GBP/EUR reaches the highest level since February
Markets remain jittery and found little solace in the FOMC meeting overnight as the Fed continued to expound a downbeat view of the US economy. Asian bourses continue to be concerned over the eurozone sovereign debt crisis with RBA Deputy Governor Battellino commenting that a major crisis in Europe ‘can’t be ruled out.’ Futures contracts show European bourses opening lower this morning. EU Commissioner Barrosso hopes to conclude the eurozone fiscal compact in six months time, but this could still be too long for financial markets.
The euro continues to probe lower and for now is failing to overcome resistance at $1.3050. The single currency is back at lows last seen in January and a fall through support at $1.30 would appear to open the way to the June 2010 low of $1.20. While eurozone leaders promised a comprehensive solution to the debt crisis, implementation continues to be slow. Government debt auctions today could weigh on the euro with the planned Italian 5- year debt auction providing the first test of how happy markets are with Monti’s administration.
Euro-sterling fell below 84p as the London market opened before regaining the figure. The cross is back at lows seen in February, with sterling slipping against the dollar on expectations that the MPC will introduce a third round of asset purchases in February. Yesterday’s fall in annual headline CPI inflation confirmed that base effects will lower inflation next year. Meanwhile, the pound remains on the defensive ahead of labour market data, which are expected to show a rise in unemployment this morning. Cable is back at $1.55, but remains someway below the $1.5650 level that it traded around on Monday.
Oil prices eased this morning, with the front Brent contract some 26¢ lower at $109.21. OPEC meets today in Vienna, but is expected to keep to its existing production targets.
The smaller than expected 5,300 rise in those claiming jobseekers allowance in October masked a deterioration in the UK labour market with youth unemployment rising through the totemic 1 million mark. We have seen an involuntary rise in self-employment as job losses continue. With the estimates of public sector job losses being revised substantially higher by the Office for Budget Responsibility, private sector hiring needs to accelerate but there seems little hope for the moment that this will happen. We expect the claimant count rate to increase by 0.1pp to 5.1%, with the ILO rate unchanged at 8.3%. Wage growth will remain around 2% in the three months to October, and we expect real wages to continue to fall until the end of next year.
The surprise rise in German industrial production suggests that eurozone output will be flat in October after September’s 2.0% fall. What does this all mean for me? Well buying your EUR, USD, AUD or any other currency at the wrong time could cost you a fortune. There is no crystal ball but Currency UK can give you the information you need to make an informed decision.