Money Transfer Update: Dollar Strengthens ahead of the Publication of the Key Employment Data

The dollar rose in trading yesterday ahead of the publication this afternoon of the key employment data from the USA with the US Presidential election less than a week away.

The October ISM manufacturing sector purchasing managers index (PMI) came in higher than expected at 51.7 points. Any figure above 50 shows an expansion of the economy.

In addition, initial weekly unemployment claims fell by 9,000 to 363,000 although the main employment data is not published until this afternoon.

The euro was largely subdued yesterday. The Italian government agreed to revise its 2013 budget and has hinted that it may replace the initially planned tax cuts with a reduction in labour costs.

Meanwhile, former International Monetary Fund (IMF) first deputy managing director John Lipsky criticised efforts to get Greece back on track and reiterated the need for the international community to continue to focus on structural reforms. Lipsky insisted that the underlying issues that needed to be dealt with are the structural reforms, citing their inadequacies as the reason that Greece has lost competitiveness within the euro zone.

Lipsky said “I am always pained by the characterization of the issue as one of growth versus austerity, as if that were the issue of immediate consequence. The issue is underlying structural reform. If economies like Greece, Portugal, and ultimately Spain and Italy, cannot recapture lost ground in terms of competitiveness within the euro zone, it is hard to see how they are going to achieve economic and financial success”.

Meanwhile, in a sobering assessment of the outlook for the UK economy, the respected think-tank the National Institute of Economic and Social Research(NIESR) reported yesterday that the UK economy will contract very slightly this year, but is forecast to grow by just over 1%i in 2013 but warned that an ill-timed fiscal consolidation in Europe and other external risks continue to pose considerable risks.

The NIESR report also comments that “The UK’s poor growth performance over the past two years owes much to coordinated fiscal contraction, here and in the Euro Area” and specifically comments that austerity in the UK is "self-defeating."

Money transfers to France:-

As recently as 23 October, the pound was trading at a 5 month low against the euro. It has since picked up, largely on the back of the much better than expected GDP data for the three months to September 2012 but the NIESR data published yesterday and a public disagreement on policy between senior Bank of England officials will clearly keep the markets guessing until the next Bank of England policy announcement, due on Thursday 8 November.

Clients with a euro requirement might therefore be best served by considering a ‘hedging’ strategy and securing a portion of their requirement whilst rates are better than the 5 month low recently seen in the markets.