The pound continues to fall against the euro yesterday as economic data out of the UK continued to worsen and the euro continues to stabilise after another successful bond auction in Portugal and further buying in the bond markets by the Chinese, Japanese and Russian governments provided support for the single currency.
UK unemployment data for the three months to November 2010 was 7.9%, up 0.2% on the quarter, while the total number of unemployed people increased by 49,000. There was more grim news on the youth unemployment front, with the jobless rate among 16-24-year olds up by 1% to 20.3%.
Average earnings rose by 2.1% in the year to November, less than expected and undermining speculation that the Bank of England’s Monetary Policy Committee (MPC) may be forced to increase interest rates sooner than expected to combat rising inflationary pressures in the UK.
The combination of rising inflation and unemployment has increased fears of a ‘stagflation’ scenario in the UK and undermined confidence in the pound.
The pound has tried and failed to break through the 1.20 level against the euro on three occasions since the markets reopened on 4 January. There is at least just as much downside against the euro as upside now.
The pound was up fractionally against the dollar but off earlier highs after the release of UK employment figures.
The dollar also fell against the euro reaching a two month low as concern about European’s debt problems fade and focus turns to today’s Chinese economic data.
Meanwhile talks between US President Barack Obama and Chinese President Hu Jintao continued. Senior officials said the US and China have agreed £28 billion worth of export deals during the state visit. In a joint news conference Obama urged China to allow the Chinese yuan to strengthen faster while Jintao has previously questioned the dollar’s reserve currency role.
Commentary by Tony Redondo
“Any opinions expressed in this document are those of TorFX analysts. Any analysis and/or forecasts provided are aimed at helping clients understand market conditions and developing trends. Clients are wholly responsible for their own trading decisions.”
