Foreign Exchange Daily Market Update 15/09/11

The Pound lost a small amount of ground against the Euro, but gained slightly against the US Dollar in the foreign exchange market yesterday. The trading ranges were much narrower than have been seen over the past week or so, with the GBP/EUR exchange rate dropping from the mornings open at 1.1526 to 1.1499 by the days close. The GBP/USD exchange rate though did see a small gain overall, with the morning’s level of 1.5741 moving up a touch to trade at 1.5767 by the end of the day. There was some positive data from the UK yesterday; focused on the labour market. The jobless claims change for August showed a decrease in the number; from 33,700 down to 20,300; a positive sign for the labour market, with the claimant count rate holding at 4.9% , and the overall ILO unemployment rate for the 3 months to July showing no change from levels of 7.9%.

This morning will see the release of Augusts’ retail sale figures from the UK, with the market forecast for no change in the annual level, but expecting a slight decline in the monthly figure. This would not be a positive sign for the overall economy, but provided the figure is in line with market expectations the effect on the currency should not be overly detrimental.

The Euro continued to regain some of its previous losses against the US Dollar in the currency exchange market, and also advanced slightly against the Pound yesterday. Figures released from Europe yesterday showed a welcome boost for Europe’s manufacturing sector, with industrial production increasing both annually, and month-on-month, from 2.6% up to 4.2% and from -0.8% to +1.0% respectively. Some of the Euro’s strength could be attributed to that figure, with the Euro-zone’s stronger economies such as Germany relying heavily on industry, and a clear indication of healthy growth will be beneficial to the overall economic picture. CPI (inflation) figures will also cross the wires, with any increasing inflationary pressures set to pose the ECB a serious problem.

The European Central Bank will release its latest monthly report this morning, and it will be closely watched by the market to gauge the potential for policy movement and the ECB’s change in outlook for the coming months. Following the last rate meeting, it became increasingly clear that the central bank is taking a more dovish stance to policy, and is wary of deteriorating economic conditions in the Euro-zone. With the overnight index swaps market now pricing in rate cuts by the end of the year, the market will be keen to try and gain insight into future policy moves from the bank, and the currency could well be affected by this.

The US Dollar finally saw some weakness in the market yesterday, finishing the day lower against the Euro and the Pound. The EUR/USD exchange rate moved up from 1.3656 at the mornings open to 1.3710 by the end of the day, a gain of over half a cent for the Euro overall. There was disappointing news from the US yesterday, with advance retail sales for August showing a drop from 0.5% to 0.0% and retail sales less autos also falling from 0.5% to 0.1%. Lower retail sales is considered to be an early indicator of economic slowdown, and linked closely to deteriorating consumer confidence; and the currency was clearly affected by this.

Today will see release of CPI (inflation) figures from the US, along with industrial production figures and the latest Philadelphia Fed Index. The currency will draw direction from any increased positivity, which the market will be looking closely for any signs of growth in the overall economy.

This Daily Market Update is brought to you by The Market Team @ KBRFX – Exchange Rates & Foreign Currency Transfer specialists.