A Forex View From Afar

Global Unemployment Rates Bouy The Usd

Over the last quarter a rather grim picture from the global labor market revealed
itself, as the unemployment rate rose to multi-year highs in most economies.

Probably the most important headline of the previous week was that the unemployment rate moving to 9.5% in the U.S., the highest level since 1983. The same thing happened around the globe; the unemployment rate surged to record high values.

For example, in Spain where a massive real estate bubble just burst, the unemployment rate moved to a surprisingly high 18.7% in the second quarter of 2009, up by more than 8% in one year.

A rising unemployment rate has a wide list of negative effects in the real economy, TheLFB-Forex.com Trade Team said. The most evident effects are seen in the credit market, where there is a tight relationship between the unemployment rate and the default rate.

The impact will also be heavily felt in the consumer market. When consumers follow a rising stock market and see real estate income, and/or appreciation they drive up the spending rate.



However, when all this reverses, consumers cut all unnecessary spending and start saving to obtain some degree of financial stability. Consumers reducing their spending will have a negative impact on the employment situation, especially in those economies that spending makes up about 70% of the growth rate.

Moreover, macroeconomic data had shows that deflationist pressures tend to rise as the unemployment rate decreases. However, TheLFB-Forex.com Trade Team notes that, this relationship is reliable only on the short-term, and it will still cause some headaches at the Fed, and at the other major central banks over the next few quarters.

As seen in the attached chart, every major economy saw its unemployment rate rise after the third quarter of 2008, and some say this will continue even beyond 2010. In addition, the huge slowdown in the global trade had also started to affect the emerging economies, something that was reflected in the unemployment rate.

Even the infamous Chinese economy has started adding jobless numbers into the economy, something that pushed the unemployment rate up to 4.3% - a multi-year high. The same situation was seen in most emerging economies, something that yet again suggests the weakness seen in the global labor market is a longer-term problem, rather then a short-term imbalance.

It can also be seen in the equity market’s inability to move higher, and by default that same unemployment rate increase, will empower the Usd; when equities go lower, the dollar goes higher.

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