Share Markets Plunge And Pound US Dollar Exchange Rate (GBP USD) Tumbles To New 31 Month Low

Modified: Thursday, 21 February 2013 08:04 BST - Written by Tim Boyer

STORY LINK Share Markets Plunge And Pound US Dollar Exchange Rate (GBP USD) Tumbles To New 31 Month Low

The apparently gravity-defying accumulation in the value of global equities over recent months was placed in peril by the tone and language used in last night’s Federal Reserve FOMC Minutes. The notes from the Fed’s February policy meeting acknowledged the danger which scaling back the US central bank’s controversial Quantitative Easing programme, which sees tens of billions of Dollars pumped into the vast American economy on a monthly basis, poses. However, the FOMC went on to reveal that wide-ranging discussions had taken place between policy members regarding winding down the programme in an orderly fashion, when the time comes.

The news saw share indices in the Asia-Pacific region register their most pronounced daily losses in more than three months last night, with Sydney’s benchmark S&P/ASX 200 losing some 2.26% of its value. Tokyo’s Nikkei 225 and Hong Kong’s Hang Seng both lost over 1%. The move out of equities speaks volumes regarding the degree to which the rally in share markets of the past two years has been dependent upon the world’s major central banks’ ultra loose monetary policies during this period. With inflation threatening to make a concerted comeback and the global economy showing some signs that it may be about to awaken from the slumber which it has been in, now could be the time for a correction for equities.

Last night’s ‘risk off’ trading environment triggered strong support for the safe-haven US Dollar, sending the Pound to US Dollar exchange rate (currency : GBP USD) plunging to its lowest level for some 31 months, touching 1.5131 during Asian trading. If the flight to quality continues during European trading today, then expect the GBP AUD and GBP NZD exchange rates to reverse some of their losses of the past week.

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