YB Currency Update – Friday 9th October

YB Currency Update – Friday 9th October

The Royal Mail's employees and management seem complacent, as their internal squabble sees them lose their standing it what used to be a monopoly industry, and large business, such a Amazon, look elsewhere to help deliver their goods. Electronic communication has replaced letter writing, and although internet deliveries may have taken up some of the slack, as these companies move away, the Royal mail may find that it is left delivering the snail mail equivalent of spam, junk mail, and no-one is going to thank them for that. The Royal Mail employs 190,000 workers and with employment already becoming a problem in the UK, we don't need any large lay-offs. Australian unemployment figures are ticking along at a much lower rate than other developed nations, and it seems it might peak at 6%, much below the US current rate, which is near 10%, and the UK's which is currently 7.9%, and both are expected to tick higher. The better than expected Australian employment figures have given the Aussie Dollar a further boost, sending it to above 0.9 against the Dollar, while the Pound has slumped to 1.77 against the AUD.

The US Dollar has it a new 14 month low on a trade weighted index as high street retail stores, and a better than expected labour market data lessened the need for safe havens, which also led stock markets higher. The Dollar had allowed the Euro to rise to near 1.48, and the Pound to 1.61, although both have now fallen back, but the broad decline in the Dollar has brought out the right wing nutters in the US who blame their communist President for the fall in the Dollar and link it to a weakening of US prestige globally. Of course some of Obama's actions have weakened the Dollar, such as QE, and raising the debt level, however these actions were only taken due to the remarkably dire straight of the US economy, caused by decades of structural problems to which Bush's only reaction was to give cash rebates to tax payers. The decline of the Dollar has also been a long time coming as it's central place in the global markets, a hangover from the Bretton woods agreement, which has been less and less relevant as the global markets shifts to the east.

We had the to rate 'decision' yesterday, and as expected both the MPC and the ECB kept rates on hold, the MPC announced no change to their QE program, so the focus was on the ECB's press conference. Trichet was expected to try to talk down the Euro and he made a half hearted effort mentioning the risks from excessive volatility and warning that global coordinated action was possible. The markets have dismissed the possibility of coordinated action, and have instead focused on Trichet's comments that the Eurozone is recovering and interest rates would stay at low rates. The Pound did manage to make some gains against the Euro, briefly rising above 1.09, but as with any Sterling rally over the past two weeks, it has found it hard to keep it's gains and has slipped back towards 1.0850, which is still higher than it started yesterday, although not by much.

The data releases today are unlikely to offer the Pound any more support, with the Producer Price Index likely to show a little less deflation, but not enough to shift the currency markets. Apart from this there is US trade deficit data likely to remain flat, although it is at it's lowest rate for eight years as the weaker Dollar helps US exports. So with no data likely to make an impact the Pound will be left to fend for itself, and may struggle a little throughout the day.

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