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
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