Third Quarter Ends As Worst For US Dollar In Eight Years

As the third quarter ends, the US Dollar is very much still under pressure, having experienced its worst quarter since April 2002. There is still much uncertainty in the currency markets with the Euro retaining its current strength and the Pound still struggling against the Euro now down to the levels of 1.151. It was hoped that the release of manufacturing data in the UK, Europe and the US today may get the last quarter off on the right foot showing a global upturn in this sector following China’s recent manufacturing data and setting the way for increased growth. However the European data has only shown a slight increase and the UK data a slight drop so far today. US manufacturing PMI data will be closely watched later today. Sterling was trading at the mid-market rate of 1.5801 against the US Dollar and 1.1515 against the Euro at 9.45am this morning.

Pound Sterling – UK Markets

The Pound clawed back some ground against the Euro late yesterday but has fallen steeply again today. The currency is still suffering from Bank of England member Andrew Posen’s comments regarding the need for further stimulus earlier this week. UK PMI data this morning, which measures conditions in the manufacturing sector, has shown a drop which will not help the Pound. The Government has raised the national minimum wage from £5.80 per hour to £5.93 with people now aged 21, rather than just 22 and over, benefiting from the rate. Although the move has been welcomed by unions, the British Chamber of Commerce has warned the Government that any further rises could damage job creation prospects.

US Dollar – US Markets

The US Dollar has experienced its worst month since May 2009 and the worst quarter since April 2002, with the currency continuing to come under pressure as concerns are ongoing that the Federal Reserve may begin further asset purchases. Slightly better than expected jobless data and a rise in GDP figures have not helped shake off the negative sentiment as the US Dollar index is heading back towards levels last seen in January. US ISM manufacturing data will be watched by investors later today to check for any signs of a recovery in the US manufacturing sector although the figures are expected to confirm a very slow rate of expansion. University of Michigan consumer confidence is also expected to show a small rise. Also today is data on personal income, core personal expenditure and vehicle sales.

Euro – European Markets

The Euro hit a five month high against the US Dollar as a Spanish downgrade by Moody’s rating agency and news of the cost of Ireland’s bailout of the Anglo Irish Bank at over 30 billion Euros cleared some uncertainty for investors. The fact that no senior debt will be hit was good news according to analysts although the increasing focus on European debt still makes the Euro’s ongoing strength more vulnerable. There was also a larger than expected drop in German unemployment yesterday, followed today however with a slight drop in month on month retail figures. European manufacturing data this morning has shown a very slight edge up coming in just above forecasts.

Other Currencies – Highlights

It has been suggested that Eastern European currencies may extend the largest gains in emerging markets as Czech, Hungarian and Polish Governments pledge to shrink deficits and attract foreign funds. There has been a shift in sentiment from the second quarter of the year when investors sold the currencies on concern that the debt crisis in the Eurozone would choke demand for exports in Eastern European economies. Economic growth in Poland, the only EU member to avoid recession throughout the credit crisis, has accelerated to 3.5 percent, its fastest pace in two years. The Japanese Parliament is to debate a supplementary budget expected to contain a further 4.6 trillion Yen of stimulus measures as the economy continues to suffer. Core consumer prices fell 1 percent in August, industrial production fell 0.3 percent and car sales fell 4.1 percent. The strong Yen is seen as the heart of the problem with the currency having gained almost 50 percent in value against the US Dollar since mid 2007, undermining the competitiveness of exports. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000