Wednesday 31 August 2011

Foreign Exchange Daily Market Update 31/08/11





The Pound lost ground against both the Euro and the US Dollar in the foreign exchange market yesterday. The GBP/EUR exchange rate fell from the mornings open at 1.1310 down to 1.1281 by the days close. The GBP/USD exchange rate showed a much deeper decline though, falling from 1.6380 to 1.6276 by the end of the day. The sole piece of economic data released from the UK yesterday however, was positive; with mortgage approvals for July showing a marked improvement, up from 48,500 approvals to 49,200; which is positive for the housing market.

There are no scheduled economic events for the UK today; so the currency will be open to shifts in risk sentiment and market data from the world’s other major economies.

The Euro made a small advance against the Pound but fell slightly against the US Dollar yesterday. The currency didn’t really receive any boosts from the economic data that was released yesterday, with Euro-zone consumer confidence figures for August showing a minimal improvement, from -16.6 up to -16.5, the index reading still at levels that are the lowest since 2008. Euro-zone business climate indicator figures were also poor, with the reading falling from 0.44 to 0.07, showing an increasingly negative outlook from industry leaders towards current conditions and the state of the overall economy.

This morning has already seen the release of numerous figures form Europe; with German retail sales showing a slight increase annually, from -2.1% to -1.6%, but falling month-on-month, from 4.5% down to 0.0%. Germany’s labour market has come under close scrutiny with the unemployment rate holding firm at 7.0% for August, and the unemployment change showing the labour market lost less jobs, -8,000 as opposed to the previous month’s revised level of -10,000. Later today we will see the release of Euro-zone CPI (inflation) estimates, and also the latest Euro-zone unemployment rate. The currency could come under pressure if there is any disappointment in either figure.

The US Dollar made good gains against both the Euro and the Pound yesterday, despite a huge fall in US Consumer Confidence for August. The EUR/USD exchange rate pulled back from 1.4481 at the morning’s open, to 1.4426 by the day’s close, in spite of the consumer confidence figure plummeting from 59.2 down to 44.5, with the currency exchange market pricing in a level of around 52.0. The drop though, does add fuel to speculation that the Federal Reserve may look to start pressing on with further economic stimulus to prevent the nation falling into a double-dip recession. The release of the minutes from the Federal Reserve’s last policy meeting last night backed this up; with three out of 10 voting officials disagreeing with chairman Ben Bernanke's decision to announce he plans to keep rates close to zero for another two years. Details of the minutes showed that some officials favoured far bolder action than that taken, arguing for a third round of asset purchases (quantitative easing). The minutes stated that "A few members felt that recent economic developments justified a more substantial move, with participants noting deterioration in labour market conditions, slower household spending, a drop in consumer and business confidence and continued weakness in the housing sector."

Today will see the ‘deteriorating’ US labour market come under close scrutiny, with the release of ADP employment change figures for August; with the market forecast for a slight decrease in the number of jobs added, from 114,000 down to 103,000. Traditionally, any signs of weakness should see a currency fall in value, but as with yesterday’s market movements it may well be that the negative data is only serving to increase the likelihood of monetary stimulus from the Federal Reserve, which in the long term should benefit overall economic growth. Factory Orders figures for July will also cross the wires this afternoon, with the market forecast for a positive increase in the index reading.

The Market Team @ KBRFX - info@kbrfx.com





Tuesday 30 August 2011

Foreign Exchange Daily Market Update 30/08/11







The Pound held very narrow trading ranges against both the Euro and the US Dollar in the foreign exchange market yesterday; as would be expected with a bank-holiday in the UK. With no data at all released from the UK, the GBP/EUR exchange rate ended the day at 1.1298, and the GBP/USD exchange rate was at 1.6395. The overwhelming movement for the Pound across last week was down, against both the Euro and the US Dollar, with a combination of poor economic data, and lukewarm growth figures seeing no increased positivity towards the currency.

This morning has seen the release of some positive data from the UK, with mortgage approvals for July showing a marked improvement from 48,500 to 49,200. The rest of the week ahead holds only a small amount of influential UK economic data, with consumer confidence, house prices, and PMI manufacturing figures the only highlights in a week that will be dominated by high-level data from Europe and the US.

The Euro hardly moved against the other major currencies in the currency exchange market yesterday, despite the release of CPI (inflation) data, which showed that price-growth in Germany is slowing, the annual inflation rate falling from 2.4% to 2.3%, and monthly from 0.4% to -0.1%. The EUR/USD exchange rate was hardly affected, as the mornings open at 1.4529 was practically unchanged throughout the day; the exchange rate trading at 1.4511 by the market close.

This morning has seen the release of Euro-zone consumer confidence for August, with the reading of -16.5; a touch up from the previous months’ level of -16.6, but still near the lowest levels since 2008; not being a positive result for Europe, and in turn it’s currency. The rest of the week is data-heavy from Europe, particularly it’s strongest economy, with the German labour market set to come under scrutiny tomorrow, and the focus to shift to GDP and PMI later in the week, with Euro-zone PPI figures poised to move the market should there be any surprises on Friday.

The US Dollar recovered well against the Pound, but overall lost ground against the Euro despite making some good gains at various points during the week. Figures released yesterday from the US showed that both personal income and personal spending increased for the month of July, from 0.2% to 0.3%, and -0.1% to 0.8% respectively; which is a good indication towards overall economic growth, and increased consumer confidence.

This will be tested today with the release of US consumer confidence figures for August, and the market will also be looking closely at the minutes from the Federal Reserve’s last policy meeting which will be released this evening. It is widely accepted that the Federal Reserve will not be affecting the base rate until well into next year at the earliest, but there could be some indication into the central bank’s view on further quantitative easing, with the possibility of further stimulus to try an improve growth levels as the US economy is still in a fairly fragile state.

The Market Team @ KBRFX

Friday 26 August 2011

Foreign Exchange Daily Market Update 26/08/11


The Pound ended yesterday almost unchanged against the Euro, but lower against the US Dollar in the foreign exchange market. The GBP/EUR exchange rate which opened at 1.1326 had a small pick-up mid afternoon, but ended the day at 1.1327. The GBP/USD exchange rate fell from the mornings open at 1.6372 to 1.6284 by the days close. The economic data released from the UK yesterday was negative, with CBI reported sales figures for August showing a marked decline, from -5 to -14. The main reason that the market attributed the Pound’s weakness against the Dollar however was the expectation that the Federal reserve Chairman Ben Bernanke will be announcing further monetary stimulus in the US today, which will help to improve the economic outlook for the US.

This morning has seen the final reading of 2nd quarter GDP from the UK. The result was unchanged from the previous reading with the annual growth rate showing 0.7% and the quarterly growth rate showing 0.2%. The currency market showed little reaction to the release, which was widely expected to be unchanged.

The Euro lost ground against the US Dollar following the increased positive sentiment towards the US, but the single-currency held firm against the Pound. The EUR/USD rate fell throughout the day, from 1.4454 down to 1.4374. There were no significant data releases from the Euro-zone yesterday to further affect movements on the currency exchange market.

Today’s European economic docket is devoid of any data releases, leaving the currency open to risk sentiment, and news from the world’s other major economies.

The US Dollar made good gains across the board yesterday, with increased positivity towards the nation anticipating the addition of further monetary stimulus - QE3 to the economy at Fed Chairman Bernanke’s speech at Jackson Hole this afternoon. Figures yesterday showed that the US labour market still remains a little unsteady though, with continuing claims falling for the month; from 3,721,000 to 3,641,000, but initial jobless claims increasing from 412,000 to 417,000.

This afternoon contains a lot of significant economic events for the US, with the potential to make big moves on the currency markets. Before Bernanke’s speech, we will see the final reading of 2nd quarter GDP from the US, as well as the University of Michigan confidence survey results for August. Despite the Dollar showing a marked appreciation through most of this week, any disappointments in terms of economic growth of confidence could be damaging to the currency.

The Market Team @ KBRFX

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Thursday 25 August 2011

Foreign Exchange Daily Market Update 25/08/11


The Pound started to fall against both the Euro and the US Dollar in the foreign exchange market throughout yesterday. The GBP/EUR exchange rate fell from the mornings open at 1.1439 down to 1.1369 by the end of the day; with the GBP/USD exchange rate also slipping from 1.6476 down to 1.6368 by the days close. The Pound is coming under pressure with the market speculating that the Bank of England may expand its asset purchase program in the near-term, in the face of a slowing recovery; to prevent the nation falling back into recession.

Overnight we have seen the release of Nationwide consumer confidence figures; with the level falling slightly from 51 to 49, but coming in above expectations for a deeper slide to 45. This morning will see the release of CBI reported sales figures for August, with the market forecast for a drop in sales, the index expected to fall from -5 to -10, which could put the Pound under further pressure.

The Euro started to reverse some of its earlier losses against the Pound yesterday, and finished the trading day almost unchanged against the US Dollar. Despite a disappointing economic docket, the EUR/USD exchange rate ended the day at 1.4395, almost exactly as the market open at 1.4393. A negative outlook for Germany was reinforced yesterday, with IFO surveys showing a drop in business climate, current assessment, and expectation readings for the month of August. Euro-zone industrial new orders also fell; annually from 13.8% down to 11.1% and month-on-month from 3.6% to -0.7%.

This morning has seen the release of German GfK consumer confidence figures, with unsurprisingly a small drop in the reading, from 5.3 to 5.2, but the currency has remained largely unaffected. Aside from French labour market figures later this afternoon; which should have little to no effect on the currency markets; there are no significant pieces of economic data scheduled for release from Europe today.

The US Dollar regained some ground against the Pound yesterday, but showed little overall gain against the Euro despite making a small surge during the mid-afternoon. There was positive news from the US yesterday, with durable goods orders surprisingly rising for the month of July; from -1.9% up to 4.0%, and the house price index showing a positive gain, from 0.4% to 0.9%.

Today will see the release of initial jobless claims, and also continuing claims figures from the US. Despite both figures being classed as fairly low-level, any rapid shifts to either the up or downside, would have the potential to have a knock-on effect to the currency exchange markets.

The Market Team @ KBRFX

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Wednesday 24 August 2011

Foreign Exchange Daily Market Update 24/08/11


The Pound made a small gain against the Euro, but lost ground against the US Dollar in the foreign exchange market yesterday. The GBP/EUR exchange rate picked up from 1.1436 at the mornings open to trade at 1.1445 by the market close, while the GBP/USD rate fell from 1.6543 to 1.6506 throughout the day. The sole piece of economic data released from the UK yesterday was positive, with the BBA loans for house purchase figure showing a marked increase for July; up from 32,123 to 33,417, way above the market forecast for levels closer to 31,750.

There is no scheduled data for release from the UK today, so the currency will be open to any shifts in sentiment, and data from the world’s other major economies.

The Euro lost ground against both the Pound and the US Dollar yesterday; the EUR/USD rate falling from 1.4465 in the morning to 1.4421 by the end of the day. There was quite a lot of data released from Europe yesterday; with French, German, and Euro-zone PMI showing a mainly negative picture overall, for the manufacturing and services sectors. The ZEW economic sentiment surveys for Germany and the Euro-zone also showed disappointing drops, from -15.1 to -37.6 and from -7.0 to -40.0 respectively. Euro-zone consumer confidence also fell for the month of August, from -11.2 to -16.6, which put the currency under a lot of pressure.

This morning we have already a seen a further dent to sentiment in Europe, with the release of German IFO figures for business climate, current assessment, and expectations; with all three figures showing a marked drop; the reading for expectations (for the German economy in the coming months) falling to it’s lowest level for nearly a year.

The US Dollar regained some ground against the Pound and the Euro in the currency exchange market yesterday. Data released from the US wasn’t positive, with new home sales figures for July showing a sharp decline, from 312,000 sales to 298,000 sales.

Today will see the release of durable goods orders for July, and monthly and quarterly house price index readings. The market is forecasting a large increase in durable goods orders, which could well benefit the dollar, and should the housing market figures display any increased positivity; this too could hep boost the dollar.

The Pound has also been maintaining good levels against the Aussie Dollar, with the GBP/AUD rate picking up overnight from 1.5652 to 1.5743; which is a welcome boost for expats looking to move funds from the UK across to Australia, who have been suffering with low rates for many months.

The Market Team @ KBRFX

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Monday 22 August 2011

Foreign Exchange Daily Market Update 22/08/11


The Pound finished last week decidedly higher against both the Euro and the US Dollar in the foreign exchange market. The GBP/EUR exchange rate which opened on Monday at 1.1385 fell to a low of 1.1324 on Monday afternoon, before soaring to a high of 1.1554 on Friday morning, before settling at 1.1484 by the close on Friday. The GBP/USD exchange rate followed a similar pattern, opening at 1.6292, which was near the low of the week at 1.6280 on Monday morning, before reversing throughout the week to break 1.6613 on Friday afternoon, closing at 1.6552.

The economic data released from the UK was quite mixed; with Tuesday seeing CPI (inflation) figures showing a small rise, both annually, from 4.2% to 4.4%, and month-on-month from -.01% to 0.0%. Wednesday was not so positive though, with jobless claims increasing from 31,300 to 37,100 for the month, the claimant count rate rising from 4.8% to 4.9%, and the overall unemployment rate in the UK increasing from 7.7% to 7.9%. Wednesday morning also saw the release of the minutes from the Bank of England’s last policy meeting which showed a complete majority vote of 9-0 in favour of keeping the base interest rate on hold, with the MPC stating that ‘’the slowing in world demand growth’’ contributed to their decision, and that despite the central bank expecting inflation to peak near 5.0% this year, weak economic growth will cause inflation to fall quicker than earlier anticipated. There was an indication though that the bank may be paying serious consideration to further quantitative easing should it be required. The UK’s economic docket rounded off on Thursday with disappointing retail sales figures; the annual rate slowing from 0.2% to -0.2%, and monthly from 1.0% to 0.2%.

This coming week is not overly data heavy in terms of UK economic data. Tuesday will see the release of BBA loans for house purchase figures for July, with the market forecast for a slight increase in the number of loans approved. Thursday will also turn the spotlight onto the housing market; with the release of Nationwide house prices; which showed a negative contraction last month. Friday is the biggest risk event of the week for the UK, with the release of 2nd quarter GDP figures. The currency exchange market will be primed to react to any deviation in the expected levels of 0.2% growth quarterly, and 0.7% annually, with any downside disappointment having the potential to weaken the Pound.

The Euro did gain some ground against the US Dollar last week, despite making heavy losses versus the Pound. The EUR/USD rate which opened on Monday at 1.4309, picked up to a high of 1.4517 on Wednesday before falling down to the week’s low of 1.4258 on Friday morning, recovering to trade at 1.4410 by the market close on Friday.

The overall tone from the European economic docket last week was negative; with Tuesday’s German and Euro-zone combined 2nd quarter GDP figures showing a sharp drop in growth. The German annual n.s.a. rate fell from 5.0% to 2.8%, the annual w.d.a. rate from 4.7% to 2.7%, and quarterly from 1.3% to 0.1%. The Euro-zone combined result was also lower, with the annual rate falling from 2.5% to 1.7%, and quarterly from 0.8% to 0.2%. Wednesday saw Euro-zone CPI (inflation) figures cross the wires; and the result was a fall in inflationary pressure. The annual level held at 2.5%, while the monthly level fell from 0.0% to -0.6%, which takes pressure off the ECB to look at raising rates anytime soon. The European docket rounded off on Friday with German producer prices showing an increase, both annually and monthly, from 5.6% to 5.8%, and 0.1% to 0.7% respectively.

The week ahead for Europe does contain a fair amount of economic data. Tuesday will see the release of German and Euro-zone ZEW economic sentiment survey results, with the market forecast for an increase in negative sentiment based on the current debt woes and weak market conditions across Europe. Wednesday will focus on PMI figures, again from Germany and the Euro-zone combined. The expectation is for manufacturing, services, and the composite figure to all show declines for the month of August; which would not be beneficial for the currency. Wednesday will also see the release of German IFO business climate, current assessment, and expectations surveys, which will give some insight into business sentiment for the nation. The week will conclude on Friday with German producer prices figures, which are expected to show an increase, both annually and monthly.

The US Dollar continued to suffer last week in the foreign exchange market, as the increased media speculation that one of the world’s biggest economies could be heading back into recession put huge pressure on the currency and US markets.

The economic docket from the US last week was pretty mixed. Monday saw a sharp drop in Net long-term TIC flows (the amount of funds flowing into the US for stocks/bonds/securities), from 24.2 billion dollars, down to 3.7 billion; which isn’t really a surprise following the nations credit rating cut. Tuesday saw a downturn in building permits and housing starts, but an increase in industrial production. Wednesday saw price pressures increase, with PPI figures showing an increase annually from 7.0% to 7.2%, and from 2.4% to 2.5%. Thursday’s market focus was on inflation, with CPI figures showing a slight increase in price growth annually (excluding food & energy) from 2.4% to 2.5%, but the overall level holding steady at 3.6%. There was some disappointment on Thursday, with existing home sales showing a drop, from 4.84 million sales, down to 4.67 million, which highlighted the weakness in the US housing market.

This week’s US economic docket will kick-off on Tuesday with new home sales figures; the market forecast for an increase from 312,000 to 315,000. Wednesday will see the release of durable goods orders, which are also expected to see an increase, so the US dollar could well benefit from increased fundamental positivity. Friday will be a major day fro the US, with the release of 2nd quarter GDP figures, as well as Federal Reserve Chairman Ben Bernanke speaking at Jackson Hole; where many analysts are predicting that he will announce a further round of monetary stimulus/quantitative easing to try and boost the economy (QE3), as the US is currently facing a glum outlook.

The Market Team @ KBRFX

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Thursday 18 August 2011

Foreign Exchange Daily Market Update 18/08/11


The Pound made good gains against the Euro, and soared against the US Dollar in the foreign exchange market yesterday. The GBP/EUR rate moved up from the morning’s open at 1.1420 to 1.1486 by the end of the day, with the GBP/USD exchange rate rising from 1.6434 up to 1.6577 by the close of the UK business day. The morning’s economic data from the UK however was not entirely positive; with the unemployment rate rising from 7.7% to 7.9%, the claimant count rate also increasing, from 4.8% to 4.9%, and jobless claims rising from 31,300 to 37,100 for the month of July. The minutes released from the Bank of England’s last policy meeting showed a complete majority vote of 9-0 in favour of keeping the base interest rate on hold, with the MPC stating that ‘’the slowing in world demand growth’’ contributed to their decision, and that despite the central bank expecting inflation to peak near 5.0% this year, weak economic growth will cause inflation to fall quicker than earlier anticipated. There was an indication though that the bank may be paying serious consideration to further quantitative easing should it be required.

This morning has seen the release of UK retail sales figures for July, with the index showing a drop from 0.2% down to -0.2% annually, and month-on-month from 1.0% down to 0.2%. The Pound did weaken slightly on the figure’s release.

The Euro lost ground against the Pound, but made some small gains against the US Dollar yesterday; the EUR/USD exchange rate picking up from 1.4390 in the morning, to 1.4431 by the day’s close. The economic docket from Europe yesterday showed that CPI (inflation) in the Euro-zone held steady, the overall annual rate stalling at 2.5%, with the core index reading falling slightly, from 1.6% to 1.2%. Despite the drop against the Pound, the gain against the US Dollar may be attributed to the increased market sentiment and media coverage in regards to the possibility of the US sliding back into recession.

There are no economic events of real note scheduled for Europe today, so the currency will be open to shifts in market sentiment, and news from the world’s other major economies.

The US Dollar fell heavily against the Pound, and also slid against the Euro yesterday. The currency is facing fierce pressure in the market, as many leading market experts are tipping the nation to fall back into recession. Despite an additional $600 billion being pumped into the US economy in the last 9 months, overall growth has been well down on the previous year, and with the labour market showing increased weakness; house prices falling, and mortgage applications down there are fears that the US may suffer a ‘double-dip’. Economic data released from the US yesterday showed that the producer price index rose annually, from 7.0% to 7.2%, and excluding food and energy; rose from 2.4% to 2.5%.

Today will see the release of quite a bit of data from the US. Existing home sales figures are set to cross the wires this afternoon, along with the latest Philadelphia Fed index reading. The main focus though is likely to be on the release of CPI inflation figures, with the market forecast for a slight drop in the overall level of price-growth, from 3.6% to 3.3%, but excluding food and energy a small rise is expected; from 1.6% to 1.7%. Increased inflation would but pressure on the Federal Reserve, who have already stated they will be keeping the base interest rate at the current level well into 2012, possibly 2013.

The Market Team @ KBRFX

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Wednesday 17 August 2011

Foreign Exchange Daily Market Update 17/08/11


The Pound made good gains against both the Euro and the US Dollar in the foreign exchange market yesterday. The GBP/EUR rate picked up from the mornings open at 1.1349 to trade at 1.1392 by the end of the day. The GBP/USD also rose throughout the day, from 1.6339 to 1.1422 by the day’s close. The UK’s economic docket yesterday showed that annually, consumer prices (inflation) rose from 4.2% to 4.4%, and monthly from -0.1% to 0.0% flat. The Bank of England have previously indicated that they expect inflation to peak at around 5.0% in the medium-term, before falling back naturally, so this was not to much of a shock to the market.

This morning will see the release of the minutes from the Bank of England’s last policy meeting, with the currency exchange market likely to take direction from any change in either the voting numbers, or rhetoric. The UK’s labour market will also come under scrutiny; with the release of jobless claims figures, claimant count rate, and the overall unemployment rate. The Pound could potentially make sharp moves if there are any surprises in the numbers.

The Euro weakened against the Pound, but made a small gain against the US Dollar yesterday. The EUR/USD rate picked up from 1.4396 to 1.4414 throughout the day. The drop against the Pound can be attributed to very disappointing GDP figures, from Germany and the Euro-zone as a whole. German growth fell annually from 4.7% to 2.7%, and quarterly from 1.3% to 0.1%, well below the market forecast. Euro-zone combined GDP also dropped sharply, from 2.5% to 1.7% annually, and quarterly from 0.8% down to 0.2%.

Today will see the release of Euro-zone CPI (inflation) figures; with the market expecting no change in price growth; which will be welcomed by the ECB, as a slowing in the growth rate will justify their two rate-hikes that have been implemented so far this year.

The US Dollar lost ground against the Euro and the Pound yesterday, with the economic data released showing a mainly negative picture. Housing starts fell for the month, down from 613,000 down to 604,000, with building permits also showing a decline, from 617,000 to 597,000. There was a slight positive, with industrial production showing a small increase, from 0.4% to 0.9% for the month of July.

The US economic docket today will focus on producer prices for July, with the headline annual index reading expected to hold at 7.0%, with the index excluding food and energy forecast to fall slightly from 2.4% to 2.3%. The US currency could benefit from any negative reaction to the UK’s Bank of England minutes, or the European inflation figures; with it’s status as a safe-haven currency still providing some comfort despite the nation’s reduced credit rating.

The Market Team @ KBRFX

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Tuesday 16 August 2011

Foreign Exchange Daily Market Update 16/08/11


The Pound fell against the Euro but gained against the US Dollar in the foreign exchange market yesterday. The GBP/EUR rate fell from the mornings open at 1.1385 down to 1.1337, whilst the GBP/USD exchange rate soared from 1.6292 at the market open to 1.6389 by the end of the day. There were no pieces of economic data released from the UK yesterday, with the market movements base don sentiment and news from the world’s other major economies.

This morning will see the release of CPI (inflation) figures from the UK, with the headline annual rate expected to rise annually from 4.2% to 4.3%, but month-on-month to hold at -0.1%. The core annual rate is expected to rise from 2.8% to 3.0%, and should the results follow the market forecast, it could well put pressure on the Bank of England to rethink their current stance on maintaining policy, as they expect inflation to fall naturally in the medium term; but a sustained rise would go against this outlook.

The Euro gained against both the Pound and the US Dollar yesterday; the EUR/USD rate rising throughout the day from 1.4309 to 1.4456 by the close. As with the UK, there were no key data releases from the Euro-zone yesterday, but with the market trying to predict the outcome of this morning’s German GDP figures and the news that the ECB was diverting around 14 billion Euros into purchasing Italian and Spanish securities to try and instil some strength back into European markets, the single-currency showed good gains.

This morning the Euro has come under some fierce pressure already this morning, with the release of 2nd quarter GDP figures from Germany showing that the economy regarded as the strongest in the Euro-zone showed a huge drop in economic growth. The annual n.s.a rate fell from 5.0% to 2.8%, with the annual w.d.a rate also falling from 4.7% to 2.7%, while the quarterly growth rate fell heavily from 1.3% to 0.1%. The quarterly growth rate was below that of Italy and France, and with the market expecting a quarterly gain of around 0.5%, European markets have fallen, and the currency has weakened slightly. Later on this morning will see the release of the composite Euro-zone GDP figures for the 2nd quarter; and following the disappointment of the German release, traders will watch the result of this closely with the currency exchange market primed for sharp movements should there be any further negative development.

The US Dollar fell against the Pound and the Euro yesterday, as the market still comes to terms with the nation’s credit rating cut, and the Federal Reserve indicating that they are adverse to any changes in the base interest rate until at least 2013. The main data release of note from the US yesterday was the net long-term TIC flows figure, which showed that the inflow of funds into US stocks and securities fell heavily, from the previous months level of $24.2 billion down to $3.7 billion, which could well be as a direct result of the nation’s credit rating cut; with investors looking to divert funds elsewhere.

Today will see the release of building permits, housing starts, and industrial production figures from the US. With the housing market still fairly weak, the currency may see small gains if the figures show a positive gain; whilst the market forecast is for industrial production to show a slight gain for the month, which may help the Dollar regain some it’s losses from yesterday.


The Market Team @ KBRFX



Monday 15 August 2011

Foreign Exchange Daily Market Update 15/08/11


The Pound ended last week lower against the Euro and the US Dollar in the foreign exchange market. The GBP/EUR rate opened on Monday at 1.1440, falling to a low of 1.1253 during the week before recovering to trade at 1.1436 by the close on Friday. The GBP/USD rate followed a similar pattern, opening at 1.462 on Monday, which was the highest point of the week; falling to 1.6110 before coming back to trade at 1.6280 by Friday’s close. The main economic events of last week in the UK saw industrial production rise, from -0.9% to -0.3%, manufacturing production fell; from 2.8% down to 2.1%, and the UK’s trade balance widened, from -£8.467 billion to -£8.873, reinforcing the nation’s reliance on imported goods and poor export levels. Wednesday saw the Bank of England release their latest inflation report, with the bank taking a very dovish stance towards policy. Governor Mervyn King indicated that he expects inflation to fall back below the bank’s target level of 2.00% in the medium-term, and that they have cut their growth forecasts because of weakness in the global economy, citing the Euro-zone debt crisis as a possible dampener to the UK’s economic prospects. Many market experts are now predicting that the bank may not start raising interest rates until well into 2012, and this could be a possible reason that the Pound lost ground against the Dollar.

The week ahead will see some high-level market data from the UK, with Tuesday seeing CPI (inflation) and retail price index figures cross the wires. Wednesday will be focused heavily on the release of the minutes from the Bank of England’s last policy meeting; with the currency exchange market almost certain to take direction from any shift in the central bank’s voting majorities or stance on monetary policy; alongside the release of the jobless claims change, and unemployment rate figures for July. Thursday will see the release of retail sales figures, with the market forecast for a drop in sales, which could be detrimental to the pound; as lower consumer spending can be an early indication of economic slowdown. The week will round off on Friday with the release of public finance figures and public net borrowing levels; which are both expected to see a sharp drop, courtesy of government cuts, which in a way will be welcomed as the UK tries to trim its balance sheet, but could have a detrimental effect to the overall economy.

The Euro did suffer in the market last week, ending lower against the US Dollar but regaining some of its earlier losses against the Pound. The week saw a fairly negative picture in terms of economic data from Europe; with Euro-zone investor confidence falling sharply from 5.3 to -13.5, Germany’s trade balance also fell, with the positive surplus contracting from 14.8 billion Euros to 12.7 billion. German CPI (inflation) held its annual level at 2.4%, and French 2nd quarter GDP fell drastically; the annual rate falling from 2.2% to 1.6%, and quarter-on-quarter from 0.9% to 0.0%. There was quite a big focus on the European Central Bank’s monthly report on Thursday; with the central bank indicating that that the last two rate-hikes; whilst questioned by some in the market were warranted, given the upside risks to price stability. The report enhances the bank’s stance towards inflation; that they aim to keep price-growth close to 2.0%, which in turn they believe will support economic growth and job creation in the Euro area. The rhetoric is that the bank will keep policy ‘accommodative’ to support its aims, and will ‘monitor very closely all developments with respect to upside risks to price stability’.

This week will see the release of German and Euro-zone GDP figures on Tuesday, with the market primed to pile further pressure on the Euro should growth levels stall; or even worse fall below current levels. Wednesday will see the release of Euro-zone CPI (inflation) figures, with the market forecast for no change in either the core or overall level, which would suggest that the ECB’s previous two rate-hikes have served to contain inflation. The week will conclude on Friday with the release of German producer price index levels, with the annual rate expected to fall from 5.6% down to 5.3%, and the monthly figure to have stalled at 0.1%, which will not be positive for the single-currency.

The US Dollar managed to show a positive gain against both the Pound and the Euro throughout last week. The EUR/USD rate showed a shift in positive sentiment towards the Dollar across the week, the exchange rate coming down from Monday’s open at 1.4356 to trade at 1.4235 by the close on Friday. During the week, the Dollar did suffer slightly, with the Federal Reserve keeping the base rate on hold, and indicating that it may not consider altering the rate until well into 2013. The monthly budget statement released on Wednesday showed that the US’s negative balance was reduced slightly, from -$165 billion to -$129.4 billion, a positive sing; but this was countered by Thursday’s trade balance figure showing an increase in the US’s trade deficit; from -$50.8 billion to -$53.1 billion. The week ended on a negative note, with the university of Michigan survey showing a sharp decline, from 63.7 down to 54.9.

The US economic docket this week will see some significant data, with Tuesday seeing building permits, housing starts, and industrial production all reporting. Wednesday will see Us producer price figures cross the wires, with the market forecast for no change in the current level of 7.0%. Thursday is a data-heavy day, with CPI (inflation) figures set to report, and the currency will be sure to take direction from an expected drop in price-growth. There will also be existing home sales figures released on Thursday, with no data set for release on Friday.

The Market Team @ KBRFX

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Thursday 11 August 2011

Foreign Exchange Daily Market Update 11/08/11


The Pound made good gains against the Euro, but fell slightly against the US Dollar in the foreign exchange market yesterday. The GBP/EUR rate moved up from the morning’s open at 1.1307 to 1.1394 by the end of the day; however, the GBP/USD exchange rate dropped throughout the day, from 1.6258 down to 1.6179. The main economic event in the UK yesterday was the Bank of England’s inflation report; with the bank taking a very dovish stance towards policy. Governor Mervyn King indicated that he expects inflation to fall back below the bank’s target level of 2.00% in the medium-term, and that they have cut their growth forecasts because of weakness in the global economy, citing the Euro-zone debt crisis as a possible dampener to the UK’s economic prospects. Many market experts are now predicting that the bank may not start raising interest rates until well into 2012, and this could be a possible reason that the Pound lost ground against the Dollar.

Today will see the release of the Nationwide Consumer Confidence report from the UK, with any sharp drop in the reading likely to affect the currency. The report will give an insight into areas of worry for consumers, and their assessment of the current economic situation.

The Euro fell against the Pound and the US Dollar yesterday, with the currency exchange market seeing a shift away from the single-currency as there is still a feeling amongst many experts that despite the ECB’s purchase of Spanish and Italian securities, there is a possibility that should one of the nations start to struggle with increased debt loads, there may not be enough funding available to bail them out. The only economic data of note from Europe yesterday was German CPI (inflation) figures which showed that price-growth held at 2.4% annually; which is still above the bank’s target; but crucially is not rising, which lessens the pressure on the ECB to continue hiking rates.

This morning has seen the release of the ECB’s monthly report, with the central bank indicating that that the last two rate-hikes; whilst questioned by some in the market were warranted, given the upside risks to price stability. The report enhances the bank’s stance towards inflation; that they aim to keep price-growth close to 2.0%, which in turn they believe will support economic growth and job creation in the Euro area. The rhetoric is that the bank will keep policy ‘accommodative’ to support its aims, and will ‘monitor very closely all developments with respect to upside risks to price stability’.

The US Dollar made impressive gains across the market yesterday, with dropping growth prospects in the UK and the debt contagion issues in Europe seeing an inflow of funds into the Dollar. The EUR/USD rate fell, from 1.4378 down to 1.4198 by the market close. There was also some positive news from the US with, the monthly budget statement showing a decrease in the negative balance, from -$165 billion to -$129.4 billion.

Today will focus on the release of the US trade balance figures. The nation relies heavily on imported goods, so has a constant deficit, but the currency may weaken slightly if this increases month-on-month.

The Market Team @ KBRFX

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Wednesday 10 August 2011

Foreign Exchange Daily Market Update 10/08/11


The Pound fell against both the Euro and the US Dollar in the foreign exchange market yesterday. The GBP/EUR exchange rate dropped throughout the day, from 1.1519 in the morning, down to 1.1371 by the day’s close. The GBP/USD rate followed a similar pattern, with the morning’s open at 1.6364 sliding down to 1.6195 by the end of the day. Economic data released from the UK yesterday was not positive, despite figures showing that industrial production rose annually, from -0.9% to -0.3%; the overall picture was negative, with manufacturing production falling from 2.8% to 2.1%, and the UK negative trade balance deficit increasing from £8.467 billion to £8.873 billion.

Today, the UK market will focus solely on the Bank of England’s inflation report. The central bank is in a position at the moment where raising rates could be damaging to the economy, and the market is expecting to see the report reinforce the bank’s consistent view that the current inflation level is partly caused by commodity prices and will fall gradually over time. With a rate-hike in the UK looking a long way off, this could explain some of the losses the Pound suffered throughout yesterday, so there may be a small rally should the report make any comment towards sustained rises in inflation, which could force the bank into taking action.

The Euro strengthened against the Pound and the US Dollar yesterday. The EUR/USD rate moved up slightly from the morning’s open of 1.4207, up to 1.4242 by the close. The European economic data released yesterday showed that German’s positive trade surplus fell, from €14.8 billion down to €12.7 billion; which shows that export activity has fallen, and importing has increased. With the nation being such a strong industrial and manufacturing nation, this does cast some doubts on the health of those particular sectors.

This morning we have already seen the release of German CPI (inflation) figures, with the annual price-growth rate holding at 2.4%, still slightly above the European Central Bank’s (ECB) target; but crucially for the market, not increasing. This may indicate that the ECB’s two rate-hikes this year, are working to curb inflation across the Euro-zone.

The Dollar strengthened against the Pound, but fell slightly against the Euro yesterday. The Federal Reserve kept the nations base interest rate on hold at their meeting last night, but the decision was not without some startling comment from the central bank. The Fed warned that economic growth this year has been ‘considerably slower’ than it had expected, and the market is looking at the possibility of the nation falling back into recession. Many analysts expected to see the Fed announce some form of stimulus package to help kick-start growth, but there were no indications towards any policy of this nature, with the mood of the Federal Reserve being seen as increasingly dovish.

Today will see the release of the US’s monthly budget statement; which will give an insight into current spending levels, and also the amount of Government borrowing the US is taking on. The currency exchange market could well react as the market digests the figures, with the possibility of a bad US balance sheet affecting sentiment towards the US Dollar.

Mike Hood
KBRFX

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Monday 8 August 2011

Foreign Exchange Daily Market Update 08/08/11


The Pound gained against the Euro, but fell slightly against the US dollar in the foreign exchange market last week. The GBP/EUR rate moved up throughout the course of the week; from Monday’s open of 1.1426, reaching a high of 1.1568 late on Friday, to trade at 1.1518 at the close on Friday ; a good recovery from the week’s lowest point at 1.1364. The GBP/USD however fell throughout the week, from Monday’s open at 1.6441, down to 1.6356 by Friday, hitting a low of 1.6260. The main data events of the week from the UK saw PMI manufacturing and construction fall, from 51.4 to 49.1 and from 53.6 to 53.5 respectively. PMI services figures however, showed a slight improvement, with the level rising from 53.9 to 55.4. The Bank of England did meet during the week, but there was no change in either the base interest rate, or the asset purchase target; with the bank almost at an impasse in terms of policy. A rise in the base rate would be damaging to the housing market, and also economic growth, but any increase in asset purchasing could potentially stoke a rise in inflation.

The week ahead for the UK does contain plenty of high-level market data. Tuesday will see the release of July’s GDP estimate from the NIESR, and the market is not expecting any drastic jumps in growth; with any sort of positive figure set to be considered acceptable. There will also be figures released for industrial and manufacturing production on Tuesday, along with the latest view of the UK’s trade balance, with the market forecast for the negative trade deficit to decrease slightly, which could be positive for the Pound. Wednesday will see the release of nationwide consumer confidence figures, and also the Bank of England’s inflation report, with both events having the potential to move the currency exchange markets. With stock markets falling through the back end of last week, and riots across North London this weekend, consumer confidence may be affected, and could reflect negatively on the currency. A rise in inflation will not be welcome either, with the central bank almost having their hands ties in terms of policy.

The Euro fell across the week, amid news that Italy and Spain will require intervention from the ECB to try and raise extra capital through bond sales. The single currency fell against the US Dollar, the EUR/USD exchange rate dropping from Monday’s open of 1.4388 down to 1.4210 on Friday, with the week’s lowest point at 1.4054. The week’s economic events were not beneficial to the currency, with Euro-zone retail sales falling annually from 6.2% down to 5.9%, and the ECB keeping interest rates on hold. The accompanying press conference to the decision confirmed the stories that had been circulating in regards to the central bank purchasing securities to offset losses suffered in the markets, and this morning has seen that the ECB are focusing efforts on Spanish and Italian securities, with those two nations the most susceptible to default, along the same lines as Greece.

This week will see the European docket release some potentially market moving-data. Tuesday’s German trade balance figures could affect the currency, but with the nation renowned for its strong manufacturing industry, and high export levels it is more than likely we will see a positive result. Wednesday’s focus will turn to CPI (inflation) figures from Germany, with rate-hawks watching closely for any signs of increased price growth, which would give the green light for the ECB to implement another rate rise before the end of the year; which many analysts expect to happen. Thursday will see the release of the ECB’s monthly report for August, which will be closely watched for any shift in rhetoric, and the bank’s predictions for growth and inflation in the coming months. If there is any shift towards a rate hike before the turn of the year, expect to see the Euro appreciate despite the fact the ECB are actively involved in the bond markets to try and stabilise things.

The US Dollar clearly benefited from its safe-haven status last week, despite the last-minute rush to pass through a bill to prevent the nation defaulting. As European stock markets crashed, and the ECB had to intervene into buying securities, the US Dollar benefited, and started gaining across the board. Aside from congress passing the bill to raise the debt ceiling, it was mixed picture in terms of economic data, with ISM manufacturing for July falling, from 55.3 to 50.9, the ADP employment report showing a drop from the previous month’s level of 157,000 jobs added, down to 114,000. Friday finished on appositive note though, with non-farm payroll figures showing a sharp increase for the month, up to 117,000 from 46,000, and the overall US unemployment rate falling from 9.2% to 9.1%.

The week ahead is not data-heavy for the US, but has some very influential data. Following ratings agency Standard & poor’s cutting the US’s credit rating from AAA to AA+ over the weekend; the market will be watching to see how the nation responds. Tuesday will see the Federal Reserve’s interest rate decision meeting, and analyst’s will be hanging on to every word from Fed Chairman Ben Bernanke, for any indication into the current situation and future policy, with many market experts talking up the possibility of more quantitative easing at the start of next year. Wednesday will see the releases of the US’s monthly budget statement, with the week rounding off on Friday with Advance retail sales figures, and the University of Michigan confidence survey.

Mike Hood
KBRFX

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Friday 5 August 2011

Foreign Exchange Daily Market Update 05/08/11


The Pound made good advances against the Euro, but fell against the US Dollar in the foreign exchange market yesterday. The GBP/EUR rate moved up throughout the day, from 1.1469 to 1.1514 by the day’s close. The GBP/USD exchange rate however, fell; from 1.6357 at the morning’s open, down to 1.6303 by the end of the day. The main economic event in the UK yesterday was the Bank of England’s latest interest rate decision, and as expected there was no change to either the base rate, or the bank’s asset purchasing target. The market showed hardly any instant reaction, and it was left to bigger news from Europe to affect the currency’s movement.

Today will see PPI output figures released from the UK, with the forecast for the core level to hold at 3.2%, but the n.s.a figure to show a slight improvement from 5.7% to 5.8%. The core index figure is usually a better gauge of inflation, and the Bank of England will welcome a figure that shows no increase in inflationary pressures; but the currency exchange market may not view stagnant price growth as positive, as it lessens the chance of an interest rate-hike.

The Euro fell against both the Pound and the US Dollar yesterday, the EUR/USD rate dropping from 1.4259 down to 1.4157 throughout the day. The currency was not helped by the fact that ECB President Trichet may be forced into buying Spanish and Italian securities to try and fight against the debt contagion problem throughout the Euro-zone. At yesterday’s policy meeting, the ECB kept the base rate on hold, but with Italy and Spain’s economies seen by the market as ‘’too big to bail’’ President Trichet indicated that the bank will be purchasing bonds to try and calm the markets worries that have now diverted away from the US, towards Europe. Stock markets fell throughout Europe yesterday and also opened with losses this morning.

The European economic docket today will see the release of German industrial production figures, with the annual level set to rise from 7.6% to 8.1%, but the monthly output is expected to fall from 1.2% to 0.0%, which may not be positive for the currency, as continued lower production could lead to a slowdown in economic growth.

The US Dollar seemed to benefit from the turmoil in Europe yesterday, as it showed a marked improvement against the Pound and the Euro. Now the nation is not under threat of default, the market seems to have reverted to the Dollar as a ‘safe-haven’ currency, and with no economic data of note released form the US yesterday, the movement can really only be attributed to poor sentiment towards the UK and Europe.

Today will see some high-level market data released from the US, with the market-moving non-farm payrolls report set for release this afternoon, along with the latest unemployment rate reading. The non-farm payroll figures are expected to see a rise of 85,000, but with the figure notoriously hard to predict, and renowned for producing surprises, the currency could well see sharp movements throughout the afternoon, particularly on release.

The Australian Dollar continued to weaken against the Pound yesterday, with the GBP/AUD rate moving up from 1.5221 to break through 1.5400 and is trading above 1.5500 this morning. Despite the nation remaining almost impervious to the global recession 18 months ago, a poor labour market, combined with the worst set of retail sales figures for years, is seeing the currency face fierce pressure.

Mike Hood
KBRFX

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Thursday 4 August 2011

Foreign Exchange Daily Market Update 04/08/11


The Pound picked up against both the Euro and the US Dollar in the foreign exchange market yesterday. The GBP/EUR rate moved up from the morning’s open at 1.1447 to trade at 1.1460 by the day’s close, with the GBP/USD exchange rate rising from 1.6305 to 1.6409 throughout the day. The sole piece of economic date from the UK was PMI services figures for July, with the index showing improved growth from the previous month’s level of 53.9, up to 54.4.

Today’s main event will be the Bank of England’s interest rate meeting, with the market fully expecting no change in either the base rate, or the asset purchase target; but despite inflation remaining well above the bank’s target level of 2.0%, weak economic growth is preventing policy-makers from raising rates from their current historic low of 0.5%. There is unlikely to be any comment from the bank alongside today’s decision, with the market having to wait for the release of the minutes for the possibility of any change in the voting numbers.

The Euro slipped slightly yesterday, but did make some gains against the US Dollar, the EUR/USD rate moving up throughout the day from 1.4240, to trade at 1.4317 by the day’s close. The European economic docket yesterday was fairly positive, with Euro-zone PMI services, and the composite figure showing gains for the month of July, up from 51.4 to 51.6, and 50.8 to 51.1 respectively. Retails sales for the Euro-zone also saw impressive monthly growth, the index showing a jump form -1.3% to a positive 0.9% for the month of June. This did seem to give the currency a slight boost, despite continued claims by various news agencies that Spain will be the next European nation to seek additional funding due to its burgeoning debt-load.

The European Central Bank will be meeting today, like their English counterparts; to decide on any changes to the current base interest rate. After hiking rates twice this year to combat inflation throughout the Euro-zone, it is unlikely that the ECB will do so gain this month; but the market is expecting to see further tightening before the end of the year. Traders will be paying close attention to the post-decision press conference for any visible signs of future policy movements, and ECB President Trichet may well face some tough questions in regards to the health of periphery nations such as Spain, Italy and Portugal.

The US Dollar lost ground all across the currency exchange market yesterday, despite the fact that Congress managed to pass legislation preventing the nation defaulting on its debt repayments. The currency is still facing pressure, as the market picks apart the finer details of the bill, which contains hundreds of billions of dollars worth of cuts, which could well contribute to a slowdown in overall economic growth in the US. Yesterday saw a negative outlook in terms of economic data, with factory orders for June falling drastically, from 0.6% down to a negative reading of -0.8%. ADP employment figures for July also fell from the previous month’s level of 157,000 jobs added, with this months’ figure coming in at 114,000 jobs added. The other figure of not was the ISM non-manufacturing index, which was also a disappointment, with the level falling from 53.3 down to 52.7.

There is no economic data of note scheduled for release from the US today, with only low-level market data on the docket. The currency will therefore be open to movement based on news events and data from the world’s other major economies.

One currency worth taking note of currently is the Australian dollar, which has started to weaken against the Pound, the GBP/AUD exchange rate moving above 1.5300 from last weeks levels closer to 1.4900. Negative retail data, along with poor market confidence has seen the Aussie Dollar slide over the past few days, with investors seeing an increased chance that the Reserve Bank of Australia may start cutting interest rates before the end of the year, despite inflation remaining well above the bank’s 3.0% target. Saul Eslake, a director at the Grattan Institute, said gloomy retail sales figures - the worst since the 1990s recession - prompted investors to believe the Reserve Bank's next move was a cut.

Mike Hood
KBRFX

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Wednesday 3 August 2011

Foreign Exchange Daily Market Update 03/08/11


The Pound fell slightly against the Euro and the US Dollar in the foreign exchange market yesterday. The GBP/EUR rate opened at 1.1477 and fell to 1.1445 by the day’s close. The GBP/USD exchange rate followed a similar pattern, falling from 1.6286 down to 1.6279. The only piece of economic data of any not released was PMI construction figures, which showed a slight drop in activity, from 53.6 to 53.5, but was better than the market forecast for a reading of 53.1.

This morning we have seen the release of PMI services figures, with the index showing a positive increase for the month of July, up from 53.9 to 55.4, but there are no other scheduled releases from the UK for the rest of the day.

The Euro made small gains against the Pound and the US Dollar; the EUR/USD rate moving up from the morning’s open at 1.4190 to trade at 1.4223 by the day’s close. The European economic docket yesterday showed that Euro-zone PPI fell annually, the growth slowing from 6.2% to 5.9%, but the month-on-month figure showed a positive increase, from -0.2% to 0.0% flat. The currency may still face pressure though, with the possibility that other member nations may need additional funding and debt re-structuring similar to Greece.

Today has seen some positive news from the Euro-zone, with retail sales showing a marked increase for the month of June, the annual level picking up from -2.3% to -0.4%, and monthly rising from -1.3% to 0.9%; however; the currency exchange market didn’t show any sharp appreciation towards the currency, as the main market focus is still on the US, and its debt ceiling agreement.

The US Dollar managed to pull back slightly against the Pound, but fell against the Euro yesterday, despite Congress passing a bill that enabled the nation to raise its debt ceiling, thereby preventing it defaulting on it’s debt repayments; a situation that could have sent shockwaves through the world markets. There is still an underlying issue though, with the bill containing a large amount of cuts that must be made in various sectors, and could end up being detrimental to overall economic growth across the US. The main economic data released from the US yesterday showed that personal income in June fell, from 0.2% to 0.1, with personal spending increasing slightly from 0.1% to 0.2%.

Today will see the release of ADP employment change figures, with the forecast for fewer jobs to be added than last month, around 100,000, down from 157,000, which would not be positive news for the US labour market. US factory orders figures will also be released, along with ISM non-manufacturing data, which should there be any sharp drops, could be detrimental for the US currency.

Mike Hood
KBRFX

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Tuesday 2 August 2011

Daily Foreign Exchange Market Update 02/08/11



The Pound saw some choppy trading against the Euro yesterday and suffered heavy loses against the US Dollar. The GBP/EUR rate opened the trading day at 1.1410 where it then fell to a low of 1.1354, before finally rising to its peak of 1.1460 when the European market closed. The GBP/USD rate did not manage to make a similar recovery, instead following its open at 1.6432 the exchange rate began to drop and eventually closed the day out at a low of 1.6237. Part of the Pound's decline can be attributed to a disappointing reading for July's manufacturing Purchasing Manager's Index (PMI) which fell to 49.1 down from 51.4 to indicate a contraction in the UK's manufacturing sector.

Today the foreign exchange market will see the release of July's PMI for the construction sector with forecast's calling for the index to slip from 53.4 to 53.1. This outcome could push the Pound lower against both the Dollar and the Euro as construction growth slows. However, given yesterday's poor manufacturing PMI, its possible that an even greater drop in activity could be reported, resulting in a steeper decline in the exchange rate.

Yesterday, currency exchange traders saw the EUR/USD rate drop after the currency pair peaked at 1.4453 by mid-morning, at that point the rate fell sharply over the early afternoon to hit a low of 1.4190. On the docket July's manufacturing PMI's for France, Germany and the Euro-zone were released. The French PMI came in above expectations at 50.5, while the Euro-zone reading came in-line with market forecasts at 50.4, however Germany's PMI was announced marginally short of forecasts at 52.0 instead of 52.1.

Looking ahead, the Euro-zone Producer Price Index is expected to show that factory price growth had slowed in June to 5.9% compared to the same time last year. The outcome will mean inflationary pressures will have eased and the ECB will not have to consider carrying out another interest rate hike at the next policy meeting. This can be considered good for the Euro as it allows weaker Euro-zone peripheries a chance to grow.

The US Dollar finally recovered some lost ground against both the Euro and the British Pound. The Dollar regained its strength when confidence was restored in the US economy following Congress's agreement to raise the debt ceiling, however the Senate still needs to vote on the proposal before it's put into effect. On the data front the ISM Manufacturing index fell below expectations in July with a reading of 50.9 down from 55.3 to show that manufacturing growth has slowed. The Prices Paid sub-index also fell over the same period form 68.0 to 59.0, while Construction Spending in June picked up by 0.2% to surprise forecasters.

Headlining the US docket today will be the Senate's vote on the Debt Limit Bill that was passed by Congress yesterday. The bill seeks to raise the US debt ceiling by $900 billion while cutting the federal budget by $917 billion over the next 10 years. Should the Bill be passed by the Senate, then the US could receive a boost in confidence by the global market which in turn could see the Dollar appreciate. However before the vote, the docket is scheduled to see personal income growth slow in June from 0.3% to 0.2%, while core personal consumption for the same period will match this decline. The forecasted outcome could weigh on the Dollar ahead of the Senate's vote.


Sam Kennison

KBRFX


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Monday 1 August 2011

Foreign Exchange Daily Market Update 01/08/11


The Pound finished last week higher against both the Euro and the US Dollar in the foreign exchange market. The GBP/EUR rate picked up throughout the week, from Monday’s open at 1.1346 to close on Friday trading up at 1.1425. The GBP/USD exchange rate followed a similar pattern as well, with the rate on Monday of 1.6292 rising across the week to levels of 1.6454 on Friday. The week’s economic data was fairly positive for the UK, the main highlights being Monday’s BBA loans for house purchase figures rising beyond forecasts, and Tuesday’s 2nd quarter GDP reading coming in line with estimates amid fears of a bigger drop in growth; which would have been hugely detrimental for the currency. The week rounded off on Friday with some more positive figures, with mortgage approvals rising by 2,000 for the month of July, and Net consumer credit figures also showing an increase.

The week ahead will be mainly interest rate focused; Thursday’s Bank of England meeting is expected to see no change in either the base rate or asset purchase target; but it is the rhetoric that will be watched closely, with many analysts feeling the BoE has no other option but to sit tight. Any sense of helplessness on the part of the BoE could be detrimental to the currency; but it may well be that the market will wait for the release of the minutes before the currency exchange market is deeply affected. We will see PMI figures for manufacturing, construction and services this week; with the three readings to be released on Monday, Tuesday, and Wednesday respectively; with Friday rounding off with PPI output figures for July.

The Euro did weaken against the Pound but made a small gain against the US Dollar last week; the EUR/USD rate moving slightly from Monday’s open at 1.4359 to trade at 1.4398 by Friday’s close; the Euro rallying back from a mid-week low of 1.4228. The pressure on the currency did ease slightly with a restructuring agreed for Greece’s debt; but news has begun to filter through that Spain could be the next country in line to seek additional funding or restructuring to prevent risk of default. The market data released from Europe during the past week was fairly mixed; German CPI rising annually from 2.4% to 2.6%, but the unemployment change showing a negative change, from -8,000 jobs to -11,000 jobs. German retail sales also fell, from 3.1% to -1.0%, but the figure was above expectations so the currency did not suffer as much.

The European economic docket this week will see Euro-zone PPI figures released on Tuesday; Euro-zone retail sales on Wednesday, and German factory orders on Thursday; but the biggest event will be Thursday’s ECB interest rate decision. Whilst no change is expected in the base rate; as always the focus will turn to the following press conference and the currency will react to any change or reinforcement of rhetoric from the ECB’s president - Trichet. The week will finish off with German industrial production figures on Friday.

The US Dollar continued to suffer throughout last week, as the ongoing scenario of the nation defaulting weighed on the currency and bond markets. Economic data was fairly mixed, with consumer confidence rising on Tuesday; but durable good orders falling heavily on Wednesday. Friday was a negative day overall; with the Chicago purchasing managers index falling from 61.1 to 58.8, and the University of Michigan index also coming lower, from 63.8 to 63.7. 2nd quarter GDP figures showed a rise in the annual growth rate, from 0.4% to 1.3%, but way below forecasts of a figure of 1.8%. Quarterly though; the growth rate exceeded market expectations of a 2.0% reading, and reported at a level of 2.3%.

This week will see plenty of high-level market data from the US, amid the news that Congress are set to vote on a plan that will increase the US’s debt ceiling and prevent it defaulting. A plan has been put together; with President Obama confident of house approval, and this will go some way to settle the market, with the SU Dollar showing a slight appreciation already this morning. Today will se the release of ISM manufacturing figures, and construction spending figures; which will give some insight into the health of two very important sectors in the overall economy. Tuesday will focus on personal income and spending figures, with the results key to any future growth in the economy, and could reflect on retail sales results also. Wednesday sees the labour market come under close scrutiny, with the ADP employment change figures set to report a slight drop, which would weaken the currency ahead of Friday’s often-surprising Non-farm payroll report. The Non-farm figures traditionally stray from market estimates, and the US Dollar could see sharp movements off the back of any surprises.

Mike Hood
KBRFX

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