Forex Markets and the State of the World Economy

Whilst the US Dollar will often benefit from turmoil in the markets the US Federal Reserve’s second round of quantitative easing will most likely keep pressure on the Greenback. This is especially true if the Federal Reserve uses most of the $600bn package in order to continue to stimulate the economy. American economic growth showed some signs that it was improving recently: jobless claims were at their lowest point for four months and the international trade gap narrowed. These reports followed US payrolls data which showed that job growth in the private sector was at its strongest point for any month since April. This gives some suggestion that the economy might be starting to pull out of the struggles of the summer months. These improvements meant the one month moving average of jobless claims, which is an indicator of underlying trends, was at its lowest level since September 2008 – the month that Lehman Brothers infamously filed for bankruptcy. Still, there are many analysts who believe that the pace of job creation isn’t currently high enough to make any significant dent in the US unemployment rate, which currently stands at 9.6%. It was the concern regarding the lacklustre jobs market which was the most influential factor behind the Fed’s decision to indulge in a second round of asset purchasing and pump an extra $600bn into the American economy. Another report from the Commerce Department said that the trade deficit in the US narrowed to $44bn in September, which was better than expected, despite near record imports from China. Narrower trade deficits are good for an economy as it shows an increased demand for that country’s goods. Elsewhere in the forex spread betting markets, Sterling has risen after a Bank of England (BoE) report suggested that the UK is now less likely to conduct another round of quantitative easing. The BoE looks unlikely to make any changes to monetary policy for some months to come as recent data has been rather mixed and there is a considerable lack of certainty in the UK economy at the moment. The Pound saw sharp gains and British government bond futures fell, which suggested that spread betting and CFD investors believe that the Bank is now less likely to mimic its transatlantic cousins in expanding their asset book. The UK central bank’s quarterly Inflation Report did however leave the door open for more asset purchases if needed. BoE Governor Mervyn King stated that the Bank is ready to move and change its monetary policy in either direction should the UK economy require it. King stressed big risks to both the upside and the downside regarding inflation and growth, saying that the fate of the UK’s recovery will depend heavily on how the economy recovers on a global scale. It’s not all about Britain and America though, at least according to a CMC markets report; the Eurozone has its part to play too. “The single currency continues to trade near recent lows against the USD as concerns about sovereign debt continue to play out in Brussels,” it read. “Finance ministers are working to lay out a plan for bailing out Ireland’s banks if the need arises, however Dublin continues to play its cards close to its chest. Concern that a contagion effect could take hold and spill over to countries like Portugal and Spain are the primary concerns in markets at the moment. As it is, Portugal had to pay a sharply higher rate on its 12 month government debt.” A word of warning before you spread betting though, please ensure that financial spread betting matches your investment objectives, it carries a high level of risk to your capital and you can lose more than your initial investment. Make sure you familiarise yourself with the risks involved. Spread trading carries a high level of risk to your capital. Seek independent advice if necessary.