US Employment Figures Bring Dollar Down

Last week ended with the US Dollar on the down turn as the last employment reports of the week revealed deeply disappointing statistics. There was an expectation for 130,000 new jobs to be added in November but only 39,000 were achieved with unemployment now at 9.8 percent. This situation was further exasperated over the weekend with Federal Reserve Chairman Bernanke appearing on TV stating that the economy is barely expanding at a sustainable pace and hinting that another round of quantitative easing may be needed.

Pound Sterling – UK Markets

The Pound has dropped lower against the Euro as it has emerged that the European Central Bank has been buying Portuguese and Irish bonds, soothing Euro fears. An industry survey in the manufacturing sector however will help to provide optimism about its potential to steer the UK recovery forward as the predicted price increases reach their highest level in more than two years. Record responses on output and orders have been achieved. Demand from overseas has helped contribute towards the health of the manufacturing sector aligning with the Government’s claims that exports will be crucial to the UK recovery especially with spending cuts and tax rises expected to curb consumer spending. This Thursday sees the Bank of England Interest Rate decision.

US Dollar – US Markets

Friday saw a sharp fall in the US Dollar as employment reports came in much worse than expected calling into question how much real impact the last round of quantitative easing will have on jobs. Reports indicated an increase in unemployment to 9.8 percent and figures from the Labor department showed that only 39,000 jobs were added in November – much lower than the predicted 130,000. This has called into question the state of the recovery in the US and also fuelled speculation that there may be yet more quantitative easing following comments by Bernanke on TV over the weekend that he would not rule out expanding the $600 billion bond-purchase programme.

Euro – European Markets

The Euro is still faring well against both the US Dollar and Sterling as it has emerged that the European Central Bank have continued to buy Greek, Spanish, Irish and Portuguese bonds. However there are several events this week with the potential to tip the balance. A policy making meeting is due in Brussels and the Belgian finance minister has called for the bail out funds to be increased further which is at odds with German Chancellor Angela Merkel and France’s Nicolas Sarkozy highlighting tensions. The Irish budget is also due tomorrow which will throw Ireland’s problems back into the limelight and there is a chance the budget will not be passed putting the nation’s own contribution to its rescue package in jeopardy. Lastly, the Sentix Investor Confidence figure from the EU this morning has slid down to 9.7 against an expectation of 11.0. Therefore although the currency is holding well, there is much that could bring vulnerability this week.

Other Currencies – Highlights

Tomorrow sees the rate meetings of the Reserve Bank of Australia in the early hours GMT. The last interest rate rise bought a significant rally to the Australian Dollar. Although an interest rate rise is not expected this time the outcome of the meeting and its affect on the currency will be worth monitoring if you have any transfers to make involving Australian Dollars as his will be a key indicator of the current health of the economy. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.