Currency News: GB’s Pound Rallying, All Eyes on Central Banks
Currency News
GB’s Pound Rallying, All Eyes on Central Banks
All eyes will be on Central Banks across the world to ease the recent events that have led to currency jolts.
Friday marked the end of the first half of the year. There have been two quarters thus far, and each of them ended with a volatility event for currencies. In Q1, China decided to devalue its Yuan, sending markets into turmoil. For Q2, recently, the UK has voted to leave the EU. This took the world by surprise, and now markets are trying to price in the Brexit.
Currency markets are dictated by Central Banks. It doesn’t seem that the US will see a rate hike anytime soon, as mentioned by Fed Vice Chairman Stanley Fischer last week, according to Bloomberg. The Fed’s ‘Minutes’ for its June meeting will be released this Wednesday, and investors will be watching closely to the possibility of a hike in December. There has been a ton of capital flooding into the US, thus making the dollar appreciate, and making exports more expensive. It will be interesting to see what the Fed comes out with to deal with this problem.
Another country that’s bank has a decision to make, is China. The People’s Bank of China will have to decide if it wants to devalue its currency. The motivation behind this is because the Euro is at one of its cheapest levels, affecting China’s trade. The Yuan is higher than the Euro making exports more expensive, affecting trade. If the Chinese decide to devalue their currency, we will be back where we started in 2016.
Although the Brexit seems to be more of a political story, markets still will be effected from this. It will still be seen in the second half of the year. Britain’s Pound hit its all-time low last week on Monday and has rallied ever since. The rally still hasn’t been enough and many see a recession as unavoidable at this point. To help with this, UK’s Chancellor of the Exchequer, George Osborne, introduced a new corporate tax that would be lowered to 15%. Although this wouldn’t happen for the next couple years, sterling kept up its strong rally.
