Will Sterling Retreat On UK Unemployment Report?

Yesterday was a strong day for the Pound particularly against the US Dollar seeing 1.60 achieved after the ninth day of consecutive gains. However UK unemployment has hit the headlines this morning with 2.5million being without a job. The focus of the reports has been the impact on young people and shows one in five 16 – 24 year olds being jobless, the overall unemployment rate of 7.9% peaked at 20.3% for this age range. Sterling is therefore starting the day in a more fragile position showing some weakness since the 9.30am report. Speak to your broker to ask them to watch the rates for you to see how this develops throughout the day.

Pound Sterling – UK Markets

Yesterday’s surge in inflation to the annual rate of 3.7 percent gave Sterling it’s boost against the Dollar on the subsequent expectation that the Bank of England may be moved to raise interest rates now earlier in 2011 than originally thought. The Pound moved up on the Dollar for the ninth day in a row yesterday although had dropped further back against the Euro. This morning’s UK data has shown that unemployment has mounted to a total of 2.5 million with a record number of young people being out of work. Today’s unemployment reports have made the Pound more vulnerable so far this morning after it has crept back against other major currencies – whether this is a short term move or not will be seen throughout the rest of today. This timely set of data follows a report by the Institute of Public Policy Research who have warned that although an economic double dip recession may have been avoided in the UK, a second dip in terms of unemployment is possible with prediction for unemployment to peak at 8.1 percent in the second half of 2011.

US Dollar – US Markets

The US Dollar fell to a five week low against the Euro and has been losing out to Sterling as sentiment mounts that the sluggish US recovery will continue to impact. This has been reinforced by weak US housing and employment markets. Adding further fuel to Dollar weakness is UK and European inflation figures, strengthening the case for interest rate rises in these economies. Today sees data releases in the area of US housing and mortgages. US housing starts, which measure new home and building constructions, are expected to have declined to a 550,000 annual rate. The controversy surrounding the Chinese and US disagreements on currency policy are likely to be under scrutiny as the Chinese Prime Minister visits Washington. Tomorrow’s jobless benefit figures are expected to rise and could bring some movement to the Dollar.

Euro – European Markets

German investor confidence gave the Euro a helping hand yesterday as the single currency hit a one month high against the Dollar and also gained back some ground on Sterling. This was the third consecutive month that investor confidence rose in Germany this time coming in at the highest level in six months and well above predictions. The Euro was also given momentum by the news that Russia has joined China and Japan in pledging to buy European new bonds to help support the international economy. Yesterday also saw the successful completion of Spanish and Greek debt auctions. The pressure which remains on the Euro however is the question mark over whether nations will agree or not on whether to increase the size of bail out funds. In the latest developments, the German Finance Minister has said that there is no urgent need but instead suggested that the move could wait until late March.

Other Currencies – Highlights

The Canadian Dollar has declined following the Bank of Canada’s decision to keep interest rates on hold yesterday at 1 percent which is where interest rates have been since September 2010. This was widely expected but the currency has devalued in response to the reiteration by policy makers that the economy is unlikely to reach full output until 2012 with inflation likely to accelerate to 2 percent until then with the economy also being more vulnerable due to problems in Europe. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.