Foreign Exchange Daily Market Update 27/07/11

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The Pound picked up marginally against the Euro, and made significant gains against the US Dollar in the foreign exchange market yesterday. The GBP/EUR rate went up slightly from the morning’s open of 1.1267 to trade at 1.1303 by the close. The GBP/USD exchange rate however; rocketed from 1.6337 to 1.6390 throughout the day, breaking the 1.6400 level in the morning. The main data event from the UK was the 2nd quarter GDP reading, which showed that the annual growth rate fell from 1.6% to 0.7%, and the quarterly rate fell from 0.5% to 0.2%. This was viewed as positive by the market though, with the quarterly rate meeting median forecasts; and not falling below market predictions, which could have been disastrous for the Pound.

Today’s economic docket from the UK will see the release of the CBI’s business optimism figure; which is expected to show a slight increase in the reading; which would be positive for the Pound.
The Euro slipped against the Pound and the US Dollar yesterday; the EUR/USD rate coming down from the morning’s level of 1.4499, to trade at 1.4486 by the market’s close. The only figure of note released from Europe yesterday was the German GfK consumer confidence figures for August, which showed a slight drop in the index, from 5.5 down to 5.4. The constant debt woes surrounding Europe, and the fact that bigger nations such as Germany and France continue to be the nations that contribute the most financially; is starting to take it’s strain on the confidence of the general public in those countries; and is not positive for the currency as low consumer confidence tends to result in lower consumer spending, and retail sales.

The European economic docket today will see the release of German CPI (inflation) figures, with the market expecting no change in the annual inflation rate of 2.4%, and with the ECB’s last 2 rate-hikes expected to maintain inflationary pressures across the Euro-zone, any drop in the level may be viewed positively by the market, as there is a theory that further monetary policy tightening from the ECB in regards to inflation could do more harm to the economy than good.

The US Dollar continued to lose ground in the currency exchange market; with time seemingly running out for Congress to reach a solution for raising the debt ceiling, to prevent a default. Despite this, yesterday’s figures showed that consumer confidence rose for the month of July, from 57.6 to 59.5; suggesting that the US public will continue to spend freely over the coming months as sentiment improves. There was some negative news though, with new home sales figures for July reporting a drop, from 315,000 sales to 312,000 amid market expectations for an increase. This reinforces the fact that the housing market is still weak in the US, and could be one of the factors that slows overall economic growth.

Today will see some high-level market data, with durable goods orders for June set to report. The figure is expected to show a drop; but the market will be wary of any surprises, and even if the figure drops, but comes in higher than expected, the currency could benefit. This afternoon will also see the release of the Federal Reserve’s beige book report; which will give an insight into current economic conditions, as surveyed throughout the Fed’s 12 districts, and draws information from economists, market experts, and key business contacts. Any increased positivity could well see the US Dollar stat to regain some ground.

Mike Hood
KBRFX

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