UK Unemployment Claims Fall
The pound rose on Wednesday after better than expected UK jobs data. The UK government reported that unemployment claims fell by 32,000 in February the largest decline since 1997. The pound has been hammered by recent housing data and fears that upcoming elections could produce political gridlock crippling the nation’s ability to deal with economic problems. Commenting on the new employment figures Bank of Nova Scotia currency strategists Camilla Sutton and Sacha Tihanyi stated, “This is the fastest pace of decline in jobless claims since 1997. The pound has definitively broken to the topside and is challenging resistance.” The euro surrendered recent gains after a German government official said that EU finance ministers had made “no decisions” regarding aid to Greece. Ulrich Wilhelm said in Berlin that no decisions about aid to Greece are likely to be made at the upcoming EU summit. Opposition to aid for Greece is widespread in Germany. Boris Schlossberg of GFT Forex said, “The Germans have been the primary sticking point in creating a pan-European solution. Any resistance casts doubt on solving the Greece problem and helps push the euro lower.”
Dollar and Yen Pressured by BOJ, Fed Decisions
The US dollar and the yen fell after decisions by the Bank of Japan and the US Federal Reserve. The BOJ doubled its loan program designed to fight deflation and the US Federal Reserve said it would leave interest rates at historic lows. Rising oil and commodity prices combined with a rise in risk sentiment lifted commodity linked currencies such as the Canadian dollar, the Aussie dollar, Kiwi dollar and the S African rand. Andrew Wilkinson of Interactive Brokers Group stated, “Everything is doing OK against the dollar and the yen except the euro. Greece just won’t go away, and that doesn’t sit well with the market.” Twenty years ago Harvard University Professor Martin Feldstein called the newly created euro an “economic liability” and now warns that Greece’s austerity measures will fail and that Greece may have to exit the European Monetary Union to fix its massive debt problems. Feldstein said, “The idea that Greece can go from a 12 percent deficit now to a 3 percent deficit two years from now seems fantasy.” Feldstein has been an adviser to several US Presidents starting with Ronald Reagan.
Weak Euro Causing Problems
The weak euro has caused problems for European manufacturers. Since most raw materials such as oil are priced in dollars imported goods are more expensive and could lead to a rise in consumer prices. Until the EU comes up with a concrete solution for the Greek debt crisis downward pressure on the euro is expected to continue.
