Currency Market Update 15/09/09

The Dollar made gains against the Pound while declining against the Euro as most economists continue to predict the U.S. unemployment rate will top out north of 10% and that jobs may slowly be created next year.  The U.S. Dollar has become a carry trade vehicle as borrowing costs are at record lows and the current interest rate structure is favouring higher-yielding currencies including the Euro. Overnight the Dollar and the United States Government became the repository of much of the world's portable risk capital. The majority of that temporary capital infusion has now left the US seeking investment elsewhere in the world.

Also to note the Obama administration is currently preparing a plan that would overhaul global financial institutions, an initiative the government will try to gain support for at the upcoming Group of Twenty summit in Pittsburgh.

The Euro made gains against the Pound and the Dollar. The common currency reached its highest level since 18 December 2008 as negative sentiment continued to surround the U.S. Dollar. Data released in the Eurozone yesterday saw EMU-16 employment decline 702,000 in the second quarter, up from -1.2 million in the first quarter.  Other data released yesterday saw EMU-16 July industrial production decline 0.3% m/m and 15.9% y/y. Interest rate futures are currently indicating the ECB will hike rates later and more slowly than the Fed.  Euribor interest rate futures are signalling the ECB will raise rates in Q4 2010 from their current 1.0% level.

Data released 15th September 2009

UK      09.30 CPI (August)

RPI

UK      09.30 DCLG House Prices (July)

EU      10.00 Labour Costs (Q2)

US      13.30 Empire State - NY Fed Manuf. Index (Sept)

US      13.30 PPI (August)

Ex Food & Energy

US      13.30 Retail Sales (August)

Ex Autos