Foreign Exchange Daily Market Update 20/05/11

The Pound experienced a rebound in the exchange rate following better than expected retail sales figures for April. The Office for National Statistics reported sales in April advanced by 1.1% to beat expectations for a 0.8% rise. The increase was attributed to the recent warm weather and extra public holidays. The outcome pushed the Pound up to a high of 1.6207 versus the US Dollar and 1.1370 against the Euro. However, the rise was short-lived and by mid-afternoon the Pound had fallen back to levels in line with the open of the trading day. With Friday being devoid of UK economic figures the Pound will be subject to broad based risk sentiment on the global foreign exchange market.

Fears over the Greek debt crisis continued to weigh heavily on the Euro and without any economic data to support the single currency, price action against the Dollar was choppy. Divided opinions from ECB officials on how best to handle the turmoil in Greece only exasperated the issue. ECB board Member Nout Wellink voiced his opposition to restructuring Greece's debt, saying that such action would hurt the banking sector throughout the Euro-region and as such heighten the risks of debt contagion. Further to this Jurgern Stark of the ECB said that the central bank would not accept Greek bonds as collateral if there was a decision to lengthen the terms of Greece's debt repayments.

In a day for the foreign exchange market European figures dominate; with the economic docket having already seen Germany's Producer Price Index (PPI) for April beat analyst expectations. Producer Prices rose by 1.0% month-on-month up from 0.4% increase in March when economists had predicted 0.6% increase, while annually price growth accelerated from 6.2% to 6.4% to beat the consensus for growth to slow to 6.0%. Higher energy prices attributed to the rise in PPI as electricity prices were up by 8.5% from last year, with Crude Oil and Petrol prices rising by 17.6% and 15% respectively. This news saw the Euro rally early on, and strengthen further when March’s current account deficit for the Euro-zone narrowed from a downwardly revised €8.9 billion to €3.8 billion. The trading week will close with May’s Euro-zone consumer confidence, which is expected to show that sentiment has worsened since April with the index falling from -11.6 to -12.0. A negative outcome could lead the Euro to lose some of this morning’s gains.

Yesterday’s US docket provided a mixed outlook for the currency exchange market. On the one hand jobless claims provided an improved outlook for the US labour market as claims fell below the expected levels, with first time claims falling to 409,000 from 438,000. However, figures from the National Association of Realtors showed that existing home sales in April unexpectedly contracted by 0.8% despite forecasts calling for a 0.2% increase. Furthermore, May's reading for the Philadelphia Fed manufacturing index fell way below the expected score of 20.0 to come in at 3.9. This reading was down heavily from the previous score of 18.5 in April. Ultimately the news lead the Dollar lower against the other major currencies with the GBP/USD rate rising to 1.6235 and EUR/USD pushing up to a high of 1.4316. As the US calendar effectively ended on Thursday, price action for the Dollar is likely to remain subdued heading into the weekend.