The pledge by G20 ministers over the weekend to end the global recession was backed by throwing more rescue-money in the direction of the IMF in response to requests for loans from a plethora of struggling nations. Taking its lead from American bank-chiefs, Britain’s Barclays Bank echoed its strong start to 2009. Meanwhile, optimism from Fed chairman, Ben Bernanke that somewhere throughout 2009 the economy will part company from its bad-news cousin, the recession and will likely return growth in 2010, has spawned a glowing sense of euphoria across the world. That has put the dollar on the back-foot today as investors allegedly rethink the need for safety.
The dollar weakened against the euro back above $1.30 for the first time in five weeks as investors reassessed the benefits of holding lowly-yielding dollars. The only other major which didn’t gain against the dollar was the Japanese yen, although the dollar is now on track to build on its recent gains to challenge ¥100 against the Asian unit.
The pain, pressure and unrelenting financial losses experienced by stock market investors has finally appeared to have given way to some moderate expectation that global central banks and governments have finally done enough to see off the most dangerous recession in the history of the modern economy. Quite how long this optimism will last is anyone’s guess. All that we can observe here is that the jawboning that has provoked such a turnaround has finally come at an auspicious time. In other words, things couldn’t really have got much worse. If and when the history-writers ever have cause to pinpoint the moment the recession turned, they will have very little factual evidence to wax lyrical about and the story will read that, ‘one day, we were told it was over and everybody listened.’
With an increasing weight of investors sitting on the side of the optimists, they must now do battle going forward with the over-sized body of evidence that is likely to prove contrarian for many months ahead. There will only prove to be so long that investors will be able to poke a stick at rising unemployment numbers claiming that they are merely a lagging indicator.
The British pound finally reversed its losses partly due to the dollar’s reversal but largely due to the echoing sentiment from Barclays’ management, coupled with efforts to shore up its capital by shopping around its successful iShares ETF business. Its shares are rising and investors appear willing to trade in this nugget of optimism and are forgiving of the trauma apparent to the rest of the financial sector. The pound today is at $1.4080 against the dollar.