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Fed expresses it’s concerns as pound nears $1.50

24 June 2010

A slew of mixed economic reports Thursday (June 24) morning reinforced the economic uncertainty of the Federal Reserve’s post-meeting announcements Wednesday in which statements were somewhat pessimistic about the pace of economic recovery.

As the enthusiasm and expectations for the US economy have been tempered of late, the dollar has floundered in its efforts to build long-term momentum against global counterparts. The British Pound had exchange rates around the $1.50 level briefly before pulling back to its current rate of $1.4988.

The Fed ended its two-day rate policy meeting by not surprisingly deciding to keep key interest rate levels in the no to low range. The continuance of a low-interest rate policy is quashing the dollar’s movement since some speculators prefer to avoid currencies that offer no interest yields on daily rollovers.

The Euro is also holding over $1.23, but with major credit problems affecting Spain, Portugal and Greece, among others, there appears to be limited upside for the Euro-dollar in the near-term.

The Pound has benefitted as Britain still seems to have avoided the worst of the financial challenges being experienced by its brethren. However, several analysts believe that at some point, the US and Britain may experience some degree of affect from the spreading of the European credit situation.

Jobless claims were one of the reports Thursday that helped present a mixed picture for the economy. There were a seasonally adjusted 457,000 claims last week, which was less than the 460,000 forecasted in the Thomson Reuters economist survey. This is still a relatively high number and leads many to believe unemployment is still delaying a thorough and sustainable economic recovery.

Of concern is the durable goods report that showed a drop in big-ticket goods by 1.1 per cent in May. This is the first such drop in six months.

The mixed data reports from Thursday along with the Fed’s cautious words on Wednesday have prompted currency speculators to opt out of the dollar in the short-term, with many apparently looking to the British Pound as an alternative buy.

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