Foreign Exchange Daily Market Update 06/10/11

The Pound finished a touch lower against the Euro, but slightly higher against the US Dollar in the foreign exchange market yesterday. The GBP/EUR exchange rate did pick up early on from the morning’s open at 1.1597, breaking through 1.1600 only to fall back to 1.1589 by the end of the UK business day. The GBP/USD exchange rate finished the day at 1.5434, up from the morning’s open at 1.5421. Despite positive PMI services figures for September, which saw the index reading pick up to 52.9 from 51.1; the overall feeling from the UK was negative, with the release of the final reading of 2nd quarter GDP figures. The final reading showed the quarterly growth rate as 0.1%, down from 0.2%, and the annual growth rate revised down to 0.6%; lower than the previous reading at 0.7% 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 and increase growth prospects.

The main focus today for the UK will be on the Bank of England’s policy meeting. Despite the market forecast being for no change in either the interest rate or asset purchasing target; there is increasing pressure on the central bank to add some further stimulus, particularly after yesterday’s GDP figures. It may well be though, that the currency will take better direction from the minutes release on Wednesday, 2 weeks after today’s decision; as the minutes from the meeting will give insight into the voting majorities, and the Monetary Policy Committee’s current stance towards growth and inflation.

The Euro ended the day slightly higher against the Pound, and also against the US Dollar in the currency exchange market. The EUR/USD exchange rate moved up slightly throughout the day, from the morning’s open at 1.3296, to trade at 1.3317 by the day’s close. All the economic data released from Europe yesterday however was negative, with German and Euro-zone PMI services figures for September all reporting declines, as well as a downturn in the composite figure fro Euro-zone PMI. The negative feeling was compounded with very disappointing Euro-zone retail sales figures, showing a drop annually from -0.4 to -0.1%, and month-on-month from +0.2% to -0.3%.

Today will see the release of German factory orders for August, with the market expectation for a sharp decline in the annual level, but a marked improvement in the monthly figure. However, the main focus is most certainly the European Central Bank’s rate decision; with many market experts having conflicting expectations in terms of what decision will be reached. The majority of analysts are forecasting no change in the base interest rate; but with the overnight-index swaps market pricing in rate cuts before the end of the year, and also many banks and countries hoping for a reduction in borrowing costs, there may well be a surprise cut.

The US Dollar did fall slightly against the Euro and the Pound yesterday; but there was some buoyant news released from the US. September’s ADP employment change figures showed that 91,000 jobs were added throughout the month, up from the previous month’s level of 89,000 – which was a huge increase amid market forecast for a sharp decline in the reading.

There are no scheduled economic figures of note for the US today, and with two big potential risk-events in the UK and Europe, the currency could well see some choppy trading.

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