After euro buyers revelled in relative sterling strength over the past few days we all must have been assuming that the ‘good old days’ had returned. That was until the UK decided to release some crucial figures. We have all been aware that our inflation rate remains well above target but the majority of us, including Bank of England Governor Mervyn King had all hoped that like economic growth, inflation would stagnate as well. However, this was not to be the case as data revealed yesterday the rate of Consumer Price Index inflation rose by 0.1 percent to an eye watering 4.5 percent.
Pound Sterling – UK Markets
Along side CPI figures the Retail Prices Index measure increased to 5.2 percent from 5 percent. The BoE continues to argue that increased energy prices and the rise in VAT to 20 percent at the start of the year are the main contributors to soaring inflation. The target rate for CPI is 2 percent but it is not expected to return to this level for at least another 2 years.
With bad market data the story of the day it was no surprise when official figures revealed the number of people unemployed in the UK rose by 80,000 to 2.51 million in the three months to July. Put in perspective, this is the largest increase in nearly two years and with the jobless rate fixed at 7.9 percent a key aim for the government will be to improve this going forward. Sterling, for obvious reasons stumbled on the back of this data, falling back into the 1.15 levels against the euro yesterday.
US Dollar – US Markets
The lack of employment possibilities in the US continues to be of concern to President Barack Obama – and these latest reports will do nothing to ease these fears. The number of Americans living in poverty rose to 46.2 million last year which accounts for nearly one in six people. This figure has now risen for four years in a row. Outside of the poverty line, the average annual US household income fell 2.3 percent in 2010 – the bottom line is everyone is struggling. However, the US Dollar continues to be a strong performer, holding its gains from the back end of last week and remaining very range bound. A break either direction will see a sharp turn of events one way or the other.
Euro – European Markets
Following ongoing concern surrounding a likely default in Greece, German Chancellor Angela Merkel has spoken out in an attempt to calm market nerves. She simply stated that the eurozone must stick together and were Greece to exit from the euro there would be a domino effect. Her comments come shortly after reports that Germany was preparing for Greece to potentially leave the euro. The mixed messages will be making investors sweat and more than likely avoid the eurozone at all costs over coming weeks.
Further to this, credit rating agency Moody’s has downgraded two French banks because of their exposure to Greek debt. Credit Agricole was cut from Aa1 to Aa2 and Societe Generale from Aa2 to Aa3. The euro continues to look shaky in the markets but until now is holding firm against the majority of its major counterparts.
Other Currencies – Highlights
The Australian and New Zealand Dollar’s continue to fall amidst ongoing concerns over European debt woes and a slowing US economy. The Aussie sank to a 1 month low versus the greenback and the kiwi reversed any gains it made at the start of the week.
Sterling Rises Sharply on Renewed Hopes of the UK Leaving With a Deal
Dollar Rises Modestly on FOMC Minutes
Sterling Rises on Hopes of EU Softening Tone on Backstop