Foreign Exchange Daily Market Update 26/07/11

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The Pound moved slightly lower against the Euro and the US Dollar in the foreign exchange market yesterday. The GBP/EUR rate dropped from the morning’s open of 1.1346 to trade at 1.1340 by the market’s close. The GBP/USD exchange rate also fell, but only marginally, from 1.6292 down to 1.6281 by the end of the day. It was a fairly quiet day in terms of economic data across the world’s major economies, with the only figure of note out of the UK being BBA loans for house purchases, which showed an increase for the month of June; up from 30,580 to 31,747.
Today will see the market focus on 2nd quarter GDP figures form the UK. Analysts are almost certain in their predictions to see the growth rate fall, both annually, and quarterly, but the margin of this will be what influences any movement on the Pound. The figure, which is due out at 09:30 could see the Pound weaken if the growth rate falls drastically, as along with the base interest rate, economies growth in a country is one of the main draws to an influx of investor’s funds into its currency.

The Euro did move up a touch against the Pound, but fell slightly against the US Dollar yesterday. The EUR/USD rate fell marginally, from 1.4359 down to 1.4352 throughout the day, after staging a small rally during the early afternoon. There was no key economic data released from Europe yesterday to influence the currency exchange market further; but there was news of Greece having its credit rating cut once more; so despite a re-structuring package being agreed, ratings agencies see the nation as almost certain to default on its own bond repayments.

This morning has already seen the German GfK consumer confidence report show a drop in positive sentiment for the month of July, with the index falling from 5.5 to 5.4; going against market forecasts for a rise in the reading. This shows that despite Germany being one of the strongest member states in the EU, that the current debt contagion and default woes, combined with the immense amount of money being pumped into restructuring plans by the German government, the sentiment amongst the general public is worsening.

The US Dollar did make some small moves against the Euro and the Pound yesterday, but any gains were short lived as the currency started weakening back off this morning. The US economy is still facing the possibility of a default, and also a credit rating cut; which does have the potential to affect global financial markets. The currency which is often viewed as a ‘safe-haven’ in times of economic trouble, is now starting to raise concerns amongst investors, who are worried about the value of the Dollar and US treasuries should the nation have it’s rating slashed.

Today will see the release of new home sales figures for June, which are expected to show a small rise, which would be a positive boost for what is still quite a weak US housing market. The most notable data release though will be consumer confidence figures, which are set to report at 15:00, with the market forecast for a fall in the levels; which could prove to be negative for the US Dollar. Consumer confidence is usually linked to consumer spending, so a drop in the levels could tie-in to a possible slowdown in retail sales and consumer spending, which would not be positive for the overall economic picture in the US.

Mike Hood
KBRFX

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