Sterling fell sharply against the euro and the dollar on Wednesday after Governor Mervyn King said the Bank of England was open-minded about pumping more money into the economy and highlighted the benefits of a weak pound. Rates @ 08:30am are as follows:
- GBP/EUR 1.1038
- GBP/USD 1.6537
- GBP/AUD 1.7719
- GBP/NZD 2.2341
- GBP/CAD 1.7281
- GBP/CHF 1.6672
- GBP/ZAR 12.201
- GBP/JPY 148.30
- EUR/USD 1.4979
Governor Mervyn King said the UK economic recovery was under way, and signalled that interest rates will remain low at least another year, in a boost to mortgage payers.
But he warned the country has ‘only just started along the road’ towards getting the economy back to business as usual, in the wake of the worst financial crisis in modern history.
Traders pointed out that the outlook was marginally more optimistic than previous projections, while others focused on downbeat comments from Mr King as he released the Bank’s latest Inflation Report. The net result for the pound was a weakening of the currency, and exchange rates fell.
The number of people unemployed in the UK rose again in the three months to September, although the 30,000 increase was the smallest since May 2008. The jobless rate edged up to 7.8% from 7.7%, but the youth unemployment rate rose to 19.8%, a record high. Ross Walker, UK economist at RBS Financial Markets, said the latest official figures were “better than expected”.
However, he added: “There is some evidence of stabilisation but it remains to be seen just how durable this proves to be. “It feels both too soon to expect any sustainable increase in total employment and certainly the GDP data suggest that we should still be, under normal circumstances, six or maybe nine months away from that.” The government welcomed the fact that the rise in unemployment had slowed.
“The fact that unemployment is significantly lower than everyone forecast at the beginning of the year shows the support for the economy is making a real difference,” said Work and Pensions Secretary Yvette Cooper.
However, shadow work and pensions secretary Theresa May said the latest unemployment statistics were yet more grim figures for Britain. David Kern, chief economist at the British Chambers of Commerce, said the latest unemployment data indicated the need for the Bank to continue with the QE programme and in conjunction with the government, supplement this with specific measures aimed at stimulating bank lending to credit-worthy businesses.
So, despite good recovery for the pound over the last 4 weeks, yesterday shows that Sterling is still very fraglie and any negative news can quickly affect exchange rates. As unemployment is up, and the governor of the BoE warning that the government have no plan at all to repay the huge levels of government debt, the outlook is still poor. Couple this with the fact that interest rates are likely to remain low for at least a year, and we are unlikely to see any significant recovery for the pound for some time.
Aus – Unemployment
EU – ECB Monthly Report
EU – Industrial Production
US – Jobless Claims
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