7-6-09

EUR/US$

The Euro was unable to push back above the 1.4150 level against the dollar on Thursday and was generally weaker over the day. Euro-zone unemployment hit a 10-year high of 9.5% according to the latest data which was a slight negative factor for the Euro. The currency was also unsettled by a further Irish credit-rating downgrade by Moody’s. The dollar secured some relief from a round of more supportive comments from Chinese officials as the debate surrounding reserve currencies continues.

As expected, the ECB left interest rates on hold at 1.0% following the latest council meeting. Despite voicing concerns over the 2009 outlook, bank President Trichet was generally neutral in his comments over the economy and interest rates and his comments overall suggested that the bank is in a holding pattern to await further developments in the real economy. Trichet was keen to emphasise that the bank had prepared an exit strategy if there was any evidence of inflation risks.

The headline US employment data was weaker than expected with a payroll decline of 467,000 for June following a revised 322,000 the previous month. The unemployment rate increase was slightly lower than expected with an increase to a 26-year high of 9.5% from 9.4%.

The secondary elements in the data continued to give significant cause for concern with a decline in weekly hours while the unemployment increase was held back by a decline in the workforce which will maintain fears over the consumer spending outlook. Jobless claims also remained above the 600,000 level in the latest week at 614,000.

Risk appetite was generally weaker following the US employment report and this helped push the Euro weaker against the US currency, although there was support just below the 1.40 level. Choppy trading may be a risk on Friday with the US markets closed.

Yen

The yen gained some respite in Asian trading on Thursday with markets turning more cautious ahead of the US payroll release

The Japanese political situation will also be watched closely with further speculation that an election will be called within the next two weeks. The dollar was holding around 96.60 in early Europe in generally tentative conditions.

As global stock markets weakened following the US employment data, the yen strengthened back to 95.80 against the dollar and 134.40 against the Euro.

Sterling

The UK currency was unable to regain the 1.65 level during Thursday and weakened to lows around 1.6320. Sterling proved to be broadly resilient following the US payroll data and edged back towards the 1.64 level later in New York trading. Sterling found support weaker than the 0.86 level against the Euro.

The construction PMI index for June weakened to 44.5 from 45.9 previously, ending the run of improvements seen over the past few months. The UK PMI services-sector data will be watched closely on Friday. Any monthly deterioration would tend to undermine confidence in the UK currency, although the impact should be limited if the index holds above the 50 level.

Sterling will also be much more vulnerable if there is a general deterioration in risk appetite even though it proved to be generally resilient on Thursday.

Swiss franc

The dollar found support below 1.0750 against the franc on Thursday, but still found it difficult to make strong headway with gains capped just above 1.0850.

National Bank member Jordan again warned that the bank stood ready to intervene if necessary in the market if the franc threatened to make renewed gains. The Swiss currency weakened temporarily, although it resisted heavy selling pressure.

The franc will tend to gain some degree of support if there is a sustained deterioration in international risk appetite and weaker stock markets helped it gain ground in New York.

Australian dollar

The Australian currency has been unable to sustain gains over the past 24 hours and weakened back towards the 0.80 level on Thursday. The domestic data was weaker than expected with a second successive trade deficit while there was greater caution towards commodity prices.

As equity markets weakened and there was a recovery in the US dollar, the Australian dollar weakened to lows around 0.7935 before a limited recovery. There is still likely to be buying support on dips which should limit losses.