Wednesday 20 July 2011

Foreign Exchange Daily Market Update 20/07/11


The Pound made small gains against both the Euro and the US Dollar in the foreign exchange market yesterday. The GBP/EUR rate moved up from 1.1388 at the morning’s open to trade at 1.1395 by the close. The GBP/USD exchange rate also picked up, from 1.6110 to 1.6133 throughout the day. There was no economic data released from the UK to support any movements in the currency market; but there was a lot of media focus on the live-broadcast Parliamentary enquiry into the News Corp hacking scandal; with James Murdoch and Rupert Murdoch being quizzed by MP’s on their knowledge and involvement in alleged criminal activities. The market may be influenced by any unexpected revelations to come out of these events, as the UK media has placed strong political links to the case.

Today will see the markets attention turn to the release of the Bank of England’s minutes from their last policy meeting. The Pound could well suffer in the foreign exchange market if it is showed that the BoE are taking a more dovish stance to policy, with numerous market experts indicating that the central bank has little option but to keep both the base interest rate and asset purchase target on hold, for fear of any detrimental effect to the UK economy from any changes. A rise in interest rates could prove extremely damaging to the UK housing market, whilst an increase in asset purchasing could trigger further inflationary pressures.

The Euro did slip slightly against the Pound, but made a small advance against the Euro yesterday, with the EUR/USD rate moving up from 1.4146 at the market open to trade at 1.4158 by the day’s close. The economic data released from Europe yesterday showed that German ZEW economic sentiment levels fell dramatically in July, from the previous reading of -9.0, down to -15.1 amid expectations for only a slight fall to -12.5. This could well be attributed to large consumer unrest in Germany, where the voting public have been more vocal in their disapproval of the constant German financial help that is being directed to weaker EU states such as Greece and Portugal.

The European economic docket today has already seen the release of annual German producer prices for June; with the reading falling from 6.1% down to 5.6%. This afternoon will see the release of Euro-zone consumer confidence figures for July; with the market forecast for a fall in confidence for July; which would be detrimental for the single-currency’ but is widely-expected due to the worsening debt situation across a large proportion of the Euro-zone.

The US Dollar did lose some ground in the currency exchange market yesterday; with the House of Representatives still struggling to find a solution to increase the US’s debt ceiling to prevent a default on debt repayments come the start of August. The market is worried by the increasing possibility that one of the world’s largest economies could default on its debt obligations; and it would send shockwaves through the world’s financial markets. There was some slightly positive data from the US yesterday in regards to the housing market, with building permits showing a good increase for the month of June, up from 609,000 to 624,000, alongside housing starts picking up from 549,000 to 629,000.

Today will also see the US economic docket focus on housing, with existing home sales figures set to report. The market is expecting a pick up in the figure, from the previous reading of 4.81 million sales to 4.90 million. This would be a good sign for the US housing market, but may not be significant enough data to make a big move on the currency market, barring any extreme surprises in the reading.

Mike Hood
KBRFX

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