Is the USD the safety haven?
The week began with a feeling of déjà-vu all over again. Budget deadlock in the United States, a change of Government in Europe and downwardly revised growth forecasts across Asia all served to unsettle investors. Major stock markets tumbled between 2 and 5 per cent yesterday and though the selling pressure has abated somewhat this morning, the prevailing mood is still one of great nervousness and uncertainty. It may not yet be an exact repeat of early August, but with that chastening experience still fresh in many minds, there’s a cautious, defensive attitude out there.
Risk-appetite is very subdued and – as normally seen in this environment – investors are seeking the traditional safety of the US dollar. Though not quite the best performing major currency this month, (that honour goes to the JPY) the dollar’s trade-weighted index has appreciated more than 4 per cent. The pound has lost almost 5 cents and this morning’s opening level of 1.5656 is the lowest since October 18th. The Single European Currency has found some support in the low 1.34’s but we still wait to see if this is the calm before the storm which could erupt if the 1.3146 October low is broken.
Today we’ll get a snapshot of UK public sector finances in this the seventh month of the financial year. Back in March Mr Osborne forecast the deficit would fall to £122bn this year from £145.9bn in 2010-11. He should still be on track to meet this target but much slower economic growth and the absence of any major pick-up in the next couple of years leaves his medium-term forecasts looking unsustainable. The 2014-15 deficit target has already been revised up from £35bn last November to £46bn in March but the OBR might have to add a significant chunk of change to this projection next week.
Elsewhere today, we get the first revisions to US third quarter GDP. The flash estimate showed 2.5% annualised growth with personal consumption at a relatively healthy 2.4% pace. Consensus estimates are for little change though the composition of growth could look very different with the contribution from net trade revised up substantially but wholesale inventories sharply lower.
As for Eurozone consumer confidence released at 3pm this afternoon, the least said the better. It is not going to look good.
What does this all mean for me? Well buying your EUR, USD, AUD or any other currency at the wrong time could cost you a fortune. There is no crystal ball but Currency UK can give you the information you need to make an informed decision.