Recession Watch : Currency market
The last 12 months has been very difficult for leading currencies around the world with the US dollar and the UK pound coming under particular pressure. As UK base rates continued to fall and the threat of a recession, and possibly a depression, grew we saw a significant reduction in the power of the pound overseas. However, over the last few days the UK pound has risen to the $1.50 level for the first time in over three months with optimism starting to creep back into the market.
The fact that the Bank of England recently indicated that UK base rates had "bottomed out" was an obvious factor in the bounce in the value of the pound but the ongoing impression that the UK property market is on the verge of recovery has helped. Currency markets have historically been very good at forecasting the future direction of individual economies and the fact we are seeing a "sustained" rebound at this moment in time bodes well for the future. However, as we have seen today, this potential recovery from recession could be fragile with concerns that the UK building society sector could be in trouble. While there are many indicators as to the future direction of the UK economy, the currency markets have been among the better and more informed indicators in the past.
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