unusually volatile period for global currency markets ahead of the recent G20 meeting

In this week’s bulletin:

  • With developed market indices still around multi-year highs, investors seem to be waiting for decisive moves or news from governments around the world to provide the future direction for markets.
  • The last two weeks had been an unusually volatile period for global currency markets ahead of the recent G20 meeting to discuss international financial stability.
  • Small shops were particularly hard-hit by the heavy snow in January, according to the Office for National Statistics (ONS), as the high street experienced a shock fall in sales for the first month of the year.
  • Pressure is growing on the government to relax the Child Trust Fund (CTF) rules in next month’s Budget, amid worries that companies across the industry will increase their charges on the product.

 

What’s next?

  • Uncertainty remains over the short-term fortunes of markets

So far, February has been a month of little overall movement for markets. Globally, equities have struggled to make fresh progress, and fixed-interest investments are stuck within recent ranges. With developed market indices still around multi-year highs, investors seem to be waiting for decisive moves or news from governments around the world to provide the future direction for markets.

The FTSE 100 touched a five-year high but could not hold that level as mining stocks pulled the index back towards the end of the week, closing ahead by 1% at 6,328.3. Fresnillo, Randgold Resources and Polymetal all dropped as precious metals hit their lowest levels since August, reflecting investors’ favouring of equities over the so-called ‘insurance’ metals. Gold fell below $1,600 per troy ounce, after investors’ flight to the ‘safe haven’ asset in 2012 had helped the price rise to $1,900. In the US equity markets, the S&P 500 rose marginally; while in Europe there was a small weekly loss as news came through that regional output contracted by 0.6% in the fourth quarter of 2012. Furthermore, the French economy shrank by 0.3% and the German economy by 0.6%.

 

Currency wars

  • Currency fluctuations are having a significant effect on investors
  • Major nations continue debate over what policies should be allowed by central banks

The last two weeks had been an unusually volatile period for global currency markets ahead of the recent G20 meeting to discuss international financial stability. Attention has focused on the Japanese yen, but a range of global policymakers hinted that they would welcome weaker currencies to help stimulate their own economies. One point seemingly being ignored is that the strength and weakness of currencies is always relative which means that certain countries or regions have to be willing to accept a strong currency. This seems unlikely in current conditions.

The media coverage of ‘currency wars’ that followed a statement from the G7 (the largest seven industrialised nations) failed to calm worries ahead of the G20 summit in Moscow. Japan had been heavily criticised after being perceived as actively targeting a weaker currency to gain a competitive advantage for exporters, but the G7 statement was seen as more of an endorsement of the actions, causing the yen to fall immediately. Their statement insisted that central banks should not target their exchange rates, but added that monetary

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