Foreign Exchange Daily Market Update 22/09/11

The Pound finished the day lower against both the Euro and the US Dollar in the foreign exchange market yesterday. The GBP/EUR exchange rate which opened at 1.1482 fell across the course of the day to trade down at 1.1377 by the day’s close. The GBP/USD exchange rate followed a similar pattern, opening at 1.5699 and finishing the day down at 1.5625. The main economic event in the UK yesterday was the release of the minutes from the Bank of England’s last policy meeting; which showed that the vote was unanimous 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’’ with an indication that weak economic conditions could see additional stimulus being added at some point; with the comment from policy-makers that it is “increasingly probable that further asset purchases to loosen monetary conditions would become warranted at some point’’.

There are no significant data releases from the UK scheduled for today.

The Euro gained against the Pound and the US Dollar across the course of Wednesday, the EUR/USD exchange rate moving up throughout the day, up from the morning’s open at 1.6372 to trade at 1.3773 by the day’s close. There was no significant data released from Europe, with the currency benefitting from the UK central bank’s confirmation that the outlook for the UK remains weak, and that it will consider adding extra monetary stimulus to try and stabilise future growth.

This morning will see the release of PMI manufacturing, services and composite figures from France, German and the Euro-zone, with the overall expectation to see a further decline from the previous month’s levels; across the board. The Euro could face pressure in light if worsening economic data; with the potential for Greece to not receive a further round of liquidity from the IMF still a distinct possibility. The ECB has already indicated that it sees downside risks to both price and economic growth over the coming months, and despite yesterday’s advance could well weaken in the currency exchange market. The latest Euro-zone consumer confidence reading will also cross the wires today, with the market forecast for a further drop in sentiment.

The US Dollar made good gains against the Pound, but fell against the Euro yesterday. There was some surprisingly positive news from the US yesterday, with existing home sales figures for August showing a huge increase from 4.67 million to 5.03 million sales, the monthly percentage increase standing at 7.7% overall; following the previous months -3.5% decline. Yesterday evening saw the Federal Reserve announce a $400 billion asset purchasing project to try and stabilise future growth prospects in the US. The interest rate was as expected, kept on hold at the central bank’s meeting, but a majority vote of 7-3 saw the bank commit to selling short-term securities, and it will replace them with longer-term assets; the official statement reading ‘’ To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less.’’ The currency did benefit from this announcement, and advanced steadily overnight against both the Pound and the Euro.

Today will see the release of July’s house price index, and also August leading indicators figures. There is the potential for a slight drop in the lading indicators number, which would indicate a slight economic downturn, but this figure will be based on data released before the Federal Reserve’s announcement last night so may not see much reaction in the market.

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