September Storms

Although a new month has begun we are faced with the same problems as before. At the beginning of August many, including myself seemed to think that sterling was a safe haven currency. It now appears to have lost some of its status. Meanwhile, over in the eurozone the same old questions are being asked and with the European Central Bank President Jean Claude Trichet due to leave his post in November, it will take some hard interim work for him to get the send off he is hoping for.

Pound Sterling – UK Markets

Whilst the rates have not swung dramatically one way or another, it seems economists nationwide are suggesting that quantitative easing could be back on the cards. Although many feel that this could still be some way off, there is little doubt Bank of England Governor Mervyn King will be gathering his troops for some intense deliberations. Low confidence, high inflation and continuing fears over the state of the eurozone will undoubtedly cause headaches for Thursday’s interest rate decision. King’s options for both controlling inflation and stimulating growth are numbered; much more so than ECB President Jean Claude Trichet’s. With all of this in mind, sterling sits on a knife edge. Raising interest rates remains unlikely but doing so would give sterling a push upwards. On the other hand, more focus will surround possible monetary stimulus that will dampen any sterling advance and give way to increased inflation.

US Dollar – US Markets

The main talk of the town over in the US was Friday’s unbelievably poor employment data. The expectation was that the data would reveal roughly 70,000 new jobs were created in August. However, it was a huge surprise when it turned out that no new jobs were added. Therefore, the US faces the grim prospect of a high unemployment rate that remains firmly fixed at 9.1 percent, interest that are unlikely to rise for another two years, a poor housing market and an economy that has lost all faith in its government. Is another recession on the cards? Some seem to think this could occur. In the short term there is little light on the horizon for Bernanke and his crew.

Euro – European Markets

Trichet jumped the gun this year by twice raising interest rates to the grand total of 1.5 percent. Rumours now suggest that it may be time to cut rates to stimulate growth. The two leading nations in the eurozone, Germany and France both reported rather hideous second quarter growth figures of 0.1 percent and 0 percent respectively. This has prompted investors to weigh up the possibility of a rate cut in the near future. Whilst this is unlikely, it does give Trichet plenty of food for thought before he departs from his position in November. At the beginning of the year, rising inflation was an obvious worry. However, more recently the ECB’s tone appears to suggest that the pressure has been relieved. Inflation expectations for now sit at 2.7 percent in 2011 and 1.8 percent in 2012. Therefore, unlike the UK where inflationary pressures limit King’s options, Trichet is fortunate enough to be in the position where inflation is not so much of a concern. The euro itself however has dipped since Friday with the US Dollar gaining some much needed lift.

Other Currencies – Highlights

With the Rugby World Cup taking place in New Zealand this month, the many thousands of visitors down under will be re-assessing their finances. The kiwi has soared to record highs, impacting on country exports. This is somewhat detrimental to a nation already struggling to recover from the 2009 global recession and the earthquake that struck earlier this year.