US Unemployment at 10.2%
The US dollar fell against the Yen as US unemployment rose to 1.2% fueling speculation that the Federal Reserve will keep rates low well into 2010. The US unemployment rate is now at a twenty six and a half year high. The figures dampened hopes for a quick end to the ongoing recession that has plagued the global economy since early fall 2008. David Tien of Fischer Francis Trees & Watts stated, “Near-term, it adds to the uncertainty of the recovery, but it also reinforces how much longer we are going to need lower rates. It solidifies the outlook for plentiful liquidity going into the middle of next year.”
Commodity Based Currencies Gain
Once again commodity based currencies were winners in currency markets. The Australian dollar rose 0.6% to US$0.9166 while the New Zealand dollar rose 0.4% to US$0.7245. The Canadian dollar fell to 92.95 U.S. the lowest since November 3rd. Dismal employment figures from both Canada and the US prompted the declines of both currencies. US employers cut 190,000 jobs in October worse than most economists had predicted. The euro fell 0.2% against the dollar and traded at $1.4847. Some economists believe that the figures are not low enough to question global recovery but were low enough to keep US rates at record lows well into 2010.
Dollar Could Fund Carry Trades
The greenback was little changed against most major currencies. The widespread belief that the US will keep rates low has fueled speculation that the US dollar may replace the yen as the currency of choice to fund carry trades. Both currencies are widely seen as safe haven assets but the recent unemployment figures from the US have benefited the yen. Samarjit Shankar of BNY Mellon stated, “The yen has obviously benefited … from risk aversion. The big psychological impact was from the 10.2 percent unemployment rate. It’s going to cast further doubt on whether the incipient U.S. economic recovery can be sustained without further government support.”
G 20 Conference This Weekend
The upcoming meeting of the G 20 finance ministers and central bankers takes place this weekend in Scotland and is sure to be the main focus among traders although currencies are not included in the formal agenda.
