YB Currency Update – Thursday 17th September

YB Currency Update – Thursday 17th September

One of the main themes in the currency markets over the last couple of weeks, away from the Pounds recent fall, has been the weakness of the Dollar. There have been many different reasons put forward for the Dollar's fall, including fears of future inflation, moves from governments to diversify their foreign currency reserves away from the Dollar, and the Dollar being used as the funding currency for a resumption of the carry trade strategy due to it's extremely low borrowing costs (at least on the wholesale markets). We've had the latest inflation figures from the US which have shown inflation rising up by a monthly 0.4%, which even though the annual rate is still at -1.5%, has done little to ease the fears that the US administration my run inflation at a higher rate to help them pay back some of their debt. The US also had some good Industrial production data, further indicating that the recession may be over, however the Dollar has continued to fall, as rising risk appetite makes the low funding costs of Dollar trades even more attractive.

Comments from the new Japanese finance minister ruling out intervention in the markets, also pushed the Pound lower. The Yen has significantly strengthened against the Dollar, which has fallen from near Y98 in the middle of August, to near Y90, but the finance minister has said that the moves are gradual, and that it is rapid moves in the markets which cause concern. It seems that the threat of government intervention was on factor keeping the Dollar from falling further, as after the comments the Dollar slipped once more. In spit of all the Pound's problems, it has risen to near 1.6550 against the Dollar, while the Euro has jumped up to around 1.4750, near to a one year high.

We had the UK unemployment figures yesterday, which came in roughly in line with expectations, although those expectations were for a rise, so the claimant count rose to 5%, while the unemployment rate rose by slightly less than expectations, but still came in at 7.9%. Unemployment will continue to rise, even as the economy starts to grow, with job losses and job gains tending to lag behind broader economic indicators. As unemployment, and the threat f unemployment is the biggest factor in a recession which impacts on most peoples lives, this means that even as the economy grows a lot of people will still feel insecure over their continued employment. The employment figures made little difference to the Pound which is still suffering after King's speech, holding above 1.12 against the Euro.

This morning we have retail sales for the UK, which have proven hard to predict lately, with rises and falls seemingly blamed on the weather. Today's prediction is a rise of 0.1%, which is pretty pessimistic considering that, the previous month came in at 1.2%, but we have already had some of the private survey's, from the CBI and the BRC, which point to lower sales so the official figures are likely to disappoint. One factor that may help is the large number of Britains who have taken holiday's in the UK, but a slip in the figures could push the Pound down below 1.12 against the Euro.

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