Foreign Exchange Daily Market Update 27/05/11

Whilst still enjoying the gains it made following Wednesday's Gross Domestic Product (GDP) figures, the Pound moved to a two week high against the US Dollar following a less than supportive round of US figures. The Pound was also supported by report from research firm GfK that consumer confidence had improved in the UK. According to the report consumer confidence rose by 10 points to a reading of -21 to mark the second largest increase since May 1993. Another turn of good news came this morning, when according to Nationwide Building Society, house prices rose 0.3% in May to beat estimates for a 0.1% increase. The remainder of the day will be devoid of UK figures leaving the Pound once again subject to wider macro-economical influences.

In a light day of economic figures, the Euro performed well against the US Dollar during the first half of the day. The Euro was bolstered by rumours that the Chinese government were interested in buying Portuguese bonds. If the rumours are true then this would provide the Euro-zone with some much needed funding as the International Monetary Fund (IMF) is unwilling to commit further funds to the region until refinancing guarantees for debt ridden nations, including both Portugal and Greece, are approved.

Germany's Consumer Price Index (CPI) for May headlines the European session today with forecasts calling for price growth to slow annually from 2.4% to 2.3%. Although this predicted outcome would mean that inflation remains elevated, it does take some of the pressure off the ECB to raise interest rates, which is widely expected to have a negative impact on the weaker European nations. Elsewhere on the docket there are a number of Euro-zone confidence indicators for May, the most influential of which being the economic confidence survey and this is expected to tick slightly lower from 106.2 to 105.7. Weaker sentiment toward the Euro-zone is likely to push the currency lower.

The US Dollar lost ground today as foreign exchange traders were disappointed by yesterday's revisions to first quarter GDP figures. Economists had been expecting that the US economic growth rate would be revised up from 1.8% to 2.2%, however the figure was left unrevised. The personal consumption component of the GDP total was revised down from 2.7% to 2.2%, missing estimates for the figure to rise to 2.8%. Similarly core consumption slipped below the consensus of 1.5% to 1.4%. This week's jobless claims figures provided a mixed outlook for the US labour market, as ongoing claims fell from 3.711 million to 3.69 million while initial jobless claims rose from 409,000 to 424,000. The overall picture is one of a very weak US economy which pushed the GBP/USD currency exchange rate to a high of 1.64, while against the Euro the exchange rate hit a high of 1.4203.

The US docket will end the week with more figures on personal spending. In April personal spending is expected to slow from March's growth rate of 0.6% to 0.5%, (although given that consumption was weaker in the GDP total this may well be revised down). The core reading of personal consumption (which excludes food and energy purchases), is however expected to pick up slightly from 0.1% to 0.2%. Unlike the GDP personal consumption component which only covers data gathered from January to March, today's monthly figure will provide a more timely and up-to-date picture of consumer spending. Elsewhere on the docket, pending home sales for April are set to contract by 1.0% following March's 5.1% increase. However given that new home sales figures released on Tuesday for the same period showed a bigger than expected increase, then its possible that the outcome may be announced higher, if so then the Dollar could pick up as the housing market improves, but losses on the currency could be seen if pending sales fall below expectations.