Economists suggest a chance of the US suffering a double-dip recession

Dollar weakness continued overnight due to comments from notable economists suggesting there is a 30-40% chance of the US suffering a double-dip recession. Part of the problem is the uncertainty surrounding how the US Federal Reserve will alter that probability over the next month or so since there remains an underlying uncertainty regarding the size and speed at which quantitative easing (QE2) will be brought in.

Sterling was able to break the recent high on yesterday's comments late in the US trading, setting a new 10-month high at £/$ 1.6065. If the risks of a new US recession are as high as claimed, foreign exchange brokers will be wondering how high could the Sterling/US Dollar exchange rate go.  When the US entered into recession last year, safe-haven trades saw the US Dollar strengthen however, market trends point to a divergence away from that at the moment.

Apart from against the US Dollar, Sterling had another poor day. The Nationwide consumer confidence figure fell to it's lowest level since March 2009 at 53 in September following 62 in August.

The number of new jobless claims in the UK was also poor as the number of new claims rose for the second consecutive month in September, up by 5,300. Despite this, the overall unemployment rate showed a moderation to 7.7% in the 3 months to August versus 7.8% in the 3 months to July.

The Euro continued it's surge yesterday despite economist's views that we are due for a reversal after Eurozone industrial production rose 1.0% in August, surprising positively against market expectations.

The day ahead is dominated by US economic releases that features producer price inflation, jobless claims and foreign trade numbers. Inflation reports may gain even greater significance given that the US Federal Reserve has explicitly noted concern about the underlying pace of consumer prices and is discussing means of pushing inflation expectations up.