Speculation Rises Over Need For Economic Stimulus Action In US

The US Dollar remains fragile, still sitting at around a six month low against the Euro. Speculation that the Federal Reserve need to introduce more stimulus measures to shore up the economy is rising, with the potential move gaining more support as unemployment and manufacturing data continue to disappoint. This evening’s speech by Federal Governor Ben Shalom Bernanke will be closely scrutinised for any signs of a move towards further financial stimulus. At 10.30am this morning, Sterling was trading at the mid-market rate of 1.5772 against the US Dollar and 1.1525 against the Euro.

Pound Sterling – UK Markets

The Pound has been experiencing upwards movement against the Euro since 7am this morning, but this may be short term volatility, with the general picture still being a focus on Sterling weakness with the currency still around four month lows against the Euro. Fears are persisting that there may be a three way split at the next Bank of England monetary policy meeting, following Adam Posen’s recent calls for further quantitative easing to help the slowing economy. Recent manufacturing data was weak, although data from the construction sector this morning, has come in well above forecasts. Manufacturing data tends to have much more impact however on any currency movements. This will be a fairly important week for Sterling with a number of key data releases helping to provide a picture of the UK economy as we move into the third quarter.

US Dollar – US Markets

The US Dollar has experienced some upwards movement against the Euro this morning although it is still at a general six month low. Speculation over further financial stimulus continues, with Federal Reserve Bank of New York President William Dudley being the latest to speak out about his support for further help due to the fact that ongoing unemployment levels and inflation will soon become ‘unacceptable’. A disappointing manufacturing report has also revealed that US manufacturing rose at its slowest levels for twelve months in September. Later today sees more data on US Factory Orders and Pending Home Sales, which along with continued data releases throughout the week, will confirm whether the deterioration in the economy is ongoing. Currency investors will also be keenly watching this evening’s question and answer session with the Federal Governor Ben Shalom Bernanke. Euro – European Markets The Euro has retained its recent strength although as data and news on the European economy becomes more mixed, the currency is still vulnerable. On the one hand, China announced over the weekend that they would be happy to buy Greek bonds once Greece returns to the bond markets. Investor confidence statistics released this morning have furthermore revealed an upward trend with an improvement on last month. The Eurozone however is still being haunted by ongoing debt issues, with the state of Ireland’s economy, the levels of budget deficit and recently announced Irish Anglo bank bailout denting the improvements made by other Eurozone nations. Focus is shifting to the discrepancies between the various conditions of Eurozone nations – some countries such as Germany are running trade surpluses whilst others such as Ireland and Portugal are struggling with deficits.

Other Currencies – Highlights

The Reserve Bank of Australia will tomorrow decide whether higher interest rates are needed to prevent faster inflation following signs that past increases are cooling the nation’s property market. Most analysts are expecting an increase to 4.75 percent from 4.5 percent. China’s manufacturing PMI data showed an improvement in the manufacturing sector in September which has boosted commodity prices. The ongoing currency saga continues in Japan with a two day policy meeting beginning today in Tokyo. Policy makers are expected to discuss the introduction of stimulus measures to spur growth and also how they might slow down the appreciation of the Yen against the US Dollar to protect exports. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000