Like the Liverpool football team, the pound is failing to have much success in currency markets at present as a raft of weak economic data is conspiring to keep the UK currency weak.

As the global economy staggers towards a recovery, the way forward still remains rocky as reflected in currency exchange markets this week. US labour market figures came in weaker than expected, with unemployment rising to 10.2%, while on the other hand, equity markets hit a 13-month high. This has led to a see-saw for currency exchange rates between risk appetite and risk aversion, although with most of the major currencies finding more stable trading ranges than in recent months.

In the UK this last week, the pound suffered pressure ahead of the Bank of England MPC decision, but eventually rose after the Bank decided to expand their asset purchase program by GBP25 billion rather than the expected GBP50 billion. Sterling later received a boost following news that the manufacturing sector PMI expanded into positive territory for the month of October but has since dropped back to hover around the 1.66 mark against the US dollar and 1.11 against the euro. This week brings the UK unemployment rate and the Bank of England inflation letter.

Currency exchange rates for the US dollar have held their ground after the FOMC voted to leave interest rates unchanged at 0.25%, and signaled that rates may remain low for some time. Equities in the US rallied after US automobile giant Ford announced profits of nearly USD1 billion in the 3 months to September, as the “cash for clunkers” initiative helped to revitalize the automobile industry. Overnight, US equities have reached a 13-month high after the G20 nations G20 pledged to maintain support for the global economy.

Euro currency exchange rates have remained relatively unchanged, as the euro is supported by strong German trade figures and the rise in currency diversification internationally. PMI figures for manufacturing in the eurozone also came in stronger for October, while unemployment rose to 9.7%. There remain nagging doubts in the region as to the stability of recovery, with the banking sector still regarded as unstable. This week UBS has reported greater than expected losses and the French finance minister warned against “banks on steroids” due to government cash injections. This week brings third quarter GDP figures from Germany and France.

Elsewhere, Australia raised interest rates to 3.5% while forecasting three times better than expected growth in 2010, yet the Aussie and Kiwi currencies have fallen from recent highs amid concerns that the currencies have rallied too sharply in the wake of the financial crisis. The Aussie dollar has slid 0.4% against the US dollar while the kiwi fell 0.6% this week. 

So at present, the global economy retains some of its uncertainty from recent months. Equity markets have experienced a sharp rally recently, complimented by positive activity in the manufacturing sectors of the US, UK and eurozone, yet unemployment continues to be a major drag on economic recovery.

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Nigel Hodges (Currency Solutions).