Foreign Exchange Daily Market Update 05/10/11

The Pound fell against the Euro; but ended yesterday almost unchanged against the US Dollar in the foreign exchange market. The GBP/EUR exchange rate fell across the day from the mornings open at 1.1711, down to 1.1577 by the end of the UK business day. The GBP/USD exchange rate however, closed at 1.5411, almost exactly at the market open rate of 1.5409, following a day of choppy trading. The sole piece of economic data released from the UK yesterday saw PMI construction figures for September report a drop; from 52.6 down to 50.1.

This morning has seen the release of PMI services figures for September which saw a positive gain; from 51.1 to 52.9, but more importantly was the release of the final reading of 2nd quarter GDP for the UK. The result was a downward revision, with the quarterly growth rate at 0.1%, down from 0.2%, and the annual growth rate falling from the previous reading at 0.7% down to 0.6%. This is not positive news for the UK economy, but may have some positive connotations as it will increase pressure on the Bank of England to add further monetary stimulus to try an increase growth prospects.

The Euro gained against both the Pound and the US Dollar in the currency exchange market yesterday. The EUR/USD exchange rate moved up across the course of the day from 1.3157 at the mornings open, to trade at 1.3311 by the day’s close. The European economic docket yesterday focused on euro-zone producer prices, with the PPI index showing a drop in prices, annually from 6.15 to 5.89%, and month-on-month from 0.5% to -0.1%. This may be positive for Europe, as lower producer prices may indicate lower costs passed on to consumers, which may go some way to keep inflation subdued.

Today has already seen German and Euro-zone PMI figures report lower for September, but the figures seem to have had little effect on the market. Later on this morning, Euro-zone retail sales for August will cross the wires, with the market forecast for a drop in both the annual and monthly levels, which could put pressure on the Euro; as lower retail sales is an indicator of slowing economic growth and lower consumer spending.

The US Dollar ended almost unchanged against the pound yesterday, but lost ground against the Euro. The currency was not helped by disappointing factory orders figures for August, which showed a sharp drop from 2.1% down to -0.2%. This figure was overshadowed by Federal Reserve Chairman Ben Bernanke’s appearance in front of the joint economic committee, during which he stated that The Federal Reserve is prepared to take further steps to help an economy that is "close to faltering," Fed chairman Ben Bernanke said on Tuesday in his bleakest assessment yet of the fragile U.S. recovery. Citing anaemic employment, depressed confidence, and financial risks from Europe, Bernanke urged lawmakers not to cut spending too quickly in the short term even as they grapple with trimming the long-run budget deficit. Bernanke said "The Committee will continue to closely monitor economic developments and is prepared to take further action as appropriate to promote a stronger economic recovery in the context of price stability,".

Today will see the release of Septembers’ ADP employment change figures, which are expected to show less jobs added than the previous month, and also the latest ISM non-manufacturing numbers for September; with the market forecast for a decrease in the index level; which would not be positive for the Dollar.

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