Monday 26 September 2011

Foreign Exchange Daily Market Update 26/09/11

The Pound closed out last week having lost significant ground against the US Dollar, and dropping slightly against the Euro in the foreign exchange market. The GBP/EUR exchange rate opened on Monday at 1.1494, falling to a low of 1.1380 on Wednesday before recovering to trade at 1.1456 by Friday’s close. The GBP/USD exchange rate however, showed no signs of recovery, falling from 1.5729 at Monday’s open down to 1.5471 by the close of the UK trading day on Friday. There was not a great deal of data released from the UK last week, with the most significant event being Wednesday’s 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 was some slightly more positive news from the UK on Friday, with Augusts’ BBA loans for house purchase figures showing an increase from 33,734 to 35,226.

The UK’s economic docket for the week ahead will kick-off on Tuesday, with the release of September’s Nationwide house price figures which are expected to show a slight decrease annually, but there is the possibility of a rise in the monthly level. Tuesday will also see the release of September’s CBI reported sales figures, with the market forecast for a drop from -14 down to -15. There is nothing scheduled for Wednesday, with mortgage approvals and net consumer credit figures set to cross the wires on Thursday, and GfK consumer confidence figures for September will be released in the early hours of Friday morning, which will round off the week for the UK. The Pound is likely to come under more pressure from worsening sentiment across Europe as opposed to any drastic surprises in terms of economic data, with the US Dollar benefitting hugely from its ‘safe-haven’ status.

The Euro finished last week slightly higher against the Pound but lower against the US Dollar in the currency exchange market. The EUR/USD exchange rate fell from Monday’s open at 1.3684 to a low of 1.3385 on Thursday, before regaining slightly to trade at 1.3503 by the market close on Friday. In terms of economic data, the overall feeling from Europe was negative last week, with both the German and EU ZEW economic sentiment survey’s showing sharp declines, along with French, German, and Euro-zone PMI figures for manufacturing and services all falling drastically for the month of September. Euro-zone consumer confidence also fell for the month of September, from -16.5 to -18.9, to put further pressure on both the currency, and the region. As well as weak data, the currency has not been helped by speculation that the ECB may have to cut interest rates at its next meeting to try and prevent worsening economic conditions, with the EU still trying to come to a suitable plan for Greece’s current debt woes.

This morning has already seen the release of German IFO figures, with the drops in business climate, current assessment and expectation readings all not as bad as initially forecast, which is welcome news for the nation. Tuesday will see the release of German GfK consumer confidence figures for October, with the market forecast for a slight improvement. Wednesday will see German CPI (inflation) figures cross the wires, along with German Import Price index figures. Thursday continues to be dominated by German figures, with the release of the latest unemployment rate and unemployment change figures, as well as Euro-zone consumer, economic, industrial and services confidence readings, which have the potential to heap further downward pressure on the currency if the readings are poor. The European economic docket will round off on Friday with German retail sales figures being released along with the latest Euro-zone unemployment rate and Euro-zone CPI estimate for September.

The US Dollar continued to benefit from worsening conditions across Europe last week, as it showed good gains against both the Pound and the Euro. In terms of economic data, the overall picture was mixed from the US, with building permits showing a slight increase, but housing starts falling for the month of August. There was a marked improvement in existing home sales figures though, with the number shooting up to from 4.67 million to 5.03 million for August. The Dollar was boosted as well, at Wednesday’s Federal; Reserve meeting, when it was announced that the central bank will divert $400 billion to extend the overall maturity date on securities that it holds; with the intention to ‘’support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate’’.

Today will see the release of new home sales figures for August, with the market forecast for a slight decrease in the numbers, and also the release of the latest Chicago Fed national activity index. Tuesday could well se the currency make sharp moves, with the release of the highly-influential consumer confidence figures for September, with the market forecast for an increase in positive sentiment; but with the potential for a surprise, the market may well be on edge. Wednesday will see durable goods orders figures cross the wires, with Thursday seeing the release of US 2nd Quarter GDP figures, along with personal consumption and pending home sales figures. The week will close out with personal income and spending figures, along with the latest University of Michigan confidence survey.

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

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