Investopedia's Forex Outlook For July 2012
  1. Investopedia's July 2012 Forex Outlook: Macroeconomic Highlights
  2. Investopedia's July 2012 Forex Outlook: Upcoming Events To Watch

Investopedia's July 2012 Forex Outlook: Macroeconomic Highlights

By Justin Kuepper | Updated December 12, 2014 — 6:26 PM EST

As we move enter July, the global economy continues to struggle amid a lackluster U.S. recovery and ongoing indecision and banking problems in the eurozone. Asia has also started to feel the slowdown after posting several years of strong growth rates, which could pose further problems for the financial markets, taking away a key source of global growth.

Macroeconomic Highlights

U.S. Slows, Extends Operation Twist
The U.S. economy appears to be slowing by many accounts. On June 20, the U.S. Federal Reserve lowered its outlook for the year to 2.4% from its 2.9% projection earlier this year. Unemployment isn't expected to improve much either, with the jobless rate expected to fall no lower than 8% by the end of the year, according to the same report by the central bank.

Many U.S. economic indicators have also confirmed this slowdown. The U.S. manufacturing sector grew at its slowest pace in 11 months in June, while new unemployment claims fell only marginally in recent weeks. Meanwhile, existing home sales fell 1.5% to a 4.55 million annual rate in May, according to the National Association of Realtors.

As a result, the Federal Reserve opted to extend its bond-buying program known as "Operation Twist" until the end of the year in response to this slowdown. Under the program, the central bank will continue purchasing U.S. Treasury Bonds. But while the news came as a surprise, the effects were short-lived, and the stock market reversed within hours of the announcement.

SEE: Key Strategies To Avoiding Negative Bond Returns

Euro Worries Persist, Calls on Germany
Spain's bailout may have averted a near-term crisis, but the lack of a cohesive rescue plan means worries still persist. Bond yields for troubled countries like Spain and Italy remain near unsustainable levels, despite a brief reprieve. Meanwhile, Moody's recently downgraded 15 of the world's largest banks, adding to concern in the financial markets.

The most popular solution to these woes are so-called Eurobonds that would be jointly guaranteed by all members of the monetary union. Former British PM Tony Blair perhaps said it best: "The only thing that will save the single currency now is in a sense a sort of grand plan in which Germany is prepared to commit its economy fully to the single currency."

Unfortunately, Germany remains very resistant to the idea. German Chancellor Angela Merkel has shown no signs of budging on Eurobonds or bank guarantees amid pressure from newly elected French President Francois Hollande. Merkel instead insists that euro states must agree to much deeper fiscal integration before such financial pledges are made.

Asian Growth Continues to Stumble
Asia may be the world's growth driver, but those rates appear to be slowing. Chinese manufacturing activity weakened to a seven-month low in June, according to an HSBC survey, indicating deterioration in business conditions at factories. Meanwhile, there are also some concerns that government data may be overly optimistic.

A notable exception is Japan's economy, which is expected to continue seeing a modest recovery driven by strong consumer spending and rebuilding efforts. Recently, the government also upgraded its outlook on capital spending for the first time in three months, citing a pick-up in corporate profits and support from the reconstruction.

SEE: 7 Currency Blunders You Could Cash In On Slideshow

Britain's Signs of Recovery After Double-Dip
Britain has taken a unique approach to combatting its economic decline. Unlike the U.S. and eurozone, the region has instead opted to impose austerity measures and hike taxes. While it recently slipped into a double-dip recession, the country's leaders insisted this was primarily due to higher commodity prices, a weak banking sector, and the eurozone crisis.

Despite the slowdown, there are also some signs of a turnaround after new lending and infrastructure initiatives were implemented. Retail sales increased in May after a weak showing in April, with the Office for National Statistics showing a 1.4% gain in May. These figures were above economist forecasts of a 1.2% increase for the same period.

Investopedia's July 2012 Forex Outlook: Upcoming Events To Watch

  1. Investopedia's July 2012 Forex Outlook: Macroeconomic Highlights
  2. Investopedia's July 2012 Forex Outlook: Upcoming Events To Watch
RELATED TERMS
  1. Eurobond

    A bond issued in a currency other than the currency of the country ...
  2. European Sovereign Debt Crisis

    A period of time in which several European countries faced the ...
  3. National Bank

    In the United States, a commercial bank chartered by the comptroller ...
  4. Grexit

    Grexit, an abbreviation for "Greek exit," refers to Greece's ...
  5. Unlimited Bond Purchase

    A program undertaken by the European Central Bank in October ...
  6. Bank Rate

    The interest rate at which a nation's central bank lends money ...
RELATED FAQS
  1. Why is the U.S. stock market doing well despite the recent U.S. economic downturn?

    The U.S. economy is one of the largest and most important economies of the world. With the continual growth of its GDP, the ... Read Answer >>
  2. What austerity measures can a country implement to curtail government spending?

    Read about the types of austerity measures that governments can take to reduce deficits, increase revenue and lower public ... Read Answer >>
  3. What is the long-term outlook of the banking sector?

    Find out about the long-term outlook for the banking sector. It has significantly changed after legislation that passed in ... Read Answer >>
  4. How does quantitative easing in the U.S. affect global markets?

    See how the Federal Reserve's quantitative easing can manipulate markets in the U.S. and globally in ways that are difficult ... Read Answer >>
  5. What economic indicators are important to consider when investing in the banking ...

    Find out which economic indicators are most useful for investors in the banking sector, especially those influenced by central ... Read Answer >>
  6. What economic indicators are important for investing in the financial services sector?

    Read about some of the most important macroeconomic indicators that investors in the financial services sector should watch ... Read Answer >>
Hot Definitions
  1. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  2. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  3. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  4. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  5. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  6. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
Trading Center