Pound gains but cant beat USD Global growth concerns as markets crash

5 January, 2016

Matthew Boyle

Yesterday saw the first day of Ecostats for 2016, with a raft of data released from around the globe. Early morning it was the Euro and Pound that stood centre stage following releases of market manufacturing data and mortgage/ credit data respectively. It was good results from the Eurozone with Germany and the Eurozone as a whole posting growth, however it was the UK data that saw the days movement established. Improvements in credit, mortgage approvals and net lending for GBP saw the pound advance against the single currency, and afternoon inflation data releases from Germany (which were all down) allowed this to continue, with GBP gaining around a cent against the single currency through the day’s trading.

In the afternoon the focus shifted across the Atlantic to the U.S who released ISM manufacturing data and construction data. Showing marginal decreases in the released reports a currency would usually be expected to weaken, however the currently strong Dollar which is benefitting from the interest rate announcement at the end of last year actually gained against the pound. Against the Euro the Greenbacks morning gains allowed by poor Euro data were eroded.

So whilst the pound in many ways was the winner of the day, and its gains against the Euro welcomed given the recent drop. There is a cause for concern particularly for USD buyers as we see a clear display of sentiment outweighing data given USD strengthened against GBP. With further increases in US interest rates possible in the future GBP>USD rates may well continue to slide. Any of you with an upcoming USD requirement, no matter if it is several months away may like to consider options now, as there is a fear rates may continue to drop in the coming months. Whilst a strong USD does favour GBP>EUR rates improving, the pound is seemingly the weakest of the 3 currently. With a lack of the previously discussed UK interest rate on the horizon, and a currently well performing Euro we may see GBP> EUR/USD rates struggle in the short term.

Outside of the FX market, stocks around the world plunged yesterday with the Dow plunging 470 points during the day’s trading amidst further signs of Chinas economy slowing – the second largest in the world. A weaker than expected Chinese manufacturing reading sparked panic and saw a massive sell-off in mainland China where shares tumbled more than 7% forcing authorities to close trading before the day’s close, in what was according to Bloomberg the worst start to the a year of Chinese trading ever. With serious concerns over the outlook of the Chinese economy this poses a real risk to the global economy, global stocks and US shares.

Today we have another busy day for releases including German unemployment and UK PMI data, albeit it is the Eurozone that will take the focus as it releases inflation data. With so much having happened during December and little data so far this year, markets will be watching closely and big movements in rates are not out of the question. Should you have any upcoming requirements, speak to your Currency Index broker today for some friendly and professional advice for any transfers you need to make in 2016.