Monday 17 October 2011

Foreign Exchange Daily Market Update 17/10/11

The Pound finished last week lower against the Euro; but much higher against the US Dollar in the foreign exchange market. The GBP/EUR exchange rate closed out the week at 1.1410, well down from the week’s open at 1.1544. The GBP/USD exchange rate however, picked up across the course of the week; from Monday’s open at 1.5620, to trade up at 1.5799 by the close of the UK business day on Friday. Overall, the economic news released from the UK last week was negative, with industrial production and manufacturing production both falling annually. The UK’s labour market saw signs of further negativity; with the claimant count rate increasing from 4.9% to 5.0%, and the ILO unemployment rate also rising; from 7.9% to 8.1%, the highest level since 1996. The UK’s trade balance did decrease slightly, the trade deficit narrowed slightly in August, from -£8,156 million to -£7,768 million, but still shows the UK’s heavy over-reliance on imported goods, and minimal export activity.

The main focus of the week ahead is probably the release of the Bank of England’s minutes from its last policy meeting on Wednesday. With the central bank adding an extra £75billion to its asset purchasing programme, it will be important to see the voting majorities in terms of the additional stimulus; and also the maintaining of the current base interest rate. The minutes should also give some insight into the overall stance from the Bank of England in regards to future policy, and also expectations for both economic and price-growth over the coming months. Aside from that, we will see the release of CPI (inflation) figures for September on Tuesday, with the expectation for the annual inflation to rate to have reached nearly 5.0%, which would be a hug concern for the central bank; with some market participants mooting a possible rate-cut in the UK to combat burgeoning price-growth. Thursday will see the latest retail sales figures cross the wires, and then on Friday we will see the release of the latest Nationwide consumer confidence figures, along with public finance numbers for September.

The Euro closed out last week having gained against both the Pound and the US Dollar in the currency exchange market. The EUR/USD exchange rate moved up considerably across the week; from Monday’s open at 1.3531, to trade up at 1.3844 by the UK market close on Friday. Economic data released from the Euro-zone was mostly positive; with Euro-zone industrial production showing good gains, both annually and month-on-month. German trade balance figures showed an increase in the nation’s trade surplus, a positive sign of its huge export market, the level increasing from €10.5billion to €11.8billion. There was a small worry with Euro-zone CPI figures, which showed a pick up in inflation annually from 2.5% to 3.0%, and monthly from 0.2% to 0.8%, which will worry the European central Bank slightly, as they seek to combat high inflation. The main focus was on the ECB’s monthly report though, which was in no way positive for the Euro-zone. The report stated that growth in the Euro region would remain ‘moderate’ for the rest of the year, that there are ‘increasing downside risks’ and also that inflation will remain ‘clearly above 2.0%’ for the time being.

This week will again contain plenty of high-level market data from Europe. Tuesday will see the release of German and Euro-zone ZEW economic sentiment figures for October, which could put pressure on the currency if they report lower; which is highly likely. Thursday will be a data-heavy day, with German producer prices, Euro-zone consumer confidence, and German economic ministry GDP forecasts all crossing the wires. The week will round off on Friday with the release of German IFO figures for business climate, current assessment, and expectations, and also Euro-zone government debt to GDP ratio figures for 2010. The currency could be affected by these, with the level set to report at around 85.1%, and could well push higher throughout this year.

The US Dollar fell against both the Pound and the Euro last week, and the currency was definitely not helped by very dovish commentary from the Federal Reserve. Minutes released from the Federal Reserve’s last policy meeting, showed that 2 policy-makers voted for extra monetary stimulus as they felt that the weak economy justified the addition of more funding. The minutes also showed that 3 policy-makers voted against the shifting of $400 billion towards extending the maturity date of the central bank’s security holdings, the largest dissenting majority seen by an FOMC voting board in over 20 years. In terms of growth, the minutes stated that the Fed sees a ‘bleak economic outlook’ and there are ‘significant downside risks’ to future growth. There was some positivity in advance retail sales numbers for September, which showed a pick-up from 0.3% to 1.1%. The week closed out on a dour not though, with the University of Michigan confidence survey showing a downturn in October; from 59.4 to 57.5, completely opposite to the market forecast.

The US economic docket is data-heavy this week, and will kick-off today with the release of industrial production figures for September. Tuesday will see the release of PPI figures, along with Net long-term TIC flows, and will also see Federal reserve Chairman Ben Bernanke speaking in Boston; with market experts poised for any commentary from the bank chief. CPI (inflation) figures for September will cross the wires on Wednesday, along with housing starts and the beige book economic survey. The week will round off on Thursday with the release of existing home sales numbers, which are poised for a slight rebound, and the Philadelphia Fed index which is expected to show a positive upturn.

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

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