USD weakens amid hints of further QE
There was mixed news from the UK labour market yesterday with the number claiming jobseekers allowance rising by 24,500, while the ILO measure of unemployment actually fell by 26,000 in the three months to May. Why the difference? Well, one reason was people moving off other more expensive benefits onto jobseekers allowance, as the government tries to reduce the welfare bill. The other was that although the economy is creating jobs, with 50,000 more people in employment than three months ago, it is not creating enough to stop the jobseekers claimant count from rising.
Earnings data was also released yesterday, with average weekly earnings rising from £459 in April to £461 in May. This means that wages are increasing at a rate of 2.3% a year and despite inflation falling to 4.2% last month, this disparity between the how fast prices are increasing compared to wages explains why everyone is feeling the pinch.
Across in Europe we had the now almost weekly downgrade to a European countries credit rating, with Greece’s rating cut by another 4 notches lower into junk territory, after Ireland was downgraded on Tuesday.
Yesterday also saw the Moody’s credit rating agency put the US triple A credit rating under review for a downgrade – the first time since 1995. This reflects the political gridlock on raising the countries debt ceiling with agreement required before August 2nd to prevent the US defaulting on its debt. It is still highly unlikely that this scenario will occur, but with the Republicans and Democrats taking increasingly entrenched position this could go to the wire.
Ben Bernanke sent shockwaves through the market yesterday with comments made on Capitol Hill. The US Fed chief stated that “the possibility remains that the recent weakness may prove more persistent” and that such a scenario would imply “a need for additional policy support”. In a nutshell, another round of quantitative easing is not being ruled out, which involves the US printing more money to put into the economy to stimulate growth.
On the news, the dollar weakened considerably with one pound now buying you 1.6122 dollars, more than 1% higher than yesterday’s rate. Overnight, the pound did lose ground to the euro with it now trading at 1.1330, after calls from incoming ECB president Mario Draghi to move from ‘temporary interventions’ to a broader defined plan to deal with the euro debt crisis being well received by the market.
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.