Foreign Exchange Daily Market Update 24/06/11

The Pound lost ground against the US Dollar in the foreign exchange market yesterday, the GBP/USD rate falling below the 1.60 mark for the first time since the start of April. This drop instantly puts pressure onto UK consumers who are buying Dollars, with the lower exchange rate meaning that dollar buyers will get less currency for their money. Despite the weakening against the Dollar, the Pound made a small gain against the Euro over the course of the day, closing the UK business day at 1.1278, up from the morning’s low of 1.1246. The only real economic data of note from the UK yesterday was the release of the British Bankers Association (BBA) loans for house purchase figures for May, which showed a slight increase, up from 30,000 to 30,509.

The economic docket for the UK today has no scheduled data releases; so barring any important UK Government statements, or economic-related events, the Pound will be left open to movement based on risk sentiment within the currency exchange market, and key data releases from the world’s other major economies.

The Euro did slip slightly against the Pound throughout Thursday, as mentioned above; giving a small boost to UK consumers who are buying Euros, and also fell against the US Dollar. The EUR/USD rate dropped to 1.4164 by the day’s close, down greatly from 1.4269. The European economic docket did little to support the currency, with French and German PMI Manufacturing figures reporting lower, and the combined Euro-zone PMI results for manufacturing and services also falling, consequently the composite figure reporting far lower than expected.

Today’s European economic docket has already seen the release of German IFO figures, which has seen a positive increase. The German firms who are surveyed to produce the reading have shown that their view of the business climate and current assessment of the overall economic picture has improved since last month’s survey. However, their monthly reviewed expectations for the following 6 month period haven’t improved at all. The market will be watching closely for any news out of the EU leader’s summit in Brussels, with sovereign debt in Greece, and the possibility of debt contagion spreading to nations such as Ireland, Spain and Portugal likely to be high on the agenda.

The US Dollar strengthened across the board yesterday, pulling higher against both the Pound and the Euro. This can be attributed to risk-aversion in the market, with the Dollar traditionally benefiting from its status as a safe-haven currency; with speculative traders usually buying Dollars to avoid any uncertainty in the market such as the current Greek bailout situation in Europe. The currency was also aided by positive economic news, with new home sales for May reporting an increase, up from 310,000 to 319,000; a welcome boost for the US housing market.

The currency may not see much movement based on today’s US economic docket, with durable goods orders the only figure of note set for release. The figure is widely expected to report an increase, which would be a positive result for the US economy as a whole, but may not be sufficient to push the currency in any direction, by itself.

Mike Hood
KBRFX