Sterling fell nearly 2 percent yesterday versus the Swiss franc, hitting its lowest in over 20 months as concerns about a slowdown in the global economic recovery prompted investors to dump high-risk currencies including sterling and stock up on safer ones like the Yen and Dollar.
The pound also dropped just over 1% against the Dollar to rest below support at 1.5400 GBP/USD and over 1% against the Euro to rest just above support at 1.200 GBP/EUR. The risk that the pound will drop significantly lower against the Euro is certainly very real as the long term downward trend can re-assert itself at any time.
American stocks gained slowly yesterday after consumer confidence posted higher than expected, “Consumer confidence is the second positive surprise we’ve had today. Does that mean we’ve hit the peak of bearishness yet? If not, we’re probably close,” said Uri Landesman, president of Platinum Partners in New York.
European shares stayed stagnant yesterday but they did at least avoid significant losses. Fears of a slowing economy persist and have weighed heavily on both oil prices and the dollar.
Concerns about the health of the U.S. economy previously pushed investors into safe-haven assets which helped to send the yen to a 15 year peak and gold prices to a two-month peak.
The World Index of stocks has dropped about 4 percent so far during August, heading for the biggest monthly decline since May. Gold has gained 13 percent this year, reaching a record $1,266.50 an ounce 2 months ago.
Gold stocks were among the morning’s strongest performers, with the NYSE Arca Gold Index posting a 2.1 percent gain. This advance alone has boosted the index to its highest intraday level in two months.
“Gold is the primary beneficiary of this general angst over the economy,” said Matthew Zeman at LaSalle Futures Group. “The flight-to-safety bid is back on, and Treasury yields are a joke now. That’s a good setup for gold to go higher.” The majority of Gold is traded in Dollars which can compound to strengthen the greenback.
Euro-zone data is thin on the ground until Thursday when they will announce their GDP figure. This could spur a good deal of volatility, expected to come in at a conservative 1.7% y/y growth. Anything outside of that figure could scupper the tentative currency recovery of the last few weeks.
British gilt edged bonds have dropped back this morning along with Bunds and other secure investment classes after data showed Chinese manufacturing regained some momentum in August. This reassuring news has spurred investors tentatively back into riskier assets. The pullback was modest in the lead up to Friday’s U.S. payroll data where investors are dubious about a sustainable recovery in North American economy.
The currency that has benefitted the most from the Chinese data is the Australian Dollar. Australia acts as a gateway to the Eastern markets and a fast paced Chinese growth will help their corporate mining industry as they transfer various mineral resources to fuel the growth.