UK Pound Weakens As Debt Reduction Programs Debated

Posted January 07, 2010

The Japanese yen weakened against most global currencies. The US dollar rose against the euro. Australia’s dollar rose against the UK pound. The UK pound weakens as the political parties debate debt reduction programs. The Canadian dollar strengthened against the US dollar.


The Japanese yen weakened against the US dollar and the euro. The yen fell to 93.18 yen per dollar while the yen slipped to 133.45 yen per euro.

Japan has a new finance minister who has stated on his very first day in the position that he will support a weaker yen. Naoto Kan indicated he will be working at keeping the yen at a particular level which he left un-named. A stronger yen would hurt the economy in the opinion of Kan and his goal is to jumpstart recovery.

This is a change in policy from the preceding minister and analyst and investors are attempting to assimilate the information into their predictions and investing strategies.

The US dollar strengthened against the euro to $1.4320 as expectations rise that the job reports for December nonfarm payrolls will show job losses have stopped. That would certainly be good news for the US which is struggling to recover economically with a 10 percent unemployment rate.

The US Federal Open Market Committee issued the minutes of its last meeting. The minutes show discussion over how to end asset purchase programs. This is the same type of discussion ongoing in the UK.

Withdrawing stimulus programs is not going to be easy and timing is everything. Pull the programs out too soon and the recovery could collapse. Leave them in too long and they will become inflationary while promoting dependence on government spending. Keeping inflation under control is the next challenge facing governments as the economies begin to operate more normally.

The Australian dollar strengthened against the UK pound to 57.77 pence. Australia reported an increase in November retail sales of 1.4 percent.

The UK pound weakened against the euro to 90.11 pence and against the US dollar to $1.5909. In the UK government there are differences of opinion between the Conservative opposition party and Prime Minister Gordon Brown as to the best course to take to reduce the budget deficit. This is a point of contention that will be difficult to resolve and one facing other countries including the US.

In the UK, the Bank of England left the benchmark interest rate alone and also kept the asset-purchase plan intact. The quantitative easing program was not extended. The big issue facing the government right now is a potential ratings downgrade due to its current debt and debt reduction plans. The Conservative Party is accusing the Labour Party of maintaining economic policies that will lead to a credit downgrading.  There are signs the economy is improving though. Housing prices rose faster than expected in December for example.

The pound appears to be ready to continue weakening.

The Norwegian krone weakened to 8.1990 against the euro.