Foreign Exchange Report : World Bank Warns That Global Economy is Riding Towards a ?New Danger Zone?, GBP EUR Rate Drops on Poor UK Housing Data

Published: Monday, 15 August 2011 07:13 BST - Written by John Cameron

STORY LINK Foreign Exchange Report : World Bank Warns That Global Economy is Riding Towards a ?New Danger Zone?, GBP EUR Rate Drops on Poor UK Housing Data

The Pound Euro exchange rate (GBP EUR) is 1.1377. The Pound Dollar exchange rate (GBP USD) is 1.6287. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5614.

The dramatic recovery in global equities markets, which began during the last two sessions of last week, has continued today, with Asian stocks enjoying further gains overnight.

The move forward for equities is down to several factors. Much better-than-anticipated quarter 2 Japanese GDP figures released last night, which showed that economic activity in the world’s third largest economy shrank by an annualised 1.3% last quarter helping to move Asian stocks forward. Analysts had expected the figure to show a contraction of some 2.5% in growth as Japan continues to drag itself off its knees following March’s devastating tsunami.

Meanwhile, Italian prime minister, Silvio Berlusconi, announced over the weekend that Italy would be committing to a fresh bout of austerity measures in order to tackle its enormous debt mountain. Berlusconi anticipates that these measures should see Italy balance its budget by the year 2013. As is often the case, the markets responded positively to direct interventions by governments that have issues to address; this has seen the Euro start the week on a positive footing, with the GBP EUR rate trading down on its Friday close by 0.5c at one point overnight.

The final factor in gains in stocks over the past three sessions has been technical movement - with the benchmark S&P 500 losing almost 20% of its value in the space of two weeks, many analysts are suggesting that it, (and other indices), have been oversold and that the move of the past three session has brought them closer to fair value.

However, it appears unlikely that we have seen the end of the downward movement in stocks, as the President of the World Bank, Robert Zoellick, warned overnight. Zoellick observed that global growth fears and investors’ concerns over the sovereign debt problems in the Eurozone and US have taken the world’s economy to the brink of a ‘new danger zone’. With the Swiss and Japanese central banks acting in aggressive self-interest to released huge tranches of their currencies onto the markets and with fears over the health of the Eurozone’s retail banking sector escalating at the end of last week, the risk of widespread contagion further denting the global recovery has never been more prevalent.

Elsewhere, the week’s session started badly for Sterling, with the release of another worryingly poor set of UK housing data overnight; Rightmove’s house price survey for August showed that UK property prices dropped by a monthly 2.1% versus a contraction of 1.6% in July. This has seen Sterling start the week down against almost all of the other majors, with the exception of the traditional reserve currencies, (the US Dollar, the Swiss Franc and the Japanese Yen).


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