Foreign Exchange Insight : GBP USD Rate Recovers In Spite of IMF’s Warning of ‘a Dangerous New Phase’ For Global Economy

21 Sep 2011 at 7 AM - Written by John Cameron

STORY LINK Foreign Exchange Insight : GBP USD Rate Recovers In Spite of IMF’s Warning of ‘a Dangerous New Phase’ For Global Economy

The Pound Euro exchange rate (GBP EUR) is 1.1466. The Pound Dollar exchange rate (GBP USD) is 1.5709. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5269.

The International Monetary Fund stole the headlines in the currency markets yesterday, with the release of a doom-laden report which predicted rough waters ahead for the global economy.

The IMF’s report stated that the global economy had entered ‘a dangerous new phase’ in recent weeks, with sovereign debt problems in the US and Eurozone threatening to spread contagion into the global retail banking sector.

In the short-term, the IMF predicted a slowing in the expansion of the UK economy, cutting its forecast for British GDP growth in 2011 from their June estimate of 1.5% to 1.1%. The number does not compare well with the UK’s competitors’, with Germany’s economy predicted to expand by 2.7% this year, France by 1.7% and the US by 1.5%.

The UK economy is predicted to fare better in 2012, showing an expansion of 1.6%, slightly higher than the IMF’s expectations for Germany and France.

The report led to calls from some quarters for the British government to partially abandon its current hard line austerity package by launching an expansionary package to promote jobs and growth. Other economists saw the report as further justification for an extension to the UK’s current Quantitative Easing programme. If the minutes of the most recent Bank of England policy meeting, released later this morning, reveal that the nine-man monetary policy committee discussed such a measure, then the Pound may come under heavy selling pressure in the currency markets for the remainder of this week’s session.

The IMF’s report also posed questions about the strength of the world’s predominant economic superpower, the US, pointing out the weak state of the American housing and employment sectors. The IMF’s observations failed to halt a mini-revival in world stock markets on the day yesterday, meaning that the Dollar weakened, seeing the GBP USD rate further reject Monday’s 8-month low of 1.5633 to touch 1.5748. However, if Federal Reserve Chairman Ben Bernanke’s press conference, which follows tonight’s FOMC monetary policy decision in the States, re-enforces the IMF’s downbeat assessment of the world economic picture, then share markets are sure to head lower, causing a renewed bout of support for the Greenback.


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