Foreign Exchange Daily Market Update 21/06/11

The Pound closed yesterday lower against the Euro, but slightly higher against the US Dollar in the foreign exchange market. The GBP/EUR rate opened at 1.1354, but closed trading just under 1.1315; the GBP/USD rate picking up to 1.6206 from the day’s open at 1.6128, a good gain for the Pound, making it slightly more attractive for UK consumers who are buying Dollars. There were no economic data releases from the UK yesterday, so the currency was left open to market movements based on sentiment and news from other world economies.

Today’s UK economic docket will focus on public sector finances; with the monthly figures for public sector net borrowing and public finances set for release. The market will watch closely to see if the UK Government is sticking to it’s pledge to make deep cuts to reduce the overall debt level, but there could well be a knock-on effect that harsh austerity measures will affect overall economic growth.

The Euro managed to regain some strength against the Pound yesterday, even in the face of disappointing economic data. Yesterday saw the release of German producer price figures for May, and with a sharp drop in the month-on-month figure, from 1.0% growth to 0.0%, and also the annual level falling from 6.4% to 6.1%, it would have made sense for the Euro to weaken slightly, but the result was completely the reverse. It may well be that the currency is finding strength from the strong rhetoric from the EU, that it will reach a suitable solution for Greece, with European Commission President José Manuel Barroso insisting that Greece will ‘never’ be allowed to go bankrupt. Barosso drew parallels with the global financial crisis that started with US banking giant Lehman Brothers going bust; and stated ‘’A country going bankrupt is much more delicate than a bank that would affect all EU members. No, we should never allow a country to go bankrupt.’’ Whilst the Euro continues to find strength, it will make it more expensive for UK consumers who are buying Euros.

Today’s economic docket from Europe contains the highly influential ZEW Economic Sentiment surveys for Germany and the overall Euro-zone. The ZEW survey conveys the opinions of select financial experts on the direction of inflation, interest rates, exchange rates, and the stock market over the next six months, and any shock result in its findings does have the potential to strengthen or weaken the European currency. EU finance ministers are also still working hard to try and produce solution to Greece’s debt woes, and the currency exchange market may take direction from the outcome of this.

The US Dollar weakened against the Pound throughout yesterday, and with no economic data to support the Greenback it also fell sharply against the Euro. The EUR/USD rate peaked at 1.4314, up from the morning’s open at 1.4203.

The economic docket from the US today is comprised solely of housing data; with existing home sales figures for May set for release. Sales are expected to drop, both annually and month-on-month, and in a market that is still fairly weak in the US, it is not a positive sign for the overall economic picture, and could weaken the Dollar slightly on release.

Mike Hood
KBRFX