interest rate policy?

The annual rate of headline pay growth increased to 6.9% in the three months to May from a rate of 6.7% in the previous three months. In an environment where productivity remains weak, this adds upward pressure to labour costs which in turn should be seen as adding more to already persistent signs of inflationary pressures leading some to argue for another 0.5% rate rise this week.

Others point to other economic data that shows activity and prices growth moderating while consumer confidence dropped back sharply in July and therefore another aggressive rate rise by the BoE could tip the UK economy into a recession later this year.

The IMF (International Monetary Fund) is forecasting that the British economy will outperform Germany this year.

The IMF now expects the UK economy to grow by 0.4% this year. This represents a big upgrade compared with the 0.3% contraction it predicted in April, when the UK was forecast to be the worst performing major economy in the world, including Russia.

The Fund said the UK’s improvement reflected “stronger-than-expected consumption and investment from the confidence effects of falling energy prices”.

British factories are exporting more to the EU despite Brexit with EU customers accounted for 52% of trade last year, according to data from manufacturing lobby group Make UK and accountants BDO. It was 50% in 2019. The increase comes despite warnings that Brexit would be highly damaging for British manufacturers because it would make trade with the EU more difficult.

Citigroup’s European head has said that Brexit has not impacted the city anywhere near as much as experts predicted.

Hauliers are now crossing the Channel at the same speed they were pre-Brexit thanks to new “Border Pass” technology.

Jaguar Land Rover-owner Tata has confirmed plans to build its flagship electric car battery factory in the UK. The new plant in Somerset is expected to create 4,000 UK jobs and thousands more in the wider supply chain.

The UK signed up to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) on 16 July. It brings the UK into a trade area of 500 million people, covering £12 trillion and 13% of global GDP. More than 99% of the current UK goods that are exported to CPTPP countries will soon be eligible for zero tariffs. The 11-member CPTPP includes Canada, Mexico, Japan, Australia, Vietnam, Singapore, and Malaysia, among others. The UK is the first European nation to join the bloc.

Good news for mortgage borrowers. Britain’s biggest mortgage lenders including the Nationwide, TSB, Barclays, HSBC, Coventry Building Society, and the Skipton Building Society all cutting rates on the back of better-than-expected inflation data last week.

In the same week that saw Dame Alison Rose resign as the Chief Executive of the NatWest Group following a scandal over the closure of Nigel Farage’s Coutts account, NatWest received the most complaints over decisions to close bank accounts last year. The data from the Financial Ombudsman Service, the independent body that settles issues between customers and lenders, show NatWest was the most complained-about bank for the past three years in terms of account closures.

The scandal has wiped £850m off the share price value of the lender.

The chief executive of Coutts, Peter Flavel, has followed Dame Alison out of the door. He resigned with immediate effect after the private bank closed Nigel Farage’s accounts because his views were at odds with the lender’s “values”.

It does not look like this is the end of the matter by a long shot. The ICO (Information Commissioner’s Office) said last week that Mr Farage’s trust had been “betrayed” by the high street bank and is set to launch an official investigation.

In The EU…

Last week the European Central Bank (ECB) raised interest rates back to their record high of 3.75% for the deposit facility rate and 4.25% for the main refinancing rate. Warning consumer prices are still rising too fast while keeping its options open for further increases. 

The IMF are forecasting that Germany, the EU’s biggest economy, will contract by -3% this year. Risking becoming stuck between stagnation and recession.

The eurozone as a whole is not fairing any better. EU manufacturing output falling to 42.7, its weakest level in 38 months.

Dr Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank comments in the report painted a pretty stark picture of the EU’s economic powerhouse “Over the last few months, we have seen a jaw dropping fall in both new orders and backlogs of work, which are now declining at their fastest rates since the initial covid wave at the start of 2020. This doesn’t bode well for the rest of the year.” He also saw an “increased probability” that the economy would be in recession as we head to Christmas.

In The USA…

As expected, the Fed raised interest rates by another 0.25% when they met last week. Leaving the door open to additional increases as officials fine-tune efforts to further rein in inflation that’s been cooling for months. The latest rate rise was a unanimous decision. Raising the target range for the Fed’s benchmark federal funds rate to 5.25% to 5.5%, its highest level since 2001. It marked the 11th consecutive increase since March 2022, when the rate was near zero.

However, economic growth in the US remains much stronger than expected in the second quarter of 2023. Despite the Federal Reserve’s campaign of aggressive interest rate rises.

Others

In Australia, the Reserve Bank of Australia (RBA) announce their latest interest rate decision tomorrow, 1 August. Inflation in the first quarter was 7% and fell to 6% in the second quarter. June’s inflation rate was in line with expectations at 5.4%, down from 5.5% in May.

China’s second-quarter gross domestic product grew by just 6.3% from a year ago, missing expectations and the youth unemployment rate was 21.3% in June, a new record.

Turkey’s central bank expects inflation to hit 58% by the end of 2023. The new forecast is more than double the 22.3% outlined in the central bank’s last inflation report just three months ago. Turkish interest rates are currently set at 15%.

THE COSMOS OFFER

Of course, currency market volatility can bring trouble but with careful monitoring can also bring opportunity.

At Cosmos, we provide our clients with a relationship not a transaction-based service.

We are pro-active not reactive.

We offer local collection accounts in: the USA; Canada; the EU and the UK saving clients time and money on transfers.

Cosmos Currency Exchange has won multiple awards for its customer service and pro-active approach.

Please call +44 (0) 300 124 6409 or email us to discuss your individual currency requirements.

Quote

This week’s quote comes from Nobel winning economist Milton Friedman

“The most important single central fact about a free market is that no exchange takes place unless both parties benefit.”

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