The pound fell to 1.1636 against the euro and hit a 4 week low of 1.3644 against the dollar during yesterday’s trading session where the headlines were dominated by the Chinese property group Evergrande. Evergrande, which is China’s second-largest property developer, saw its shares plummet at the weekly opening by over 10%, as the company faces a possible default.
Major banks have reportedly been told that they won’t receive interest payments on loans that were due Monday, while interest payments of $84m (£61m) on the firm’s bonds are also due on Thursday. Analysts are concerned about Evergrande’s $305 billion of liabilities and how that may hurt the country’s financial system.
This uncertainty has seen Evergrande’s share price tumble by around 85% this year. Its bonds have also been downgraded by global credit ratings agencies. Evergrande reportedly owes money to around 171 domestic banks and 121 other financial firms.
As you would expect, the news initiated safe-haven dollar demand as a global slowdown is feared. Tensions towards the Fed decision on Wednesday, soaring energy prices in the UK, plus Germany’s elections are taking their toll too, hence the pound struggled and greenback firmed up in this risk-averse environment. Investors are also concerned about the Federal Reserve’s decision, where the bank could signal when it begins withdrawing stimulus. The Fed buys $120 billion worth of bonds every month, and reducing this amount would bring rate hikes closer.
Have a great day.
William Jones, Senior Relationship Manager.
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