Investopedia's July 2012 Forex Outlook: Macroeconomic Highlights
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.
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.
The risk that a local currency cannot be converted into the currency ...
Spot and forward foreign exchange rates that are used as standard ...
The proportion of an aggregate raise in pay that a consumer spends ...
The price of a nation’s currency in terms of another currency. ...
The percentage of open positions held for major currency pairs ...
Learn the three major goals of covered interest arbitrage and increase your comprehension of the foreign exchange trading ...
Learn how to use linear regression to calculate the correlation between stock prices and interest rates by taking the square ...
Understand what a run rate is and why a company would look to calculate it. Learn about the various limitations of relying ...
Learn about the origins of the 80-20 rule and understand how it is applied in different areas including business, economics ...