Exchange Rates Outlook: Euro (EUR), Australian (AUD) & New Zealand Dollar (NZD) Fade Following World Bank Report

Modified: Wednesday, 15 January 2014 13:52 BST - Written by Frank Davies

STORY LINK Exchange Rates Outlook: Euro (EUR), Australian (AUD) & New Zealand Dollar (NZD) Fade Following World Bank Report

This morning’s report from the World Bank painted a far from rosy picture of the health of the global economy, stating that the future prospects for a continuance of the current economic recovery are dependent upon how well it weathers the inevitable negative effect of the withdrawal of extraordinary stimulus by the US Federal Reserve which is expected to take place throughout 2014.

In a doom-laden section of its commentary, the World Bank stated that some less-developed nations could ‘face crisis risks’. The mere suggestion that this year could bring a renewed flare-up of the global credit crisis of 2007/08 has sent investors scuttling for safe-haven assets on the day. The wholesale shift out of risk has hit the Australian Dollar hard; at one point during this morning’s session the Pound Australian Dollar exchange rate was trading to within 2.5c of its 4-year high at 1.8466 GBP/AUD. The Pound New Zealand Dollar exchange rate enjoyed similar gains in early trading and peaked at just below the 1.9700 GBP/NZD threshold earlier.

Meanwhile, the Pound Sterling Euro exchange rate has registered strong gains on the day, touching 1.2065 GBP/EUR earlier. The euro has behaved in a distinctly risk-sensitive fashion since the emergence of its own sovereign debt crisis in recent years and today’s move out of euro-denominated assets by the institutionals suggests that they believe that several of the developing nations which the World Bank believes to be potentially at risk could lie in the periphery of the eurozone.

Elsewhere, the US Dollar has pushed ahead against Sterling today as market participants factor-in yesterday afternoon’s strong US Retail Sales numbers. Positive data sets from the States have precipitated support for the Greenback in recent months and yesterday’s figures were no exception. If this evening’s Beige Book from the Fed contains a go-ahead message regarding the American economy’s future prospects then look for further near term downside for GBP USD.

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