Daily currency report
Buying sentiment in currency markets took an unexpected hit following data showing that Japan’s economy grew by much less than expected in the second quarter. Fragile growth in the world’s third biggest economy is now one more piece of the global growth puzzle which is increasingly reflecting the damaging affect Europe’s debt crisis is having on leading economies worldwide.
The eurozone will release its economic performance figures covering the second quarter and expectations are that almost every member economy shrank over the three month period, whilst Germany also slowed sharply. Consequently the line for safe haven currencies like the US dollar is likely to be extremely busy although Japan’s latest growth numbers may disrupt the yen’s progress.
Upcoming Bank of England minutes from its August monetary policy meeting will help investors fine tune their view on what card the central bank will deal next to stop the UK’s economic recession from intensifying. Notes implying that it already has enough liquidity doors open and that the Olympic Games will also add another buffer could keep the pound trending higher.
Increasing pessimism related to the global economy following discouraging Chinese economic data has breathed new life into the safer US dollar. Subsequently the so-called “buck” opens near one-week and two-week highs against the euro and British pound respectively.
Optimism allied to the European Central Bank’s promise to fight the debt crisis appears to be fading fast, giving way to the reality of a shrinking eurozone economy after dismal industrial sector data from the German economy. The ECB’s more dynamic role in fighting the debt crisis has helped underpin the shared currency, however, upcoming growth data may also remind investors that the central bank may also be flicking through its emergency monetary policy manual.
Asian financial markets are off to a poor start after Japan announced that its economy is growing by much less than what economists had forecast, increasing worries among exporting nations about the impact Europe’s debt crisis is having on global demand. The economy expanded by just 0.3 per cent between April and June this year, a lot worse than estimates of 0.6 per cent GDP growth and a shade of the 1.2 per cent expansion seen in the previous quarter.