US Treasury Secretary Denies Dollar Is Being Deliberately Weakened

In an ironic turn of events, US Treasury Secretary Timothy Geithner, had to deny reports that the US is deliberately encouraging the current weakness in the US currency – the US has been increasingly vocal about its own concerns that China is deliberately manipulating the Yuan. Geithner pointed out that “… no country around the world can devalue its way to prosperity and competitiveness. It is not a viable, feasible strategy and we will not engage in it.” The furore comes from the fact that a cheap currency makes your exports more competitive whilst making imports more expensive in your home market. This point is likely to be the subject of hot debate at the next G20 gathering at the weekend.

Pound Sterling – UK Markets

Sterling had regained ground against the Euro and was 0.3% higher at yesterday’s close in Europe with £1 buying €1.1432. However, the currency weakened against the US Dollar and the Japanese Yen closing at $1.5886 and ¥129.19, respectively. Some forecasters have been quoted as saying that although the UK recovery is losing momentum and will be slow over the next few months chances of a double-dip recession have been "exaggerated". Data should be released today on the rate of mortgage approvals in the UK which should provide a snapshot of the health in the UK housing sector and the willingness of lenders to extend credit to the public. UK figures on retail sales for September are also due out today.

US Dollar – US Markets

The US Dollar has continued to flirt with fresh 15 year lows against the Yen, but made a little bit of ground against both Sterling and the Euro yesterday. In early European trading, the Dollar has continued to stage a recovery, but has dropped back from a high of ¥81.53 to be trading at ¥81.40 (at 07:50 GMT).

Euro – European Markets

As noted above, the Euro has lost ground against all the majors so far this week. Eurozone member France is gripped by industrial action in protest at the pension reforms that the Sarkozy government is trying to bring in. The protests are already into their sixth day and have brought chaos to the road system, courtesy of the truckers; air transport, thanks to air traffic control; and fuel shortages courtesy of the closure of much of the nation’s refining capacity. Sarkozy’s plans would see the retirement age raised from 60 to 62 and payment of the full state pension delayed from 65 to 67. The aging European population and the sovereign debt problems are behind the move and France is not the only country to have to face this reality.

Other Currencies – Highlights

The Bank of South Korea is reportedly considering purchasing gold in a move to diversify its foreign exchange holdings. South Korea holds the world’s fifth largest foreign exchange reserve and it is believed to be Dollar heavy, so is depleted in real terms as the Dollar depreciates. Gold is currently at a record high and if the Koreans make this move, it is likely to appreciate still further. The Australian Dollar has strengthened against the US Dollar to reach parity for the first time since it was floated in 1983. This was largely due to investors selling US Dollars in expectation the US Fed will restart quantitative easing. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.