Foreign Exchange Daily Market Update 03/10/11

The Pound ended last week higher against the Euro in the foreign exchange market; and also reversed some of the previous week’s losses against the US Dollar. The GBP/EUR exchange rate moved up throughout the week, from Monday’s open at 1.1506 to trade at 1.1623 by the close of the UK business day on Friday. The GBP/USD exchange rate followed a similar patter, advancing from 1.5451 at the open on Monday, hitting a high of 1.5713 on Thursday before falling slightly to end the week at 1.5637 by Friday’s close. There was not much in terms of economic data from the UK last week, with the highlights being a drop in CBI reported sales for September, from -14 to -15; Augusts’ mortgage approvals showing a good gain from 49,600 to 52,400, and net consumer credit increasing from 0.3 billion pounds to 0.5 billion pounds.

The week ahead is also fairly light in terms of data releases; but does contain some high-level figures. September’s PMI figures for manufacturing, construction, and services will be released on Monday, Tuesday, and Wednesday respectively. Wednesday will also see the release of the final reading of 2nd quarter Gross Domestic Product (GDP) from the UK. The market expectation is for the quarterly growth rate to remain at 0.2%, and annually at 0.7%; which is not hugely impressive, but it will be crucial for the figure to not see any downward revisions to help the Pound maintain its position within the market. Thursday will see the Bank of England announce this month’s interest rate and asset purchase target, with the market forecast for no change in either level. More key will be the minutes release on Wednesday, 2 weeks after the rate decision; which will give insight into the voting majorities, and the current stance towards growth and inflation from the central bank. The week will close out on Friday with September’s PPI figures, which are expected to show little change, and shouldn’t have too much effect on the market.

The Euro fell against both the Pound and the US Dollar last week in the currency exchange market. The EUR/USD exchange rate fell from Monday’s open at 1.3516, to trade at 1.3452 by Friday’s close; despite hitting a high of 1.3689 on Wednesday. Economic data released form Europe last week did little to inject positive sentiment towards the currency, with Septembers German IFO figures for business climate, current assessment and expectations all coming lower. October’s German GfK consumer confidence survey showed no change, with the figure holding at 5.2. There was some more positive news on Thursday, with the German unemployment rate falling from 7.0% to 6.9%, and the unemployment change figures showing a reduction from -9,000 to -26,000 claims. Any increased positivity though was countered with a host of negative data in terms of Euro-zone consumer, industrial, services and economic confidence indices, which all reported drops for September. The European Central Bank (ECB) may also face additional pressure, with Friday’s release of September’s Euro-zone CPI (inflation) figure showing a predicated increase in price growth from 2.5% to 3.0%.

Like the UK, the early week figures from Europe will focus on PMI, with German and Euro-zone manufacturing index figures set for release on Monday, then German and Euro-zone PMI services and the Euro-zone composite figure being released on Wednesday. Sandwiched in between these release on Tuesday will be Euro-zone PPI figures for August, with the market forecast for drops in both the annual and monthly level; which could benefit the Euro as lower producer prices usually translate to lower retail prices, which will ease pressure on cash-strapped consumers throughout the Euro-zone. Thursday’s German factory order figures will be somewhat over-shadowed by the ECB’s interest rate decision. The bank are under pressure to divert extra funds toward bond purchasing to prevent default and try to stimulate growth in some of the economically weak member nations, and with many analysts expecting a rate cut from the ECB before the end of the year; the post-decision press conference will be key for the market to gain a sense of the direction the central bank is considering taking over the coming months. The week will round off with Friday’s release of German industrial production figures for August. With Germany relying heavily on its manufacturing industry for economic growth; any sharp declines in this figure could prove problematic for the Euro.

The US Dollar lost ground against the Pound, but did advance slightly against the Euro across the course of last week. The Dollar had been benefitting in past weeks from its safe-haven status, and with increased turmoil in Europe it had been gaining rapidly across the board. This was reversed across the past week, particularly against the Pound. The US economic docket produced a fairly mixed picture; with the Chicago Fed national activity index declining, from 0.06 to 0.43, but with US consumer confidence for September showing a slight increase from 45.2 to 45.4. Durable goods orders numbers fell heavily, from 4.1% to -0.1% for August, but the 2nd quarter GDP figures showed an increase in economic growth. The annual rate rose from 1.0% to 1.3%, with personal consumption also increasing from 0.4% to 0.7%. The week rounded off on a positive note; with Septembers University of Michigan confidence index showing a good gain, from 57.8 to 59.4, which did see the Dollar make appositive move in the market.

This week is fairly data heavy for the US. Monday will see ISM manufacturing and construction spending figures for September cross the wires. Tuesday will see Augusts’ factory orders numbers released, along with the main data event of the week; Federal Reserve Chairman Ben Bernanke testifying in front of the Joint Economic Committee. Wednesday see the release of September’s ADP employment change figures, along with ISM non-manufacturing figures, and the week will round off on Friday with Augusts’ consumer credit numbers, employment rate figures, and the potentially market-moving non-farm payroll figures. No-farm payroll numbers are renowned for being notoriously hard to predict accurately, hence upon release the market could well see sharp movement against the US Dollar.

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