Sterling Smashed by Piggy Banks

December’s never a good month for sterling and poor unemployment and fears over banks’ exposures to Spain made sure that the pound was the worst performer on the day yesterday.

The International Labour Organisation (ILO) measure ticked up to 7.9% from 7.7% with the total amount of unemployed moving above 2.5m. This pushed the pound below 1.17 against the euro and into the 1.56s vs the dollar and it was hard pressed to make any upward moves. Obviously an increase in unemployment is a worrying sign and casts doubt on the government’s beliefs that the private sector will be able to sweep up those who lose their jobs in the public sector. This could be a momentary blip; the combination of a squeeze of opportunities and an expansion of labour supply in the workforce. If it is not however the consequences could be grave.

Another facet of financial life whose grave consequences we already know about is banks and their exposure to risky assets. If the unemployment figures got the fire going yesterday, the news of Spanish risk in our banking system was someone pouring petrol on the flames. The basic premise is that UK banks, Barclay’s seemingly the main culprit, have a lot larger exposure to the PIGS than had previously been thought. With the fears over the periphery debt and the PIGS countries’ banking sector this has harmed UK bank share prices and therefore GBP. It has so far moved bullishly into today’s retail sales announcement at 09.30.

In Europe a meeting between leaders of the EU starts this morning with a clouds already gathering overhead. Angela Merkel has already spoken to press and ensured that ‘strict conditions’ would be attached to any bailout or aid for countries who require assistance. Expect her also to put up a fight as far as European denominated bonds or any expansion of the European Financial Stability Facility (EFSF)

The dollar continued its recent strong run after Industrial production data hit the highest its seen since July. The pace is still slow but an industrial recovery is definitely starting to blossom over the pond.

Apart from the now very important UK retail sales announcement at 09.30, we have a slew of PMIs from the Eurozone which may simply be ignored as the market tends to focus on the juicier, more gossipy aspects of the financial world.

Indicative Rates	Sell	Buy
GBPEUR	1.1767	1.1793
GBPUSD	1.5582	1.5606
EURUSD	1.3228	1.3250
GBPJPY	131.10	131.37
GBPAUD	1.5776	1.5799
GBPNZD	2.1150	2.1186
GBPCAD	1.5656	1.5689
NZDUSD	0.7359	0.7381
GBPZAR	10.65	10.70
USDZAR	6.8250	6.8640
GBPPLN	4.6811	4.7092
EURJPY	111.23	111.50

Rates are dependent on amount transacted.

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