Despite the Pound’s sterling performance against the Euro this week it has undertaken a steady decline against the US Dollar. The pair is currently trading at 1.552, with the Dollar benefitting primarily from strong currents of risk aversion flowing across the Atlantic from the Eurozone. The failure of 2011’s 8th EU Summit to instigate a successful resuscitation plan for the single-currency has led to a profound drop in market confidence towards the Euro; the Pound has profited but the Dollar has boomed. The UK remains outside of the Eurozone and PM David Cameron’s treaty veto has isolated Britain further from the EU but the UK retains intimate trade relationships and constitutional laws with the Euro and for these reasons investors have viewed the USA’s geographical and (relative) political detachment from the Eurozone as a sufficient safety net against further Economic crises in Europe.
David Cameron’s Conservative/Lib Dem coalition government came under some pressure yesterday as UK unemployment figures showed the bleakest outlook for 17 years. Youth unemployment hit a record high of 1 million and the total jobless figure reached 2.64 million in the 3 months leading up to October. The poor figures reflect a weak economic outlook for the UK as we move into 2012 and they are partly to blame for the Dollar’s ascendance this week against the Pound. However, the core economic motivation for investors is risk aversion, and as such positive results such as the 1.8% rise in Average UK Earnings released today do not carry the same weight as they might have done under a more temperate economic climate.
US Federal Reserve Chairman Ben S. Bernanke outlined that the central bank will not be undertaking additional aid payments to the European banks amid the region’s sovereign debt crisis, he was quoted as saying that he doesn’t “have the intention or the authority” to bail out countries or banks. Bernanke admitted that “obviously what happens in Europe could affect our economy” (the US economy) but seems to be taking the same hard line as German Chancellor Angela Merkel in terms of financial aid: “if there’s too much of an effort on the part of the United States to help Europe, it’s going to impede their fiscal changes that must be made.” Merkel has stood her ground in the face of adversity, maintaining that European Central Bank action would undermine the long term revival plans for the Eurozone and Bernanke’s statement seems to mirror these sentiments.
The motto for the market this week seems to be ‘what’s bad for the Euro is good for the Pound, but what’s good for the Pound is even better for the Dollar.’
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