UK Unemployment Figures at Highest Level Since 1995
The pound fell to a four month low as UK unemployment figures rose to the highest level since 1995 paring recovery hopes in the UK. The pound to euro exchange rate fell to 89.01 pence per euro. The Office for National Statistics reported that the number of people in the UK seeking employment increased by 210,000 to 2.47 million. Vincent Chaigneau of Societe Generale SA stated, “The market had a shock yesterday and the data this morning was not strong enough to reverse the trend. The data confirmed what King said yesterday, which is that we can pretty much rule out a strong recovery. It was a wake-up call for the market.”
BOE May Cut Rates
The UK unemployment rate rose to 7.9% compared with 0.5% in the Euro Zone, 9.7% in the US and 5.7% in Japan. Bank of England Governor Mervyn King told MP’s that the BOE is “looking at” cutting deposit rates to stimulate lending by financial institutions. The BOE’s next policy meeting is October 8th and investors will be watching closely.
Euro Extends Gains
On Wednesday (Sept. 16th) the euro extended recent gains against the US dollar hitting a nine month high. The euro to dollar exchange rate rose to $1.4705 rising above $1.47 for the first time since September 2008. In contrast the DXY fell to its lowest in a year to 76.262. Rising risk sentiment has put pressure on the dollar as forex traders sell the dollar in favor of higher yielding currencies. Lauren Rosborough of Westpac stated, “The general dollar-selling trend remains in place. The $1.4720-1.4750 region should be capped in the short term, but once we get into New York trade the tendency will be to push the dollar lower.”
Aussie and Kiwi Dollars Gain
On Wednesday the dollar fell to a one year low against a basket of major currencies as rising stocks and deficit concerns pared demand for the greenback. The Aussie and Kiwi dollars have been the chief beneficiaries of the demand for higher yielding assets. Both Australia and New Zealand offer significantly higher three month deposit rates than the US and Japan.
