Foreign Exchange Daily Market Update 17/06/11

The Pound opened and closed almost unchanged against both the Euro and the US Dollar in the foreign exchange market yesterday. Despite a slight fall in the middle of the day, GBP/USD opened at 1.6142, and closed around 1.6128, with GBP/EUR opening just shy of 1.1420 and closing at levels of 1.1396. There was only one key set of figures on the UK’s economic docket yesterday, and that was Retail Sales result for May. The core result was a drop, both month-on-month and annually; falling from 1.1% to -1.6%, and from 2.3% to 0.00% respectively. This can be viewed as a negative sign for the UK, as it shows a drop in consumer demand, and consequently, a potential slowing in economic growth.

Turning to today’s UK economic docket, there are no figures set for release; which leaves the Pound open to movement in the currency exchange market based on news events and data from the world’s other major economies.

The Euro held firm against the Pound and The US Dollar yesterday, albeit after a heavy drop against the Pound in the very early hours of Thursday morning. Market expectations for a rate-hike in Europe may have been dealt a slight blow yesterday, with the release of Euro-zone CPI figures. The figures showed that the risk of inflation has dampened slightly; the core index reading showing that price growth dropped from 1.6% to 1.5% month-on-month, and fell slightly from 2.8% down to 2.7% annually. While the figure still remains above the ECB’s target level, it may be an indication to the market that the heightened levels are temporary, and do not require a tightening of monetary policy.

While the delicate situation regarding a potential bail-out for Greece continues, the Greek Prime Minister George Papandreou appointed current Defence Minister Evangelos Venizelos as his new finance minister and deputy prime minister in a government reshuffle yesterday. Traders will be watching the situation closely, with Germany being one of the most likely member states to push for an immediate solution.

The economic docket for Europe today will focus on the Euro-zone trade balance results for April. Should the figures show a swing towards exports outweighing imports in the Euro-zone (a trade surplus) it would have the potential to provide some buoyancy to the Euro, as it would show an increased flow of funds into Europe. If the Euro was to start finding some strength, it would start making it more expensive for UK consumers that are buying Euros.

The US Dollar held steady yesterday, after making huge gains against the Pound on Wednesday, the GBP/USD rate staying at mid 1.61 levels throughout most of Thursday. The huge drop on Wednesday down from 1.6430 has suddenly made it more expensive for UK consumers buying Dollars. The US economic docket yesterday did show some encouraging signs for the economy – building permit figures showed an increase, up from 563,000 to 612,000. Housing starts were also up, from 541,000 to 560,000. The labour market received a welcome boost when figures showed that initial jobless claims fell month-on-month, down from 430,000 claims to 414,000 claims.

Today’s US economic docket will focus solely on the University of Michigan’s confidence survey for June. The figure is considered to be one of the foremost indicators of consumer sentiment in the US, and any drop is usually considered an early indicator of economic downturn. Analysts are predicting a slight drop, from 74.3 to 74.0, but this may not be a large enough swing to hurt the US currency too much.

Mike Hood
KBRFX