Brazilian Real continues rally and Pound drops on government crisis

06-05-2009 13:12

The demand for commodities increased further on the back of better economic conditions, generally in Asia, which boosted the demand for currencies of developing countries, while the Brazilian Real continued to rally versus the Euro and US Dollar. The Pound Sterling dropped considerably against the US Dollar and the Euro on the back of the deepening government crisis, while Pensions Secretary James Purnell resigned.

Real witnesses impressive rally

The Brazilian currency is facing a striking rally since the worldwide recession seems to recover and due to the rise in commodity prices. The rally was boosted by beneficial aspects of the worldwide economy and global financial system as the Brazilian central bank ultimately procures foreign currencies in order to prevent the Real to rise extremely. Brazilian exports consists for the greater part of commodities, such as soybean, iron and oil. The rising commodity prices stimulate the Brazilian currency to reach record levels on a weekly basis as the Real is one of the most profitable assets since the worldwide slump began to weaken some months ago.

Unique performance

The Brazilian Stock Exchange recovered due to increasing commodity prices after the bearish period, which resulted in a drop of more than 30% of the maximum level before the economic downturn. The Real proves an exceptionally performance versus many currencies. Investors will prefer high-profitable currencies such as the Brazilian Real if optimism lasts, while the increasing popularity of commodities will continue to boost the Real.

Gordon Brown faces severe crisis

James Purnell, Pensions Secretary, stepped down this week and is the fifth minister that resigns since the UK government crisis started, resulting in a rather difficult situation for UK’s prime minister Gordon Brown. Local elections showed that the Labour Party lost eight seats and proved the dissatisfaction towards the current government. The political problems affect the Pound Sterling, proved by a record weekly decrease since April, while the Government bonds rate also declined.

Pound under pressure

According to economists, the British currency will not be able to recover after the political crisis and the housing market crisis, which damaged the UK badly and with rising speculations on Gordon Brown stepping down, the Pound will face heavy pressure. Economic and consumer confidence data, as well as indications that the economy improves, may not be enough to boost the Pound. The Sterling will remain bearish for the medium term as a result of the UK political crisis which affects the country’s economic outlook.