Foreign Exchange Daily Market Update 20/10/11

The Pound closed out yesterday higher against both the Euro and the US Dollar in the foreign exchange market. The GBP/EUR exchange rate finished the day at 1.1465, up from the morning’s open at 1.1407, with the GBP/USD exchange rate also closing higher, up from the morning’s open at 1.5756 to 1.5803 by the close of the UK business day. The main market focus for the UK yesterday was on the release of the Bank of England’s minutes from its last policy meeting; with the minutes showing that policy-makers voted unanimously (9-0) to inject a further £75billion into the economy over the coming months, and also discussed the possibility of the amount being as much as £100billion. The central bank was also united in its decision to keep interest rates at a record-low of 0.5%, despite inflation being at record levels; the latest figures showing price-growth standing at 5.2%. Governor Mervyn King warned that Britain was in the grip of the world’s worst ever financial crisis, and that the British economy would stall without the combination of further quantitative easing and ‘ultra-low’ interest rates.

This morning will see the release of September’s retail sales figures, with the market forecast for an increase in both the annual and monthly levels. This result would be positive for the Pound, as it would show that despite problems across Europe and a supposed lack of consumer confidence; that people are still spending, which is essential for any form of economic stability/growth.

The Euro fell against both the Pound and the US Dollar in the currency exchange market yesterday. The EUR/USD exchange rate fell from the morning’s open at 1.3812, to trade at 1.3780 by the market close, as news agencies worldwide reported on violent clashes between striking protestors and police in Greece. The country, which has, and is still employing deep austerity measures to ensure ongoing funding to prevent a default is seeing a 48 hour walkout by workers across the nation, in protest at the effect that searing government cuts are having on their wages, pensions, and quality of life. Ahead of crucial G20 talks this week, there is worry within the market that increasing the European Financial Stability Facility (EFSF) to help Greece could be misguided as it would create a circular problem; using a fund backed by Euro-zone countries to insure against default of the very same economies. It has been mooted that the ECB could increase its government bond buying activity, but there are worries that it would compromise its independence, and the fact that it is already carrying around €590billion worth of Portuguese, Irish, Italian, Greek and Spanish debt. With no clear solution easily viewable, the Euro could face firm pressure within the market over the coming days.

Today we have already seen the release of German PPI figures for September, which showed no change in the annual level of 5.5%, but an increase month-on-month from -0.3% to +0.3%. Later on today we will see the release of the German Economic Ministry’s GDP forecast, which will hopefully give some insight into the projected growth levels for one of the Euro-zone’s stronger nations; amid a current European debt situation which has the potential to send shockwaves across the globe. European consumer confidence numbers will cross the wires this afternoon, with the expectation to see yet another drop in the reading, which could add more pressure onto the European currency.

The US Dollar lost ground against the Pound, but took advantage of increased negative sentiment in the market towards Europe to gain against the single-currency (Euro) yesterday. There was also some positive news from the US, with housing starts for September showing an increase from the previous month, up to 658,000 from 572,000. CPI (inflation) figures showed a small increase in price-growth annually, from 3.8% to 3.9%, but inflation fell monthly, from 0.4% to 0.3%, which will ease some pressure on both US consumers and the Federal Reserve. The release of the Federal Reserve’s ‘beige-book’ economic survey showed a mixed outlook for the nation; with overall economic activity continuing to grow in September, albeit slowly, but with businesses expecting this to be ‘modest’ over the coming months.

The US economic docket for today will see the release of September’s existing home sales numbers, which are expected to see a downturn from the previous months reading of 5.03million to around 4.90million. The Philadelphia Fed Index will also report this afternoon, with the market forecast for an increase in positivity, but the figure to still remain at a negative level overall. The Dollar will be more likely to take direction from developing events across Europe today, as opposed to key data from home.

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