Foreign Exchange Daily Market Update 04/08/11

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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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