By: Terry Allen
Early this morning, UK economic data releases were the significant events with a 20,000 rise in jobless claims pushing the UK unemployment rate towards a 12 year high of 5.1%.
The Bank of England also released its Quarterly Inflation Report which warned about big downside risks to the UK economy. This report was eagerly awaited after the Monetary Policy Committee requested, last week, for an extra £25 billion to be pumped into the economy bringing the total amount to £200 billion.
Further comments in the report advised that a significant drop in global output is still possible and that weaknesses were very prominent in banking sector on the credit supply side. BOE King also stated that the UK economy was only now starting to recover and that unemployment levels were still achieving new highs.
Fears have also been expressed that the UK was in danger of losing its AAA credit rating especially if another stimulus fiscal package is deemed necessary. Consequently, the GBPUSD has fallen sharply by over 150 pips in the last few hours and is now posting 1.6650.
There are no major US risk events today although different asset markets are still forecasting contradictory recovery patterns. In particular, the US Bonds Market tends to favor a U-shaped or even double-dip recovery, whilst the risky markets support a faster V shape one.
In addition, the ECB president, Trichet, is continually expressing concerns about the current Dollar weakness. Consequently, the EURUSD is still climbing within its present bull channel reaching a high of 1.5045 overnight although it has now retracted to 1.5030. Elsewhere, Japanese Machine Orders dramatically rose by 10.5% in September whilst Australian Consumer Confidence fell by -2.5%.
The USDJPY experienced a sharp surge of 70 pips to its present value of 89.90 whilst the AUDUSD continues its present climb to 0.9310.