Foreign Currency Exchange

Last week the Dollar faired turbulently with a selection of interesting data and reports on the currency.

Further disappointing news for the US came when ‘Barrons’, a financial news provider, said the Government may have no choice but to nationalise the two huge US mortgage companies, Fannie Mae and Freddie Mac. This would effectively wipe out share holder equity in the company resulting in massive losses for investors of the two companies. Following the news, Kenneth Rogoff, former Chief IMF economist said the worst of the credit crisis is yet to come predicting more US banks to fail within the next few months. This represents a huge blow for the US and world economy as recently there were murmurs that the US economy was starting to emerge the other side of the credit crisis.
However the US Dollar pushed back up against the Pound early on Monday off the back of surprisingly poor German economic data which swung the Bank of England's trade-weighted Sterling index (overall buying power of Sterling against all currencies) to its lowest level since 1996, which in turn followed a steep fall in 'cable' to a two-year low just above the 1.83 interbank level. This means that within just a 3 month period the pound have fallen over 9% against the Dollar.

Despite the immediate gains seen on Tuesday, the Dollar is still very unsettled which is evident through weak employment data and home building numbers. However, with a sharp deterioration in other key economies including the UK the Dollar is expected to remain strong on the GBP/USD cross and continue strengthening.