Noticias
24 Aug 2015

China sets off alarming bells

Financial markets had dismal beginning this morning for anyone employed within this market as Chinese shares nosedived 9%, while the Dollar and major commodities followed suit. European shares opened down 3% due to the Asian stock markets experiencing 3 year lows, as a three month-long rout in Chinese equities threatened to uncontrollable loses.

Euro strength has also been reflected in EUR/GBP over the past week and the pair opens this morning near 73p. Meanwhile, GBP/USD has tended to trade in or around $1.56-1.57 in recent days.

 

Euro

In Greece it looks like elections are evident due to Greece's constitution which allows the largest parties three days each to attempt to create a government should a government resign after less than a year. Only after this period of time has elapsed with no new government can the President (Prokopis Pavlopoulos) call an election and appoint interim prime minister.

Alexis Tsipras and his remaining followers are hoping for an election as quickly as possible. Syriza want to utilise Tsipras popularity to: "Our goal is an absolute majority, an attainable goal, so that the next government can be stable and turbulence that the country does not need can be avoided," government spokeswoman Olga Gerovasili told Real radio.

The Euro trades at £0.73025.

 

Pound

Today the papers believe that the 'twin engine' UK economy consisting of investment and consumer spending will achieve growth of 2.8% for 2015 and 2.8% for 2016. These figures are according to the Confederation of British industry, which believes that Britain can continue to enjoy strong economic growth despite the corrections experienced by China.

While this is slower than the 3pc growth seen in 2014, the CBI said a strong domestic expansion would outweigh slower export growth triggered by a slowdown in China and the stronger pound.

This week the only piece of published information is revised second quarter GDP. The pound trades at $1.57070.

 

Dollar

The dollar was hampered by the lack of clarity from the Fed on the start date of rate hikes, as well as concerns that further turbulence from China could delay the timeframe for this monetary tightening.

Future traders, who attempt to judge policy developments and outcomes into the three to six months in advance, have cut their September rate increase expectations to 28% from 54% as of August 7th. However a possible rise in December has risen to over 50% as the Fed will still want first mover advantage over the Bank of England.

Since China devalued the Yuan two weeks ago, more than $5 trillion has been removed from global equities, which commodities to a 16 year low.

A busy schedule of releases for the US this week which includes some key sectors in the economy, including business spending, consumer expenditure/incomes and inflation, as well as the second reading of Q2 GDP. The Dollar trades at €0.87201.

 

Australian Dollar

What a difference four months can make, as indices were close to breaking 6,000 points, today they witnessed a loss of $70 billion across the Australian share market. The Australian market's losses were felt across the board - the energy sector dropped 6.2 per cent, financials fell 4.6 per cent and retailers shed 3.5 per cent.

Some people believe that today is just the accumulation of weeks of bad news for the Aussie either from Australia or key trading partners. Continued Chinese volatility is expected to drive the Aussie down which is often used as a liquid proxy in China plays, while the Japanese yen and the euro are likely to keep gaining.

The Australian dollar trades at AUD/USD $0.72425.

Overall from Forex perspective, the recent tendency has been for risk sentiment rather than macro data to drive direction in the main Forex pairs and this feature could continue this week.

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