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Manic Monday on the fx markets...
Yesterday we saw dramatic swings in the fx markets with the pound being the protagonist. GBP/USD retreated from Fridays 1.43 down to a low of 1.3750 yesterday; the pound also lost 4% against the Swiss francs from last weeks levels and 2.5% against the euro. The reason for the sell off was related to the government increasing its stake in Lloyds banking group from 43% to 77% and also to rumours that Barclays may be next in line. Investors fear the nationalization of banks and the fact that further capital is required, may lead to uncertainty in the rest of the banking sector.
Looking at this mornings trading we have witnessed a slight recovery for the pound against the dollar even against the back drop of further weak data in the housing and manufacturing sectors. A survey by the Royal Institute of Chartered Surveyors (RICS) confirmed that UK property sales between December and February remained at their lowest level since the survey commenced in 1978; UK manufacturing declined for the 11th straight month in January by 2.9% bringing the yearly decline to 12.8%.
It now seems that the economic slowdown is reaching a truly global perspective as the IMF has confirmed that growth in Sub-Saharan Africa will slow to 3.25% in 2009 which is half of previous estimates. Although investment exposure is very minimal it is the slowdown in demand for products and in particular commodities which is the biggest contributing factor. Closer to home a similar pattern can be seen in Germany as exports slumped by a fifth in January, here the problem again is the slowdown in demand coupled with the recent strength of the euro.
Today we will be looking to see whether the pound can find some support at current levels and attempt to gain back yesterdays losses. Later today we have fed chairman Ben Bernanke speaking and tomorrow we see the UK trade balance data released.