Foreign Exchange Daily Market Update 21/09/11

The Pound finished yesterday lower against the Euro, but slightly higher against the US Dollar in the foreign exchange market. The GBP/EUR exchange rate which opened at 1.1486 in the morning closed at 1.1477, with the GBP/USD exchange rate closing at 1.5711, up from the mornings open at 1.5699. There was no significant economic data released from the UK yesterday, which may account for the fairly narrow trading range seen throughout the day.

This morning has seen the release of the minutes from the Bank of England’s last policy meeting; which showed that the vote was unanimous (9-0) to keep the base interest rate on hold, and the decision to keep the asset purchase target at its current level was by a majority of 8-1. Comment from the policy committee said the decision on whether to expand stimulus was “finely balanced.” Most policy makers said it was “increasingly probable that further asset purchases to loosen monetary conditions would become warranted at some point,” the minutes said. “For some members, a continuation of the conditions seen over the past month would probably be sufficient to justify an expansion of the asset purchase program at a subsequent meeting.”

The Euro finished the day having dropped slightly against the US Dollar, and showing a small gain against the Pound. There was some positive news from the Euro-zone with the release of German producer prices, with the resulting figures easing some pressure on the European Central Bank (ECB) in regards to price growth/inflation. Annually, producer prices fell from 5.8% to 5.5%, and month-on-month from 0.7% to -0.3%; which suggests that in line with the ECB’s predictions, inflation in the Euro-zone will fall in the medium-term. More negative news was to follow though, with the latest German and Euro-zone ZEW economic sentiment surveys showing that there was further increased negative sentiment, the German index falling from -37.6 to -43.3, and the Euro-zone index falling from -40.0 to -44.6.

There is no scheduled data from the Euro-zone today, so the currency will be open to movements based on risk sentiment and news from the world’s other major economies.

The US Dollar lost a small amount of ground against both the Pound and the Euro yesterday in the currency exchange market. The data released from the US was mixed, with Augusts’ building permits figure showing an increase, from 601,000 to 320,000, but housing starts for the same period fell; from 604,000 to 571,000.

Today will see an important figure in August’s existing home sales figure; and this evening’s Federal Reserve interest rate decision. It is almost certain that there will be no change to the base rate; but the market is primed for any hints of further monetary stimulus (quantitative easing) which has been mooted over the past few weeks. The currency will take direction from any shift in policy or rhetoric; but with economic growth still in a fragile state, along with the nation's labour and housing markets, the central bank will have to be very careful with an potential policy moves.

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