Foreign Exchange Daily Market Update 19/10/11

Yesterday the Pound experienced a choppy trading session against the Euro and the US Dollar. The GBP/EUR exchange rate opened the day at 1.1494 and held a narrow range for much of the morning, but by midday the foreign exchange market saw the pair steadily fall to hit a low of 1.1403. The GBP/USD exchange rate opened at 1.5757 and reached it's peak early into the day at 1.5785, but from then on the rate fell to its low of 1.5629. The Pound's decline seemed to coincide with the news that September's Consumer Price Index (CPI) rose by 5.2% annually exceeding forecasts for CPI to come in at 4.9%.

Today the Minutes to the Bank of England's (BoE) latest policy meeting will be in focus, with many traders looking to the minutes for indications as to whether the recent £75 billion increase in quantitative easing (QE) will be a one-off or if further stimulus may be on the cards. Any such mention of further QE could signal that the BoE is preparing itself for the possibility of a double-dip recession, and as a result the Pound could continue yesterday's decline.

The Euro managed to make gains against the Pound during yesterday's trading session, but against the US Dollar price action was quite volatile with the currency pair closing out slightly higher than when it opened. The currency exchange market saw the EUR/USD exchange rate open the European market at 1.3700 and then preceeded to make minor gains and then slip back with the pair hitting a low of 1.3652 by 15:00 GMT, but managed to climb back and close the day out at 1.3725. A worse than expected result for Germany's ZEW survey on Economic Sentiment for October aided in volatility of the single currency, with the survey producing a figure of -48.3 versus the forecasted outcome of -45.

Today the European economic docket lacks significant data releases, meaning the Euro will be subject to wider implications of risk aversion and news from other major economies.

The US Dollar managed to make gains against the Pound during yesterday's European session but failed to maintain the moment throughout the North American market session and the currency pair retraced earlier loses, while price action remained choppy against the Euro but by the open of the American market saw the Euro strengthen. On the data front, the annualised Producer Price Index (PPI) for September rose from 6.5% to 6.9%, while the core index which excludes food and fuel prices held at 2.5% compared to this time last year.

Meanwhile, Federal Reserve Chairman Ben Bernake delivered the keynote speech at the Boston Fed's 56th annual conference where he stated that the financial crisis of 2008 has "reminded us that the responsibility of central banks to protect financial stability is at least as important as the responsibility to use monetary policy effectively in the pursuit of macroeconomic objectives." However Bernanke failed to comment on the health of the US economy, but fellow Federal Open Market Committee members have stated that the Fed has done all it can to provide support for the US economy and that further accomadation could cause runaway inflation.

Looking ahead, the US will see the release of September's CPI reading with forecasts calling for inflation to reach 3.8% annually and the core index to rise from 2.0% to 2.1%. Building permit and housing start figures for September will also make an appearance with forecasts calling for increases in both figures, a result which could bolster the US Dollar.


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