A handball divided the eurozone this week as Thierry Henry dashed Ireland’s hopes a World Cup final. The euro itself has fared somewhat better, though still remaining in recent ranges against its major currency partners.

The last week has seen a return to risk aversion after weak US labour figures and a division in the MPC led to speculation that the global recovery is not as sound as once thought. Optimism from the third quarter is beginning to wane, knocking equity markets down from 13-month highs, as investors begin to fear that growth in the fourth quarter may not be as strong.

In the UK this week the pound remained largely range bound against its major currency partners, around 1.67 against the US dollar and 1.11 against the euro. Inflation rates for October came in at 0.2% on the month, fuelling speculation that the UK could return to growth soon and sending the pound briefly higher. The pound fell later in the week however, after the Bank of England minutes showed a three way split in the MPC with the possibility of more quantitative easing in future. 

Late last week public sector borrowing came in at GBP11.4 billion, much higher than expected and this highlighted the effect that debt levels will have on the UK economy moving forward. The OECD also downgraded sterling forecasts, while raising those of the eurozone and Australia, sending the pound even lower against the USD, JPY and EUR.

The USD recovered some of its recent losses last week, as weak labour market and production figures triggered a rise in risk aversion in the market. A speech from Ben Bernanke where he noted that the Fed is “attentive” to changes in the dollar led to concern from investors while industrial production fell by 0.1% in October, boosting the dollar against the higher yielding currencies.

US jobless claims came in weaker than expected; falling by over 561,000 in the week until November 7, although the figures show the rise in unemployment is beginning to tail off in the US. The Philadelphia Fed, a monthly snapshot of the manufacturing sector also came in positive and this helped to restore limited market confidence.

The week has been quiet for the eurozone, with the single currency’s movements affected by international risk appetite. German data has come in slightly weak this month, with a flat PMI, declining -7.6% on the year. GDP figures for the German economy are due today and this could drive some euro strength. The euro current account came in with a EUR5.4 billion dollar deficit, as imports rise at the expense of exports, potentially due to the stronger currency.

In other markets the yen has risen after weak US figures and downbeat Japanese data fuelled a rise in risk aversion. The Nikkei index fell to a four-month low midweek after Mitsubishi reported substantially weaker fundraising figures. The Aussie and Kiwi currencies have also dipped this week against a stronger US dollar and euro, heading for their first weekly losses in a month against the yen and US dollar.

So while the market remains uncertain the volatility continues. In this case, using a currency specialist can make thousands of pounds difference when it comes to currency transfer. If you need to transfer currency overseas, call Currency Solutions and speak to a personal currency broker. They monitor the markets on your behalf and will help you get the best exchange rates for currency transfer. To see how much you could save, call 0207 740 0000 or visit www.currencysolutions.com.

Nigel Hodges (Currency Solutions).