Foreign Exchange Report : Weak US Housing Sector Data and Japanese Debt Downgrade Could Send GBP AUD, GBP NZD, GBP CAD Rates Higher

Published: Wednesday, 24 August 2011 06:04 BST - Written by John Cameron

STORY LINK Foreign Exchange Report : Weak US Housing Sector Data and Japanese Debt Downgrade Could Send GBP AUD, GBP NZD, GBP CAD Rates Higher

The Pound Euro exchange rate (GBP EUR) is 1.1445. The Pound Dollar exchange rate (GBP USD) is 1.6495. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5712.

Western equities markets enjoyed pronounced gains during yesterday’s session with the benchmark S&P 500 index closing up by 3.43%. These gains were a continuation of Monday’s forward move which came as a reaction to events in Libya, where rebel forces appear close to securing control of the country’s capital Tripoli. This news from the troubled North African state, which has the tenth largest proven oil reserves in the world, has sent energy sector stocks higher since share markets re-opened for the week and gains for these companies have in turn have dragged other shares higher.

However, Gaddafi loyalists continue to provide pockets of resistance against the rebels and Libya’s erstwhile leader does not appear minded to go quietly, promising last night to provide a, "burning volcano and a fire under the feet of the invaders".

Meanwhile, leading ratings agency Moody’s cut Japan’s sovereign debt rating from aa2 to aa3 overnight, stating that it was concerned about the Asian nation’s continued ability to service its sovereign debt. In a separate move, Japan’s Ministry of Finance announced last night that it is set to instigate a fighting fund of $100bn which will made available to Japanese businesses to help combat the effects of the historically strong Yen. Surprisingly, the Yen has failed to weaken significantly on the currency markets following the announcement.

Elsewhere, worrying data from the US yesterday showed that New Home Sales dropped for the third month in succession in the world’s leading economy, pointing to an entrenched slowdown in the US housing sector. Other data releases of note yesterday included the closely-watched German ZEW Economic Sentiment survey, which printed at -37.6 versus last month’s figure of -15.1, showing that economists are becoming far less optimistic about the prospects for Europe’s powerhouse economy.

Summing up, there appear to be plenty of reasons why global appetite for risk might take a turn for the worst during today’s session, with data releases in the world’s major economies over the past 24 hours proving disappointing and Libya’s crisis rumbling on. If we do see a further sharp downward move for world equities, then the high-yielder and commodity-driven currencies could once again come under heavy selling pressure, sending the GBP AUD, GBP NZD, GBP ZAR and GBP CAD rates sharply higher.


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