Foreign Exchange Daily Market Update 02/09/11

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The Pound continued to fall against both the Euro and the US Dollar in the foreign exchange market yesterday. The GBP/EUR exchange rate fell from 1.1347 at the mornings open down to 1.1328 by the days close. The GBP/USD exchange rate followed a similar pattern to the previous day, with a large slide from 1.6230 down to 1.6170 throughout the day. The economic data released from the UK yesterday was disappointing; with Nationwide house prices for August stagnant at -0.4% amid market forecasts for an increase to +0.4%, further enhancing the fragile state of the UK’s housing market. The manufacturing sector also disappointed; with the PMI manufacturing index for August falling from 49.4 to 49.0.

There are no scheduled data releases from the UK today, leaving the currency open to shifts in risk sentiment and news from the world’s other major economies.

The Euro again lost ground against the US Dollar, but gained slightly against the Pound. The EUR/USD exchange rate fell from 1.4301 down to 1.4276 across the day, the single-currency coming under fierce pressure amid a fairly poor economic docket; with 2nd quarter German GDP showing no change in the previous reading, the n.s.a growth rate level at 2.8%, and the w.d.a figure at 2.7%. German PMI manufacturing for August fell, from 52.0 to 50.9, with the Euro-zone PMI manufacturing index also falling, from 49.7 to 49.0.

Today will see the release of German PPI figures; with the market forecast for prices to rise both annually and monthly; which may not be a positive result for Europe, as rising producer prices are a good early indicator of rising inflation, which the ECB is determined to keep suppressed. With the current fragile overall economic state of the Euro-zone, rising inflation would be a serious issue, with the ECB having little room to be able to raise interest rates further after having done so twice this year already.

The US Dollar continued to show good gains in the currency exchange market, against both the Euro and the Pound; despite slightly disappointing economic data, with ISM manufacturing and prices paid for August both falling, from 50.9 to 50.6 and from 59.0 to 55.5 respectively. The currency has been finding strength on two fronts; as a safe-haven currency for investors with deep-rooted worries over the current burgeoning debt problems across Europe, and the fact that it seems almost certain that the Federal Reserve will be undertaking further monetary stimulus to boost the nation’s fragile economy.

This afternoon could see the US Dollar make sharp movements in the market, with the highly volatile Non-farm payrolls report for August. The market forecast; albeit often way off the mark, is for a drop in the reading, from 117,000 to around 65,000; which would be negative for the Dollar; but as is often the case, a revision of the previous month’s figure, and a large surprise in the current month’s level could see the currency fluctuate rapidly upon the data’s release.

The Market Team at KBRFX - www.twitter.com/kbrfx

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