UK inflation data for October fell by 0.2% from the previous month. Trouble is at 5% it is still way above the Bank of England’s target rate of 2%. Expectation is that it will fall in the new year as last January’s VAT increases flow through. Problems in the euro bond market continue to trouble sterling against currencies other than the euro as a significant proportion of the UK’s trade is with the euro zone. Today we have the unemployment figures which are unlikely to make happy reading. Unemployment for the under 25’s is of great concern as jobs have dried up for this age group. Exchange rates continue to be volatile so call in for a rate now.

The euro zone problems continue. Confidence in euro zone bonds of all countries apart from Germany’s is slipping away which means that the problems of Italy and Greece could spread to other countries such as France and Austria which in theory have AAA rated bonds. Business confidence continues to wane which means that given the size of the euro zone business confidence world wide is affected. Urgent action is required. Expect continued volatility and call in now to reduce your risk.

The US$ is the “go to” currency in these uncertain times as risk aversion heightens and its safe haven status is much sought after. Sterling has lost a couple of cents against the US$ since the start of the week and it is difficult to see this momentum changing in the near term even though economic conditions in the US are far from rosy.

Commodity backed currencies have gained ground against sterling which is slightly perverse given increased risk aversion. I think it highlights how dependent the UK economy is on the euro zone whereas the commodity backed currencies are tied to China and its on-going growth.

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