Dollar Gains from Economic Uncertainty
Pound Sterling - UK Markets
The OECD forecast singled out the UK as only economy from the G7 group to face recession, depressing the Pound to a new record low of £0.8144 against the Euro and $1.770 against the Dollar, completing a drop of 10% in just one month.
Yesterday the Chartered Institute of Purchasing and Supply Construction Index came in with a reading below 50, indicating a contraction, for the 6th consecutive month. The government also announced a package designed to revitalise the housing market and breathe life back into the flagging economy, granting a holiday from stamp duty for houses under £175 000. The move was little comfort for Londoners though as the median house price in the capital is £371 000.
The low value of the Pound, while making exports cheaper to buy, is forcing the price of imports to skyrocket fuelling inflation which is currently running at a 16 year high of 4.4%, more than double the government target. Continued weakness of the Pound is increasing likelihood of rate cuts from the MPC in the near future.
US Dollar - US Markets
The US Dollar continued to appreciate, reaching $1.440 against the Euro and 0.916 against the Yen yesterday. Aggressive rate cuts and continued export growth have helped the US avoid a recession this year.
The Dollar rose 6% against the Euro in August as European and Japanese economies shrank in the second quarter while U.S. gross domestic product expanded at a 3.3 percent annually. Hurricane Gustav in the Gulf of Mexico has also tempered the price of oil leading to further gains in the Dollar.
Euro - European Markets
The Euro dropped to $1.4412 today against the US Dollar, from $1.4520 on Tuesday, to reach the lowest level since January 2008. The Euro has fallen 10% since its July high and is expected to decline further following release of Eurozone retail sales data later today. This data is also expected to have an impact on the ECB interest rate decision due tomorrow.