If you have been keeping an eye on the exchange rates in recent days you may have noticed all of the volatility. The Pound (GBP), US Dollar (USD) and Euro (EUR) have all experienced mixed trading. We at Future Currency Forecast look at the causes for the uncertainty.
The US Economy
As the world’s largest economy the USA is often considered as the driving force of the wider global economy and any signs of a slowdown in the nation often leads to a risk aversion. Disappointing Retail Sales and a slowdown in manufacturing production have caused investors to fret that the Federal Reserve may delay increasing interest rates.
Greece
Greece exploded back into the headlines this week as political uncertainty spooked the markets. Support for the Greek government has fallen sharply as Greeks grow increasingly frustrated over the ongoing bailout programme and high unemployment. As a result, the left wing SYRIZA party has called for early elections, a move that could see the end of the compliant Samaras government and see SYRIZA take power. As a result, Greek share prices on Wednesday fell to their lowest levels of 2014.
Eurozone Weakness
The data coming out of the Eurozone over the past few weeks has been poor but this week’s data releases out of Germany and the wider currency bloc slumped to new lows and raised fears that the region is sliding towards a triple-dip recession. Economists said that the Eurozone’s prospects have deteriorated in recent weeks and growth forecasts have been downgraded. Continuingly low inflation figures also increased fears that deflation could take root, something that has increased pressure upon the European Central Bank to take further action, with some economists calling for the introduction of a quantitative easing programme.
Deflation
The USA, UK and Eurozone all posted weakening inflation figures this week adding to fears that the world is heading towards a period of deflation. In the UK for example, consumer prices increased by just 1.2%, a five year low. Deflation is bad news as it means that consumers will spend less as they wait further price drops, which in turn becomes a vicious cycle of price drops.
Geopolitics
The world is experiencing a period of major uncertainty now. The spread of the deadly Ebola virus has heightened concerns that if it spreads further it could have a dire impact upon economies. The markets are also spooked by the conflicts in Syria, Iraq and Ukraine. The whirlwind advances of the murderous Islamic State created instability as the US mobilised a coalition of nations to battle the Jihadist menace. The situation in Ukraine remains tense as the conflict between the Ukrainian government and pro-Russian separatists remains unresolved. Pro democracy protests in Hong Kong have also affected market sentiment.
With so many events, affecting upon global sentiment it is hard to predict when things will stabilise. It will require a run of positive economic data releases to emerge from the USA, UK, China and other major economies to put investor concerns at ease.
