Friday Morning Currency Ramblings

The pound has dipped just below 1.57 against the dollar this morning, that's the first time it's been that low since May last year, when it was still on the road to recovery from the dark days of early 2009 when it fell to 1.35.

It seems to be all about a flight to safety at the moment, and the dollar is still seen as the safest haven around. It seems strange that the dollar moves higher despite disappointing jobs data from the US, but there we have it.

The US Labor Dept said yesterday that initial claims for unemployment benefit in the US increased by 8,000 to 480,000 last week, that's the highest figure for seven weeks. A fall of 10,000 had been expected.

Crude oil stocks data also appeared to indicate that the global malaise is far from over. US refineries are now running at their lowest capacity since 1990, barring hurricanes, and crude stocks are still rising.

Then we have the poor old euro and the spectre of the PIGS, the potential fallout from which is also weighing on the pound. The ECB left interest rates unchanged yesterday, as did the BoE, just as everybody expected. Trichet trotted out the same old rhetoric in his accompanying speech, droning on and on about how each country in the Euro Zone must sort it's own problems out. Blah, blah, blah.

Greek customs officials began a 48 hour strike yesterday, doctors and civil servants plan to walk out next week and there is talk of a general strike later this month.

As far as a Greek bailout is concerned the official ECB line is that there won't be one, as mounting one sets a dangerous precedent with the rest of the PIGS holding out their trotters. Why should other EU countries pay for their financial mismanagement? The domino effect could spell the downfall of the entire single currency.

That puts Trichet in a be damned if you do, or be damned if you don't kind of a situation.

The euro has consequently fallen from 1.5140 to 1.3640 against the dollar in just two months, a decline of 10%, further declines look on the cards.