Foreign Exchange Daily Market Update 28/07/11

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The Pound regained some ground against the Euro, but slipped against the US Dollar in the foreign exchange market yesterday. The GBP/EUR rate picked up from the morning’s open of 1.1336 to trade up at 1.1382 by the end of the day. The GBP/USD rate however, dropped throughout the course of the day, down from 1.6415 to 1.6354 by the UK close. There was only one real figure of not released from the UK yesterday, which was the CBI business optimism reading, which fell drastically from 9.0 to -16.0, but the movements in the currency exchange market may be attributed to larger data events in the world economy than this figure.

Today will see the release of another CBI reading, for reported sales; which the market has forecast to rise from the previous level of -2.0 to a positive 2.0, but the market will be aware of a similar surprise like yesterday’s business optimism reading, which was also expected to show positive gains.

The Euro fell against the Pound and the US Dollar yesterday; the EUR/USD rate plummeting from 1.4480 down to 1.4370 throughout the day. Economic data from Europe was thin on the ground yesterday, with the main focus on July’s German CPI (inflation) reading, which showed that price growth increased by 0.5% throughout the month; which is not necessarily positive news for the currency. The ECB has hiked the base interest rate in Europe twice this year to combat inflation and this figure shows that their measures may not be working fully across the Euro-zone, and they may need to tighten further in the coming months. The worry is though, that further tightening of monetary policy could do more harm than good, with EU member nations with high debt loads already struggling, and further rate hikes could push them to the edge.

This morning has already seen the release of German unemployment change figures for the month of July; with the reading showing -11,000 jobs, down on the previous months’ reading, but slightly better than the market forecast for around -15,000 jobs. Later on will see the release of Euro-zone consumer confidence figures; which are expected to show no change, but the currency could weaken if there is an unexpected drop in sentiment.

The Dollar did recover slightly against the Pound and the Euro, but continues to struggle in the face of the unresolved debt ceiling issues. There was also some negative news from the SU yesterday, with a high-level figure; durable good orders dropping drastically for the month of June, from 1.9% down to -2.1%, which is not good news for the overall economic picture.

With politicians still struggling to resolve the situation, the significance of some economic data may well fade, but the market will still look to today’s pending home sales figures for a gauge into the current state of the US housing market, a key factor in overall economic health; with the currency possibly standing to benefit from any upturn in the current levels.

Mike Hood
KBRFX

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