Global Foreign Exchange Trading News Update
GBP/USD currently trading at 1.5350, GBP/EUR is at 1.1730, so this is really higher against the Euro and lower against the United States dollar than where we were this time on Friday. There's a continuation in dollar strength after that Fed meeting last week and continuing over the course of the Asian session.
Now, there's probably three strands that we are worried about over the course of summer months, the reason why we expect summer months to be very volatile, rocky and unfortunately negative space for world assets prices. The first one is obviously the Fed's tapering - the withdrawal of stimulus by the Federal Reserve on a gradual basis and therefore taking liquidity out of the market, free monies, unable to invest in emerging market economies, with stock markets, bonds, commodities and currencies all falling off as a result. The first one has been happening all about that for a long time.
Furthermore, the second one only became evident over the past week or so, which is the Chinese credit crunch that is currently ongoing. Now, we have seen funding slow into bank lending markets within China rise to around 12%, which is 3 or 4 times the normal average. Obviously, that gumming up the transmission process, the liquidity within China and therefore businesses are suffering as a result.
Normally, in an economy which is performing well, this is a difficult matter but not the kind of thing that would can easily take an economy apart. The fact is, with the Chinese economy at the moment, growth is very much bouncing along the bottom, manufacturing is at a 9-month low and therefore confidence within the Chinese economy is also very low as well. We do also have a battle between central bankers obviously, as we bank evenly - who wants liquidity, who wants to be able to go out there and lend & they want the stimulus from government but the government does not want to increase assets bubbles or the possibilities of assets bubbles moving forward and therefore is not willing to do so.
Now, they're quite happy to bring growth lower to make it more sustainable, but obviously political and business confidence pressures are going to weigh in on that as well.
The third one is Greece, as we haven't heard too much out of Europe over the past month or so. On Friday, we knew that the Junior Coalition Partner - the left democratic party, have left the coalition on the basis that they unhappy with government plans to lay-off further or more public sector employees moving forward. They were concerns about this and left the coalition. There's increased worries and we can see yet more problems from Greece and yet more problems from Spain and Italy moving forward, considering the rise in bond yields that we have seen as a result of the Fed's tapering program or the move towards the Fed's tapering program.