Morning Foreign Exchange Report : Pound Sterling Rate Falls on Employment Fears

17 Feb 2011 at 8 AM - Written by John Cameron

STORY LINK Morning Foreign Exchange Report : Pound Sterling Rate Falls on Employment Fears

Yesterday afternoon saw the release of US Producer Price Index numbers which showed that input prices rose by their highest monthly amount since October, 2008. The main event in America came later in the session when the Federal Reserve released minutes of the January FOMC meeting. The minutes predicted that US economic growth would pick up throughout the remainder of 2011 and gain further momentum in 2012 and 2013. The Fed also foresaw high levels of structural unemployment with around 7% of the workforce remaining out of work at the end of 2013. The Minutes predicted that inflation would edge higher in the medium term, but would remain within the range that they see as consistent with the Committee’s dual mandate of maximum employment and price stability. So, again the Fed refused to countenance that a hike in US interest rate might be necessary, even in the medium term, due to fears a rise would have on the US labour market.

Meanwhile, in the UK, unemployment figures showed that the number of people out of work and claiming benefit rose by 2,400 in January against expectations of a fall of 3,000. The numbers also showed that over one in five 16-24 year olds is out of work, representing a record high.
Later in the European session, Bank of England Governor, Mervyn King, delivered the Bank’s Quarterly Inflation report. He struck a more dovish tone than has recently been adopted by MPC members, stating that inflation would rise throughout 2011, perhaps to 5% according to the Bank’s benchmark CPI measure. However, he attributed this expected rise to external pressures, citing higher food and energy prices as the causal factors. He also commented that when UK inflation starts to recede, it may ‘undershoot’ the government’s 2% target.

The combined effect of the soft UK labour market figures and the tone of King’s speech served to cause significant selling pressure on the Pound throughout yesterday.

Numbers released overnight in New Zealand show that consumer confidence at its lowest level for over a year and a half, dropping by 7.7% since the January survey, causing further fears of a double-dip recession. Expect the New Zealand Dollar to suffer as today’s session unfolds.

US inflation data, released at the start of today’s North American session, represents the most significant release of the day. However, given policy-makers’ fears over residual unemployment, the US CPI figure would have to be far higher than the expected 1.6% level in order to provide support for the Dollar.

TAGS: American Dollar Forecasts Daily Currency Updates Euro Forecasts New Zealand Dollar Forecasts Pound Dollar Forecasts Pound Euro Forecasts Pound Sterling Forecasts