CURRENCY UPDATE – THURSDAY

The US Dollar climbed out of it’s doldrums yesterday, as a number of factors helped the currency claw back some of it’s losses. One of the causes of Dollar weakness in recent days has been the problems in the financial sector, so when the US’ fifth largest bank, Wells Fargo, posted better than expected results, sending their stock up 32.8% with other major banks following suite, it is no surprise that it gives the Dollar a boost. A further drop in the price of Oil also helped, the price for a barrel is now $135, down almost $13 from a couple of days ago. There was also Bernanke’s 2nd day of testimony to the Senate committee, where, although he didn’t reverse his previous days pessimistic outlook on the economy, he did raise the prospect of intervention in the currency markets. There has been talk of intervention previously, but no action, and even yesterday Bernanke admitted that intervention was only rarely justified.

In what was a busy day in the US there was also the FOMC minutes, which stressed the upside risks to inflation more than previous meetings, and comments from a Fed member that the current level of interest rates ‘almost certainly raises the risk of higher inflation’. His comments couldn’t have been more timely as the CPI figures showed inflation racing upwards, with the annual figure running at 5%. All of these factors helped the Dollar, but with the sentiment so resolutely against the USD, even this batch of data offered little help. The Dollar did manage to gain against the Euro pulling the rate down to below 1.5850, and the Pound also fell against the Dollar, but only to around the $2 mark.

The Pounds slip downwards against the Dollar may not be all to do with events in the US, we did have our own economic release here yesterday in the form of employment data. The claimant count was expected to move upwards, but actually rose faster than expected. We are a long from significant unemployment, and although that would keep wages lower and help the fight against inflation, it would also have a significant proportion of the country worried over their own jobs and spending less in the high street. The figures didn’t hurt Sterling much, leaving it around 1.26 against the Euro.

We have a break from the depressingly negative UK news for the rest of the week, and there is little out for the Eurozone either, so once again the attention will turn to the US and housing start figures. These are likely to be low, as they have been for a while, and provide little relief for the US dollar.

Michael Corcoran – Treasury Solutions | nabCapital™