UK Pound Limped at Month-end, Down 1600 Points

The close of Friday’s session saw the British Pound limping to a 13-month low registering a dismal 1600 points drop for the month of August alone.  This led the market to wonder if the currency has reached its peak of exhaustion.

British Recession

 
The British economy continues to erode as real estate and housing sector crumble.  Consumer confidence is at an all time low while the growth of trade and commerce virtually halted.  

The fundamentals exerted pressures on the GBP/USD exchange and the entire month of August saw the Sterling lost its ground against the US Dollar.  Analysts said that the Sterling has been over valued and over sold and the 1600 points collapse is just a concrete manifestation of the fact.

Relative Strength

The relative strength of the US economy against other economies worldwide fueled the surge of the US Dollar, as traders took profits early anticipating a long Labor Day holiday.  The buck surged ahead of the Australian and Canadian currencies as the economies of the two countries continue to slow down.

Although the US economy is showing signs of revival, the general outlook still looks shaky as domestic consumer spending continues to drop over a two-month period fettered by high inflation figures.

Unemployment in the US looms larger as 425,000 citizens filed claims at the Labor Department in the past week. Americans are more concerned about job security and housing prices problems rather than spending on automobiles and other durable goods.

The anchor that holds the US economy in place is the strengthening business activity index which registered a net increase from 50.8 in July to 57.9 at the end of August.  The Federal Reserve will likely to follow an unchanged policy keeping the interest rates at its current levels.

The US Dollar will continue to enjoy robust rallies as traders will speculate further on the market anticipating interest rate cut backs carried out by other central banks.

Euro Succumbs, Yen Fights

The Euro ended a week of trading that will likely push the European Central Bank to cut interest rates in the near future.  The health of the Euro was weighed down by dismal economic performance of the Euro Zone.  

Unemployment data confirmed fears that the zone is grinding to halt.  The German economy showed signs that it is sliding into recession as business and consumer confidence index fell significantly to 5-year and 3-year lows respectively.  Inflation continues to hound the economies of the Euro Zone which was recorded at 3.1 percent.  

The market will anticipate the policy decision of ECB on rate cuts over the next few weeks as the general trend of the Euro and the entire zone continues to worsen.  

Meanwhile, the Yen continued to resist the US Dollar.  The Yen failed to win big but it stayed on top of the greenback at the close of the market.