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The pig and the bull have been the two major influences on Foreign Exchange markets this week as equities have see-sawed between worries over a swine flu pandemic and growing optimism that we could be seeing the beginning of the end of the financial crisis. At present improved economic sentiment in the US, UK and eurozone is keeping the underlying trend in foreign exchange positive although frequent bouts of risk aversion continue to support the safe havens.
In the US this week, a -1.6% GDP contraction in the first quarter of 2009 put the US on target for a -6.1% annual contraction, well above the -4.7% forecast. This decline was largely driven by a 30% drop in exports, steep declines in consumer spending and represented the third consecutive quarter of contraction for the US economy. However despite the negative figures, an upturn in consumer confidence and home price figures earlier in the week actually boosted risk appetite for trading in Foreign Exchange on the basis of recovery prospects.
Foreign Exchange news from the UK this week has been relatively thin and sterling has continued with its steady upward trend to rise above 1.49 against the dollar. Bank lending is increasing in volume and the growing view that recession is reaching a mature phase is positive for the pound. House prices slid 0.4% in April, less dramatically than in previous months and the GFK consumer confidence survey reached its highest level since November.
The euro has also been testing the top end of ranges as economic sentiment improves in the eurozone. While GDP contractions across the region are expected to be large, with 6% forecast for Germany in 2009, Foreign Exchange markets are choosing to focus on growing positive sentiment. France, Germany and Italy all reported an improvement in consumer confidence with economic and industrial confidence in Germany rebounding from record lows.
The Australian dollar has also consolidated on rising foreign exchange market confidence, gaining on the US dollar and the pound. These gains however did not extend to the New Zealand dollar which dipped after the RBNZ reduced interest rates to an historic low of 2.5%.
Over the next week the development of swine flu is certain to impact on foreign exchange markets and whether or not the virus becomes a fully fledged pandemic will determine investor appetite for risk. This will affect foreign exchange rates, particularly the flow of funds from the safe havens to the higher yielding currencies and we are likely to see the pound and euro maintain support if the trend in equities remains positive.
Next week brings interest rate decisions from the Bank of England, ECB and the results of ’stress testing’ banks in the US. Both recent rate reviews have sparked a frenzy of Foreign Exchange trading and the same can be expected of this one. With much debate over the future of QE in the eurozone, the euro may come under pressure against foreign currencies in the run up to the decision. The results of stress tests are also to be made public in the US and though these may be negative, economists are predicting the degree of certainty and transparency they will bring to markets will be beneficial in the long term.
Although it feels like we have been saying the same thing for weeks now, foreign exchange markets still remain an uncertain place, subject to wider trends internationally and in particular, appetite for risk. Timing and information remain crucial when it comes to foreign exchange currency transfer. By letting your dealer know your requirements you could walk away with a great deal more from your investment.
Our foreign exchange services provide a professional, efficient and cost-effective method for foreign currency conversion. Our very personal service is suited to business users, needing to buy foreign exchange at the best currency exchange rates available, and for the private clients who wish to make a single money transfer, or regular payments such as overseas pension transfers. Call FX-Foreign Exchange now on +44 (0) 1480.458400 .
Enjoy the Mayday break!
