Foreign Exchange Daily Market Update 14/07/11

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The Pound continued to gain against the Euro, and also the US Dollar in the foreign exchange market yesterday. The GBP/EUR rate moved up from the morning’s open of 1.1356 to trade at 1.1373 by the market close. The GBP/USD exchange rate shot up sharply from the early open at 1.5953 to trade close to 1.6112 by the end of the day. The economic data released from the UK didn’t provide a hugely encouraging picture, with jobless claims increasing for the month of June, up from 22,500 to 24,500 against forecasts for the number to fall dramatically to around 15,000. This is a blow for the UK’s already weak labour market. Despite this increase, the ILO unemployment rate held steady at 7.7%, along with the claimant count rate staying at 4.7%.

There is no scheduled economic data from the UK today, so the currency exchange market will take direction from risk-events in the world’s other major economies and any changes in sentiment towards the economic outlook for the UK, should there be any high-profile government statements or press releases.

The Euro continued to slide against the Pound, but did regain some ground against the US Dollar yesterday. The EUR/USD exchange rate pushed up from 1.4047 at the open, to trade at 1.4162 by the market’s close. The main piece of economic data from Europe yesterday was not positive however, with Euro-zone industrial production falling dramatically, the annual rate dropping from 5.3% to 4.0%, not good news for the overall European economic picture, where some of the biggest economies rely heavily on industry and manufacturing.

Today will see the market focus on price growth in the Euro-zone, with CPI figures set for release at 10:00. The market is forecasting no change in either the annual rate of 2.7%, or the month-on-month growth rate of 0.0%, but the currency could take sharp moves if there is a surprise either to the up, or the downside. The European market will also look towards today’s Italian bond sale. With Italy one of the periphery European nations that is suffering from high-debt burdens, the government is looking to raise capital with a sale of 10-year treasury bonds. A negative reception to this though, could be bad for the currency, with low investor confidence one of the factors that could see the Euro continue to weaken.

The US Dollar lost ground against both the Pound and the Euro yesterday. The currency was not helped by Federal Reserve Chairman Ben Bernanke’s semi-annual report to congress yesterday, in which he offered a fairly mixed assessment of the overall state of the US economy. While Fed officials expect the pace of the economic recovery to pick up in the coming quarters, Bernanke warned of "headwinds" that are affecting the recovery, including the slow growth in consumer spending, the depressed housing sector; still-limited access to credit for some households and small businesses, and fiscal tightening at all levels of government.

Today’s economic calendar from the US will see the release of advance retail sales figures, along with PPI figures. With retail sales set to increase slightly, and producer prices forecast to show slight improvments, the US Dollar could regain some of the losses it showed yesterday.

Mike Hood
KBRFX

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