10.07 - pound is down amidst political crisis in UK
Euro is more positive as pound is lower.
Stocks and indices around Europe seem to have gone into the better territory with earnings season being as close to us as it is. Feeling a little bit freer the region has fully recovered from the losses it experienced earlier in the year. But right now, not only the upcoming season is lifting the spirits of European region. There is also the fact that all the economic and political news are walking around Europe but actually go into it.
Look at it – dollar, pound, yuan, yen and even Turkish lira – all of them are in some kind of crisis now. Most of them are tied to each other, but there is also a self-standing currency that has brought all of the troubles on itself. With dollar and yuan, the situation is clear – the two countries that happen to be two of the biggest economies in the world collided over interests and now their economies are in trouble. Yen has been falling for two months straight, failing to recover some of the previous positions due to the uncertainty with dollar. Turkish lira is on the lowest positions ever because of the inner banking crisis, although there is hope that the President of Turkey Erdogan will try and fix the situation. But pound... There is a whole other story with it today.
Yesterday we talked about British currency. But for the whole other reason. Yesterday it was on the rise because there was a brock in the way to Brexit. But right now, it is possible that the whole country will be sent into chaos because of the resignation of British Minister of Foreign Affairs Boris Johnson. Although there seems to be no certain threat for pound in that act, there sure is one for May. We have looked through a lot of material and there is only one opinion now that seems to prevail over others. And we totally agree with it – there may be an attempt to push May out of the cabinet. With less than a year left until British withdrawal from the EU that is simply too much pressure in British economy.
May has been threading between UK and EU politicians in an attempt to please everyone. And pound has been stable. But now when there are shakes that can threaten the stability inside the UK we see that pound is not ready for it. On the other hand, what is bad for pound can be good for euro. After all, how many banks and companies have planned and have already moved to EU in order to keep all of the connections with European partners? A lot. And there are more to come. Those are huge investments in European economy. With coming support, it is possible that in time euro will become as strong as pound is right now? What about pound itself? The economy will suffer a huge blow in less than a year or maybe even earlier – in case there are attempts to make away with May.
With greenback being led by someone like Trump there will be no big support from the world society to dollar. So, we have get used to the fact that other currencies are going to rely more on themselves or even on the closest neighbors. And that is what we see right now happening to pound. With no strong back to hold onto, it has to figure out its actions only by the situation inside UK.
Euro in its turn can look at pound and get more stabilized as pound shakes up. That is exactly what we see today.
How often do we hear about prices for sugar? That is hardly one of the most popular trading instruments. Although it's widely traded one. But how often do we think about why the piece for it makes certain movements? Those who regularly trade it of course know where to look for the blame. But we have to look for the reason now. Do you know why? Because the price for it has been sinking.
The main reason for the major losses lately is of course the demand. There is a question that a lot of people don’t think about when they give up sugar – how will it be mirrored on the world's demand of sugar? Now, imagine thousands of millions of people giving up sugar for a month simultaneously. That would undermine the demand instantly. But what if that happens not so rapidly, but little by little. But in the same scales? That’s right. The price slips lower and lower without anyone noticing before it is too late. Right now, a pound of sugar costs 11.4 cents per pound. Futures for the raw asset slipped by 25 percent since the beginning of the year.
Why are we are looking at sugar? Because that is exactly what can happen to other assets like oil, for example. We know that the demand for it is slowly slipping. And although now it is standing high, Sooner or later the price is going to start dropping. All because of the demand for the raw material in the world. That is exactly why coffee and live cattle prices are more or less stable. Because the demand for them isn't going anywhere.
So the next time you give up something, think about the effect it can cause on the world's markets.
- by Anna K.