Friday 29 July 2011

Foreign Exchange Daily Market Update 29/07/11



The Pound extended its gains against the Euro in the foreign exchange market yesterday, while remaining relatively unchanged versus the US Dollar. The GBP/EUR rate picked up from the day's open of 1.1370 and peaked at 1.1442 before closing out at 1.1420. The GBP/USD rate opened at 1.6330 and closed the day unchanged, but not before the currency pair hit a morning high of 1.6363 and then shifting to a low of 1.6290. On the docket the Confederation of British Industries' Reported sales index fell in July unexpectedly to -5 when forecasts had called for the index to increase from June's score of -2 to 2. The data's release coincides with the Pound's drop against the Dollar; however no noticeable difference was witness against the Euro.

This morning, the economic docket is scheduled to see June's Mortgage Approvals released, with expectations calling to for a rise from May's total of 45,900 to 46,000. The outcome would prove positive for the Pound.

The Euro weakened against both the Pound and the US Dollar over the course of yesterday's trading session. The EUR/USD rate slipped from the morning's level of 1.4350, with the pair closing the day at 1.4310. On the docket Germany's unemployment change figure for July headlined the European data set, with the number of unemployed falling by 11,000 which missed estimates for a contraction of 15,000 unemployed. To further compound the outlook of the Euro-zone and the Euro itself, July's sentiment indicators on the economy, the region's industrial and services sectors and consumer confidence all came in below expectations, except for the consumer confidence index which improved marginally but remained entrenched in the negative with -11.2.

On the European economic calendar the currency exchange market has already seen retail sales in Germany fall by 1.0% in June compared to a year ago, however this was a softer contraction than the forecasted 1.6% drop in sales. Looking ahead the annualised Euro-zone Consumer Price Index is expected to hold steady at 2.7% from May into July. The outcome may have little impact on the Euro as the data isn't entirely supportive of a rate hike by the European Central Bank which would've made the currency more attractive to foreign investors. Regardless the Euro is likely to remain under selling pressure today as debt woes continue to weigh on the region.

The US Dollar managed to gain some ground against the Euro as the economic calendar provided an improved outlook for the nation, however no such meaningful move was seen against the Pound. The economic docket revealed that the number of first time claimants for jobless benefits was lower than expected in the week ending 22nd July, with claims falling from 422,000 to 398,000. A rise in pending home sales during the month of June of 17.3% compared to the same time last year also helped to improve the US economic outlook.

Looking ahead, today’s economic calendar is scheduled to see 2nd Quarter GPD figures for the US released with economists forecasting that the annualised growth rate will slow from 1.9% to 1.8%, while the quarter-on-quarter rate is expected to hold steady at 2.0%. This may prove to be positive for the US Dollar given that the US economy is still evidentially growing, and the University of Michigan’s consumer confidence reading for July may also benefit the Dollar if the index increases in line with its 64 forecast reading. However with the US Congress having not yet agreed to raise the debt ceiling, volatility on the US Dollar may ensue when the US market opens, over shadowing any positive indications from today’s economic data.

Sam Kennison
KBRFX



Thursday 28 July 2011

Foreign Exchange Daily Market Update 28/07/11


The Pound regained some ground against the Euro, but slipped against the US Dollar in the foreign exchange market yesterday. The GBP/EUR rate picked up from the morning’s open of 1.1336 to trade up at 1.1382 by the end of the day. The GBP/USD rate however, dropped throughout the course of the day, down from 1.6415 to 1.6354 by the UK close. There was only one real figure of not released from the UK yesterday, which was the CBI business optimism reading, which fell drastically from 9.0 to -16.0, but the movements in the currency exchange market may be attributed to larger data events in the world economy than this figure.

Today will see the release of another CBI reading, for reported sales; which the market has forecast to rise from the previous level of -2.0 to a positive 2.0, but the market will be aware of a similar surprise like yesterday’s business optimism reading, which was also expected to show positive gains.

The Euro fell against the Pound and the US Dollar yesterday; the EUR/USD rate plummeting from 1.4480 down to 1.4370 throughout the day. Economic data from Europe was thin on the ground yesterday, with the main focus on July’s German CPI (inflation) reading, which showed that price growth increased by 0.5% throughout the month; which is not necessarily positive news for the currency. The ECB has hiked the base interest rate in Europe twice this year to combat inflation and this figure shows that their measures may not be working fully across the Euro-zone, and they may need to tighten further in the coming months. The worry is though, that further tightening of monetary policy could do more harm than good, with EU member nations with high debt loads already struggling, and further rate hikes could push them to the edge.

This morning has already seen the release of German unemployment change figures for the month of July; with the reading showing -11,000 jobs, down on the previous months’ reading, but slightly better than the market forecast for around -15,000 jobs. Later on will see the release of Euro-zone consumer confidence figures; which are expected to show no change, but the currency could weaken if there is an unexpected drop in sentiment.

The Dollar did recover slightly against the Pound and the Euro, but continues to struggle in the face of the unresolved debt ceiling issues. There was also some negative news from the SU yesterday, with a high-level figure; durable good orders dropping drastically for the month of June, from 1.9% down to -2.1%, which is not good news for the overall economic picture.

With politicians still struggling to resolve the situation, the significance of some economic data may well fade, but the market will still look to today’s pending home sales figures for a gauge into the current state of the US housing market, a key factor in overall economic health; with the currency possibly standing to benefit from any upturn in the current levels.

Mike Hood
KBRFX

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Wednesday 27 July 2011

Foreign Exchange Daily Market Update 27/07/11


The Pound picked up marginally against the Euro, and made significant gains against the US Dollar in the foreign exchange market yesterday. The GBP/EUR rate went up slightly from the morning’s open of 1.1267 to trade at 1.1303 by the close. The GBP/USD exchange rate however; rocketed from 1.6337 to 1.6390 throughout the day, breaking the 1.6400 level in the morning. The main data event from the UK was the 2nd quarter GDP reading, which showed that the annual growth rate fell from 1.6% to 0.7%, and the quarterly rate fell from 0.5% to 0.2%. This was viewed as positive by the market though, with the quarterly rate meeting median forecasts; and not falling below market predictions, which could have been disastrous for the Pound.

Today’s economic docket from the UK will see the release of the CBI’s business optimism figure; which is expected to show a slight increase in the reading; which would be positive for the Pound.
The Euro slipped against the Pound and the US Dollar yesterday; the EUR/USD rate coming down from the morning’s level of 1.4499, to trade at 1.4486 by the market’s close. The only figure of note released from Europe yesterday was the German GfK consumer confidence figures for August, which showed a slight drop in the index, from 5.5 down to 5.4. The constant debt woes surrounding Europe, and the fact that bigger nations such as Germany and France continue to be the nations that contribute the most financially; is starting to take it’s strain on the confidence of the general public in those countries; and is not positive for the currency as low consumer confidence tends to result in lower consumer spending, and retail sales.

The European economic docket today will see the release of German CPI (inflation) figures, with the market expecting no change in the annual inflation rate of 2.4%, and with the ECB’s last 2 rate-hikes expected to maintain inflationary pressures across the Euro-zone, any drop in the level may be viewed positively by the market, as there is a theory that further monetary policy tightening from the ECB in regards to inflation could do more harm to the economy than good.

The US Dollar continued to lose ground in the currency exchange market; with time seemingly running out for Congress to reach a solution for raising the debt ceiling, to prevent a default. Despite this, yesterday’s figures showed that consumer confidence rose for the month of July, from 57.6 to 59.5; suggesting that the US public will continue to spend freely over the coming months as sentiment improves. There was some negative news though, with new home sales figures for July reporting a drop, from 315,000 sales to 312,000 amid market expectations for an increase. This reinforces the fact that the housing market is still weak in the US, and could be one of the factors that slows overall economic growth.

Today will see some high-level market data, with durable goods orders for June set to report. The figure is expected to show a drop; but the market will be wary of any surprises, and even if the figure drops, but comes in higher than expected, the currency could benefit. This afternoon will also see the release of the Federal Reserve’s beige book report; which will give an insight into current economic conditions, as surveyed throughout the Fed’s 12 districts, and draws information from economists, market experts, and key business contacts. Any increased positivity could well see the US Dollar stat to regain some ground.

Mike Hood
KBRFX

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Tuesday 26 July 2011

Foreign Exchange Daily Market Update 26/07/11


The Pound moved slightly lower against the Euro and the US Dollar in the foreign exchange market yesterday. The GBP/EUR rate dropped from the morning’s open of 1.1346 to trade at 1.1340 by the market’s close. The GBP/USD exchange rate also fell, but only marginally, from 1.6292 down to 1.6281 by the end of the day. It was a fairly quiet day in terms of economic data across the world’s major economies, with the only figure of note out of the UK being BBA loans for house purchases, which showed an increase for the month of June; up from 30,580 to 31,747.
Today will see the market focus on 2nd quarter GDP figures form the UK. Analysts are almost certain in their predictions to see the growth rate fall, both annually, and quarterly, but the margin of this will be what influences any movement on the Pound. The figure, which is due out at 09:30 could see the Pound weaken if the growth rate falls drastically, as along with the base interest rate, economies growth in a country is one of the main draws to an influx of investor’s funds into its currency.

The Euro did move up a touch against the Pound, but fell slightly against the US Dollar yesterday. The EUR/USD rate fell marginally, from 1.4359 down to 1.4352 throughout the day, after staging a small rally during the early afternoon. There was no key economic data released from Europe yesterday to influence the currency exchange market further; but there was news of Greece having its credit rating cut once more; so despite a re-structuring package being agreed, ratings agencies see the nation as almost certain to default on its own bond repayments.

This morning has already seen the German GfK consumer confidence report show a drop in positive sentiment for the month of July, with the index falling from 5.5 to 5.4; going against market forecasts for a rise in the reading. This shows that despite Germany being one of the strongest member states in the EU, that the current debt contagion and default woes, combined with the immense amount of money being pumped into restructuring plans by the German government, the sentiment amongst the general public is worsening.

The US Dollar did make some small moves against the Euro and the Pound yesterday, but any gains were short lived as the currency started weakening back off this morning. The US economy is still facing the possibility of a default, and also a credit rating cut; which does have the potential to affect global financial markets. The currency which is often viewed as a ‘safe-haven’ in times of economic trouble, is now starting to raise concerns amongst investors, who are worried about the value of the Dollar and US treasuries should the nation have it’s rating slashed.

Today will see the release of new home sales figures for June, which are expected to show a small rise, which would be a positive boost for what is still quite a weak US housing market. The most notable data release though will be consumer confidence figures, which are set to report at 15:00, with the market forecast for a fall in the levels; which could prove to be negative for the US Dollar. Consumer confidence is usually linked to consumer spending, so a drop in the levels could tie-in to a possible slowdown in retail sales and consumer spending, which would not be positive for the overall economic picture in the US.

Mike Hood
KBRFX

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Monday 25 July 2011

Foreign Exchange Daily Market Update 25/07/11


The Pound ended the week lower against the Euro, but higher against the US Dollar in the foreign exchange market. The GBP/EUR rate fell from 1.1461 on Monday, to trade at 1.1363 by Friday’s close. The GBP/USD exchange rate though, moved up throughout the week, from 1.6099 on Monday to trade up at 1.6309 by the end of the week. The Pound didn’t really receive any boosts from the economic data that was released during the week. The main data-event was Wednesday’s release of the Bank of England’s minutes from their last policy meeting; which showed no change in the voting for either the base interest rate or the asset purchase target to change, with the central bank being seen as having no alternative to change monetary policy for fear of damaging the economy. Thursday saw some negative news with Nationwide consumer confidence falling from the previous month’s reading of 55 down to 51, along with Public finance figures showing that the amount of money diverted by the government into the public sector increased from 11.3 billion pounds to 21.0 billion pounds. Some positive news however was that public sector net borrowing fell, from 14.6 billion pounds down to 12.0 billion pounds, and retail sales also increased, the annual rate rising from -0.2% up to 0.2%.

The week ahead will see the market focus on Tuesday’s release of 2nd quarter GDP figures, with the annual rate set to fall from 1.6% down to 0.8%, and the quarterly level from 0.5% to 0.2%; which would not be positive news for the UK economy, and will put pressure on both the UK government and the Bank of England to try and stimulate some growth in the economy to prevent a slip back into continuous negative growth. Wednesday and Thursday will be focused on figure releases from the Confederation of British Industry (CBI), with business optimism figures along with July’s reported sales figures set to cross the wires. The currency could well take direction from any upturn in the levels, which would be positive for the overall economic picture. Friday will see GfK consumer confidence figures released, along with mortgage approvals and net consumer credit figures; with the currency exchange market poised to see the possibility of the Pound appreciate, should the figures come in line with, or slightly above market expectations.

The Euro did regain some ground against the Pound, and also managed to surge against the US Dollar last week. The EUR/USD rate moved up across the week, from Monday’s open at 1.4045, to trade up at 1.4351 by Friday’s close. Barring the news that EU ministers agreed to a re-structuring of Greece’s debt on Thursday, all the economic data released form the Euro-zone throughout the week was negative. German producer prices fell annually from 6.1% down to 5.6%, Euro-zone consumer confidence also fell – from -10.3 to -11.4. On Thursday, figures showed a string on disappointments in regards to PMI levels, with German and Euro-zone PMI manufacturing, and services both falling for the month of July. This stream of negative data continued through Friday, with German IFO business climate levels, current assessment, and expectation figures all falling, way below market expectations. However; the resolution agreed for Greece’s debt re-structuring was positive enough to turn the market despite all the negative economic indicators, and the currency managed to find strength toward the end of the week.

This week will see little news from Europe until Wednesday; when the market will look to German CPI (inflation) figures, with the market expecting no change in the annual rate of 2.4%; but a small increase in the monthly level from 0.1% to 0.3% which would be beneficial for the Euro. Thursday will see the release of German unemployment change figures, and also the unemployment rate. With the labour market in Germany staying fairly robust, should there be any disappointments to the downside, expect to see the currency weaken. Friday will close off the week with German retail sales figures, and Euro-zone CPI (inflation) estimates for July; a boost in retails sales may not be enough on it’s own to trigger any upsurge in the currency, but a rise in CPI could be worrying for the economy, as the ECB have already risen rates twice this year to control inflation, but should the rise continue, it would press the ECB into further tightening which could cause problems for the economy.

The US Dollar continued to weaken across the board last week; with a solution still yet to be reached for raising the debt ceiling in the US to prevent the nation defaulting on debt repayments that are due at the start of August. Despite a lot of positive economic data from the US last week, with housing starts and building permits increasing for the month of June, along with the Philadelphia Fed Index soaring from a previously negative reading of -7.7 to a positive 3.2; the currency was rocked by the possibility of a default approaching, and should this happen – ratings agencies will be sure to cut the nation’s credit rating which would then hugely devalue US treasury bonds.

The week ahead will see some high-level data releases, mainly Tuesday’s US consumer confidence figures, along with Wednesday’s release of the Fed’s beige book report, and notably Fridays release of US 2nd quarter GDP figures. The currency will be almost certain to react to any positive upturns in any of these data releases, but the key issue still remains that Congress need to find a solution to raise the US’s debt ceiling in the next week or so; otherwise there could be dire consequences. Should the value of US treasuries drop, and also the US Dollar, the possibility is that large holders of US treasuries and currency; like China, may well look to sell the assets they hold and look for currency/paper with a lower level of risk.

Mike Hood
KBRFX

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Friday 22 July 2011

Foreign Exchange Daily Market Update 22/07/11


The Pound gained significant ground against the US Dollar, but fell slightly against the Euro in the foreign exchange market yesterday. The GBP/USD rate shot up from 1.6163 at the morning’s open to trade up above 1.6300 by the end of the day. However, the GBP/EUR exchange rate fell, from 1.1348 down to 1.1336 at the UK close; with the market seeing some small positivity towards Europe’s resolution for the Greek debt crisis. Economic data from the UK yesterday showed that retail sales advanced rapidly for the month of June, with levels rising from -0.2% to 0.2%, nearly a half a percent growth from May. There was some negative news though, with public finance figures showing the UK government increased the amount of money it diverted to the public sector, from 11.3 billion pounds up to 21.0 billion pounds in June, and public sector net borrowing also increased, from 12.0 billion pounds up to 14.6 billion pounds for the same period.

There are no scheduled data releases from the UK today, so movements on the currency exchange market will be subject to key data and events from the world’s other major economies.

The Euro managed to regain some of the week’s previous losses yesterday, with EU ministers seemingly in agreement over a re-structuring of Greece’s debt to prevent the nation going into default. The EUR/USD rate shot up throughout the day, from 1.4240 to trade at 1.4382 by the end of the day. Aside from the Greek situation being appeased; albeit some experts predicting only temporarily, the economic data released form Europe yesterday was not positive. Figures showed that German PMI manufacturing fell for the month of July, along with Euro-zone PMI manufacturing, service, and the composite reading all falling drastically for the same period; reinforcing to the market that away from the main news stories, Europe is still struggling on a basic economic level.

This morning has already seen the release of German IFO figures for July; with the business climate reading falling from 114.5 to 112.9, and the current assessment figure also dropping from 123.3 to 121.4. The foreign exchange market showed little reaction though; with the currency possibly still being buoyed by the fact that Greece is no longer the most pressing issue for the region.

The US Dollar has continued to lose ground against the Euro and the Pound this past week; with the US facing the possibility of defaulting on debt repayments come August, and ratings agency Standard and Poor’s affirming the fact that they will cut the US credit’s rating should this situation happen. Congress need to come to some form of agreement to raise the US’s debt ceiling in the next 2 weeks to prevent them being unable to meet their obligations; and the currency is being deeply affected by this.

The same as the UK, there are no scheduled data releases from the US today, so the market will be open to movements based on sentiment, and any economic or political events that occur during the course of the day.

Mike Hood
KBRFX

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Thursday 21 July 2011

Foreign Exchange Daily Market Update 21/07/11


The Pound continued to push on against both the Euro and the US Dollar in the foreign exchange market yesterday. The GBP/EUR rate moved up from 1.1339 at the morning’s open, to trade at 1.1367 by the close. The GBP/USD rate also followed an upward trend, with the exchange rate rising from 1.6072 to 1.6142 throughout the day. This was despite the release of the Bank of England’s minutes from their last policy meeting, which showed no change at all in the voting patterns from policy-makers in regards to the base interest rate and the asset purchase target. The Pound was able to take advantage though, of the fact that both Europe and the US are facing problems in regards to burgeoning debt levels, with both economies struggling to find solutions to their relative issues.

This morning has already seen the release of Nationwide consumer confidence figures from the UK. The level did fall month on month, from 55 down to 51, but was better than the market forecast for a reading of 49. Later on this morning will see the release of public sector net borrowing figures, along with retail sales figures for June. The market forecast is for public borrowing to have fallen, which would be positive for the Pound, as it would show the UK government are keeping to their promise to reduce the UK’s debt burdens.

The Euro continued to fall against the Pound yesterday, but did gain small ground against the US Dollar yesterday. The EUR/USD rate pushed up to 1.4201 by the close of play, up from 1.4173 at the morning’s open. Economic data from Europe yesterday painted a negative picture for the economy; with German producer prices falling annually from 6.1% down to 5.6%, along with Euro-zone consumer confidence falling fro the month of July; the reading showing a drop from -10.3 to -11.4.

This morning we have seen the release of German PMI manufacturing for July, which fell from 54.6 to 52.1. Along with Euro-zone PMI figures for Manufacturing, Services, and the composite reading all falling for the month of July; the market has reacted negatively and the currency exchange market has seen the Euro weaken further. The market will turn its attention to a meeting of EU leaders today, where once again a solution will try to be reached for Greece; with European Commission president José Manuel Barroso putting out a stark warning that the existence of the Euro is at stake because of growing frustration at the top of the EU and IMF that national governments are dodging their responsibilities and endangering global economic stability. Barroso stated on Wednesday “Leaders need to come to the table saying what they can do and what they want to do and what they will do. Not what they can't do and won't do. This is what I ask from them’’. “All of our efforts are based on a strong single market and a strong euro. That is what is at stake. That is why we must provide a solution tomorrow (Thursday). I believe now is the time to decide.”

The US Dollar continued to face pressure in the foreign exchange market yesterday, with a solution still to be reached over raising the nation’s debt ceiling to prevent the US defaulting on its debt repayments, come August. The currency has been weakening, as the prospect of a default grows larger, with the potential for world financial markets to be deeply affected by such a scenario. Should the two parties fail to pass a bill through the house to reach a solution for the debt ceiling, the Dollar’s value could plummet as the demand for US Treasuries would shrink rapidly, along with increasing concern’s over the Dollar’s value as a reserve currency due to it’s volatility.

The US economic docket today will see the release of house price index figures for July, along with the Philadelphia Fed Index reading for July. Following yesterday’s drop in existing home sales, the house price index reading may well follow suit, with the market forecast for a drop from 0.8% to 0.1%. The Philly Fed reading is expected to show an increase, which would mean in improved outlook from the biggest manufacturing district in the US. This would be some welcome news for the US as increased production does contribute to economic growth.

Mike Hood
KBRFX

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Wednesday 20 July 2011

Foreign Exchange Daily Market Update 20/07/11


The Pound made small gains against both the Euro and the US Dollar in the foreign exchange market yesterday. The GBP/EUR rate moved up from 1.1388 at the morning’s open to trade at 1.1395 by the close. The GBP/USD exchange rate also picked up, from 1.6110 to 1.6133 throughout the day. There was no economic data released from the UK to support any movements in the currency market; but there was a lot of media focus on the live-broadcast Parliamentary enquiry into the News Corp hacking scandal; with James Murdoch and Rupert Murdoch being quizzed by MP’s on their knowledge and involvement in alleged criminal activities. The market may be influenced by any unexpected revelations to come out of these events, as the UK media has placed strong political links to the case.

Today will see the markets attention turn to the release of the Bank of England’s minutes from their last policy meeting. The Pound could well suffer in the foreign exchange market if it is showed that the BoE are taking a more dovish stance to policy, with numerous market experts indicating that the central bank has little option but to keep both the base interest rate and asset purchase target on hold, for fear of any detrimental effect to the UK economy from any changes. A rise in interest rates could prove extremely damaging to the UK housing market, whilst an increase in asset purchasing could trigger further inflationary pressures.

The Euro did slip slightly against the Pound, but made a small advance against the Euro yesterday, with the EUR/USD rate moving up from 1.4146 at the market open to trade at 1.4158 by the day’s close. The economic data released from Europe yesterday showed that German ZEW economic sentiment levels fell dramatically in July, from the previous reading of -9.0, down to -15.1 amid expectations for only a slight fall to -12.5. This could well be attributed to large consumer unrest in Germany, where the voting public have been more vocal in their disapproval of the constant German financial help that is being directed to weaker EU states such as Greece and Portugal.

The European economic docket today has already seen the release of annual German producer prices for June; with the reading falling from 6.1% down to 5.6%. This afternoon will see the release of Euro-zone consumer confidence figures for July; with the market forecast for a fall in confidence for July; which would be detrimental for the single-currency’ but is widely-expected due to the worsening debt situation across a large proportion of the Euro-zone.

The US Dollar did lose some ground in the currency exchange market yesterday; with the House of Representatives still struggling to find a solution to increase the US’s debt ceiling to prevent a default on debt repayments come the start of August. The market is worried by the increasing possibility that one of the world’s largest economies could default on its debt obligations; and it would send shockwaves through the world’s financial markets. There was some slightly positive data from the US yesterday in regards to the housing market, with building permits showing a good increase for the month of June, up from 609,000 to 624,000, alongside housing starts picking up from 549,000 to 629,000.

Today will also see the US economic docket focus on housing, with existing home sales figures set to report. The market is expecting a pick up in the figure, from the previous reading of 4.81 million sales to 4.90 million. This would be a good sign for the US housing market, but may not be significant enough data to make a big move on the currency market, barring any extreme surprises in the reading.

Mike Hood
KBRFX

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Tuesday 19 July 2011

Foreign Exchange Daily Market Update 19/07/11


The Pound ended yesterday lower against both the Euro and the US Dollar in the foreign exchange market. The GBP/EUR rate fell from the morning’s open of 1.1461 down to 1.1408 by the close. The GBP/USD exchange rate also dropped, from 1.6099 down to 1.6024 by the end of the day. There was no economic data released from the UK yesterday to affect movements in the currency market; but the ongoing scandal regarding News Corp and News International does have some political connotations; and with some of the accused parties facing the UK Parliament today the market could well be affected should there be any high-profile political casualties as a result of the House of Commons enquiries.

The Euro ended the day almost unchanged against the US Dollar; the EUR/USD exchange rate opening and closing at levels of 1.4045. There was also no economic data released form Europe yesterday to affect movements in the foreign exchange market.

Today will see the release of German ZEW Economic Sentiment survey results, with the market forecasting a drop in the overall figure, from -9.0 to -12.5; a result that could be detrimental to the Euro, and see the currency weaken against both the Pound and the US Dollar.

The US Dollar did manage to pull back slightly against the Pound yesterday, the GBP/USD rate pulling back to 1.6024 from just below 1.6100. The economic data from the US yesterday wasn’t entirely positive though, with Net long-term TIC flow figures for May showing that less capital moved into the US market for stocks/shares and bonds etc.; the figures showing a level of $23.6billion down from the previous months level of $30.6billion, also well below analysts estimates for an increase in the level to $40.0billion.

The US economic docket for today will focus on the housing market, with building permits figures for June expected to drop slightly, but housing starts are forecast to show a slight increase for the month of June. The housing market in the US, as is in the UK; is still very weak, and any positive data could well be beneficial to the US Dollar in the currency exchange market.

Mike Hood
KBRFX

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Monday 18 July 2011

Foreign Exchange Daily Market Update 18/07/11


The Pound gained impressively against the Euro and the US Dollar in the foreign exchange market last week. The GBP/EUR rate moved up from 1.1293 on Monday; to trade at 1.1412 by the close of business on Friday, the exchange rate hitting a high of 1.1429 on Tuesday. The GBP/USD exchange rate also showed gains across the week; from Monday’s open at 1.5970, the rate moved up to trade at 1.6145 by Friday’s close. The economic data from the UK during the week wasn’t overly positive though, with CPI (inflation) figures showing a drop in the level of inflation, both monthly and annually, which takes pressure off the Bank of England to look at raising the base-rate anytime soon, as elevated price-growth is easing of its own accord. The UK’s visible trade balance for May also increased its negative deficit, reinforcing the nation’s over-reliance on imported goods; the negative balance increasing from -£7,643,000 to -£8,478,000. The labour market is also showing little sign of improvement, with the unemployment rate remaining unchanged at 7.7%, along with the claimant count rate remaining at 4.7%. There was some negative news though, with jobless claims for June increasing from 22,500 to 24,500 amid expectations for a drop in the number of new claims.

The week ahead for the UK is not data-heavy, but will have some high-level market data. Wednesday will see the release of the Bank of England’s minutes form their last policy meeting. The market will be looking for any rhetoric from policy-makers in regards to future policy, and also the all important voting numbers will be studied, to see if any of the committee sees fit to either increase the asset purchase target, or a need to increase the base interest rate. Amid last weeks falling inflation figures, it seems increasingly unlikely that the central bank have any room to start tightening policy, with a rate-hike having the potential to destroy an already weak housing and labour market. Thursday will see the release of public sector net borrowing figures, with the foreign exchange market likely to show a deep interest in whether the UK government are keeping to their promise of reducing the UK’s debt level and evening up the balance sheet. However, any cuts must be made sensibly as not to effect overall economic growth in the UK.

The Euro weakened considerably against the Pound throughout last week, and also dropped massively against the US Dollar before recovering slightly by the end of the week. The EUR/USD rate opened on Monday at 1.4140, falling to 1.3845 on Tuesday before coming back steadily to trade at 1.4147 by Friday’s close. The currency was not helped by the fact that Greece’s credit rating was cut to ‘CCC’; the lowest level possible, and also European bank stress test results showing that 8 of 90 banks tested by the European Banking Authority conclusively failed the tests for required capital levels and exposure to sovereign debt. Economic data released throughout the week also showed that Euro-zone industrial production fell in June, from an annual rate of 5.3% down to 4.0. CPI (inflation) figures also showed no price growth in the annual or monthly rate, following a rate-hike by the ECB at their last policy meeting. With inflation seemingly under control, it does not bode well for the Euro-zone, as the European market will continue to face fierce pressure over the coming week.

The week ahead will see some high-level market data, starting on Tuesday with the German ZEW economic sentiment survey; with any negative downturn in this reading likely to put pressure on the currency. Wednesday will see the release of German producer price figures, along with Euro-zone consumer confidence, which has the potential to affect the market hugely. Thursday and Friday also have influential data set for release, with German and Euro-zone PMI figures set to cross the wires, along with German IFO readings for business climate, current assessment, and expectations, along with Euro-zone industrial new orders figures.

The US Dollar came under considerable pressure last week; with Congress still yet to agree on an increase to the US’s debt ceiling, which if unresolved could see the US default on debt repayments due for August 4th. This would have drastic consequences on the market, and potentially the US currency, with ratings agency’s confirming that they would cut the US’s credit rating should a default occur. The economic data released from the US last week painted a fairly mixed picture of the overall economy. Figures showed that the US’s negative trade balance increased, from -$43.6billion to -$50.2billion, along with PPI levels dropping, from 7.3% down to 7.0%. CPI (inflation) figures showed no increase in the annual rate of 3.6%. The Dollar was further pressured on Friday, with the highly-influential University of Michigan confidence survey showing a drastic drop, from the previous reading of 71.5, down to 63.8. This figure is considered to be a good early indicator of any economic downturn in the US, with the currency exchange market reacting accordingly upon release, with the Dollar weakening.

The US economic docket this week will mostly focus on the housing market. Tuesday will see housing starts figures released along with building permits figures for June. Wednesday will see existing home sales figures released, with the market forecast for a rapid increase in the level of sales, which would be positive news for the housing market and the overall economy. Thursday will see house price index figures for June released, along with the Philadelphia Fed Index which will give a good insight into the manufacturing sector in the US. A higher reading from the Philadelphia Fed index indicates a positive outlook for the manufacturing sector, contributing to overall economic growth, so could be beneficial for the currency.

Mike Hood
KBRFX

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Friday 15 July 2011

Foreign Exchange Daily Market Update 15/07/11


The Pound continued its surge against the Euro and the US Dollar in the foreign exchange market throughout yesterday. The GBP/EUR rate carried on its upward course, from 1.1349 at the open, to close at 1.1374, while the GBP/USD exchange rate pushed on slightly from the morning’s open at 1.6116 to close at 1.6123. There were no significant data releases from the UK yesterday, with the movements in the currency market, particularly against the Euro being attributed to the ongoing unresolved debt situation in Greece.

There is no economic data scheduled for release from the UK today either, but with plenty of market-moving figures primed for release from the Europe and the US, there could well be sharp movements in the exchange rates today.

One country; and its currency that has remained fairly unaffected by the problems in the world markets over the past year has been Australia, and the Australian Dollar. The currency has strengthened considerably across the board over the past 6 months, with the GBP/AUD rate currently trading at 1.5138; but the nation that has been seen by the market as ‘recession-proof’ is starting to show some signs of weakness. Despite a relatively low unemployment rate of 4.9%, and a currency that has strengthened by 21% against the US Dollar over the past year; languishing consumer spending across the country has led the market to speculate that the Reserve Bank of Australia may postpone their next interest-rate rise, by anything up to three months. With economists wary of the effect a fall-out in Europe could have on the country, where consumer spending accounts for around half the overall economy, the market will be watching any developments very closely.

The Euro has continued to suffer in the foreign exchange market, with negative sentiment towards the Euro-zone rapidly increasing by the day. Greece’s credit rating now stands at ‘CCC’ the lowest possible level; and with news agencies reporting that Italy could be the next country verging on default, despite a rate-hike from the ECB, the currency is weakening considerably. There have been stories in the morning’s UK papers that the Euro-zone could be set for a split, with the stronger member nations Germany and France set to distance themselves from the weaker member states, with the possibility of a two-tier Euro currency being mooted.

Today will see the results of European bank stress tests being published, and with the market predicting a negative outcome overall, the currency could weaken further, with Italian banks in particular being singled out as having dangerously low levels of capital, against what is deemed as some high-risk securities on their balance sheets.

The US Dollar has been weakening since the release of Fed Chairman Ben Bernanke’s semi-annual report to Congress on Wednesday. The EUR/USD rate has continued to fall, from yesterday’s open at 1.4198 down to 1.4162 by the market’s close. The economic data released from the US yesterday was also negative, with retail sales figures for June showing no improvement, holding flat at 0.2% amid expectations for a rise to 0.4%. Producer prices also fell, with the annual rate dropping from 7.3% down to 7.0%.

The US economic docket today does contain two high-level pieces of market data. CPI (inflation) figures for June will be released at 13:30, with the forecast for no change in the annual rate, and also the University of Michigan’s confidence survey will be published this afternoon; with the market poised to react to any positive or negative increase in the reading.

Mike Hood
KBRFX

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Thursday 14 July 2011

Foreign Exchange Daily Market Update 14/07/11


The Pound continued to gain against the Euro, and also the US Dollar in the foreign exchange market yesterday. The GBP/EUR rate moved up from the morning’s open of 1.1356 to trade at 1.1373 by the market close. The GBP/USD exchange rate shot up sharply from the early open at 1.5953 to trade close to 1.6112 by the end of the day. The economic data released from the UK didn’t provide a hugely encouraging picture, with jobless claims increasing for the month of June, up from 22,500 to 24,500 against forecasts for the number to fall dramatically to around 15,000. This is a blow for the UK’s already weak labour market. Despite this increase, the ILO unemployment rate held steady at 7.7%, along with the claimant count rate staying at 4.7%.

There is no scheduled economic data from the UK today, so the currency exchange market will take direction from risk-events in the world’s other major economies and any changes in sentiment towards the economic outlook for the UK, should there be any high-profile government statements or press releases.

The Euro continued to slide against the Pound, but did regain some ground against the US Dollar yesterday. The EUR/USD exchange rate pushed up from 1.4047 at the open, to trade at 1.4162 by the market’s close. The main piece of economic data from Europe yesterday was not positive however, with Euro-zone industrial production falling dramatically, the annual rate dropping from 5.3% to 4.0%, not good news for the overall European economic picture, where some of the biggest economies rely heavily on industry and manufacturing.

Today will see the market focus on price growth in the Euro-zone, with CPI figures set for release at 10:00. The market is forecasting no change in either the annual rate of 2.7%, or the month-on-month growth rate of 0.0%, but the currency could take sharp moves if there is a surprise either to the up, or the downside. The European market will also look towards today’s Italian bond sale. With Italy one of the periphery European nations that is suffering from high-debt burdens, the government is looking to raise capital with a sale of 10-year treasury bonds. A negative reception to this though, could be bad for the currency, with low investor confidence one of the factors that could see the Euro continue to weaken.

The US Dollar lost ground against both the Pound and the Euro yesterday. The currency was not helped by Federal Reserve Chairman Ben Bernanke’s semi-annual report to congress yesterday, in which he offered a fairly mixed assessment of the overall state of the US economy. While Fed officials expect the pace of the economic recovery to pick up in the coming quarters, Bernanke warned of "headwinds" that are affecting the recovery, including the slow growth in consumer spending, the depressed housing sector; still-limited access to credit for some households and small businesses, and fiscal tightening at all levels of government.

Today’s economic calendar from the US will see the release of advance retail sales figures, along with PPI figures. With retail sales set to increase slightly, and producer prices forecast to show slight improvments, the US Dollar could regain some of the losses it showed yesterday.

Mike Hood
KBRFX

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Wednesday 13 July 2011

Foreign Exchange Daily Market Update 13/07/11


The Pound finished the day slightly lower against the Euro, but reversed the pattern of the past few days to gain some ground back against the US Dollar in the foreign exchange market. The GBP/EUR rate dropped from the morning’s open at 1.1425 to finish the day trading at 1.1374, still good levels for people buying Euros; considering that much of the past 2 weeks was spent with the exchange rate hovering closer to 1.10. The GBP/USD exchange rate went against the current trend, to gain from the morning’s level of 1.5819 to trade up at 1.5935 by the day’s close, welcome news for people buying Dollars who would prefer to see the rate trading over 1.60.

The economic data release form the UK yesterday wasn’t hugely positive though. CPI figures showed a drop in the inflation rate, annually, from 4.5% down to 4.2%; which puts a dampener on any chances of a rate-hike from the Bank of England, and re-affirms policy-maker’s stance that high levels of price growth are temporary, and will ease over time. Retails price index figures showed no increase, with the figure holding at 235.2 amid forecasts for a rise to 235.8. The UK’s trade balance also showed a worse situation than expected, with the negative deficit increasing to -£8.478million from -£7.643million; reinforcing the UK’s huge over-reliance on imported goods.

This morning has already seen some fairly important economic data released from the UK, and it is all labour-market focused. The ILO unemployment rate figures have been released, with the rate staying unchanged at 7.7%. The claimant count also remained unchanged at 4.7% for the month of June, but a slight negative twist saw the amount of jobless claims increase to 24,500 in June, up from 22,500 the previous month. This was a big surprise to the market as forecasts were calling for the number of jobless claims to drop to around 15,000, and is a blow to what is still quite a weak labour market in the UK.

The Euro managed to gain some ground back against the Pound, and also the US Dollar yesterday. The EUR/USD rate pushed back up throughout the day from 1.3845 in the morning, to 1.4016 by the market close. There was some positive news from the European calendar yesterday, with French CPI showing an annual increase, up from 2.2% to 2.3%, showing that there is a small amount of price growth despite the European base-rate being raised twice this year already. German CPI however, fell, with the EU harmonised figure showing a drop from 2.4% to 2.3%.

There is not much data scheduled for release from Europe today, but we will see shortly Euro-zone industrial production figures, with the market expecting to see slight increase in the monthly level, but a small downturn in the annual production rate. This could well affect the currency exchange market, as Europe and particularly Germany relies heavily on industry, and any slowdown in this sector could be detrimental to overall economic growth.

The US Dollar weakened off across the board yesterday, with the market focusing on the release of the Federal Reserve’s minutes from their last policy-meeting, which showed above all, indecision among policy makers on how to proceed. Some policy-makers argue that if the unemployment market stays weak, the Fed should consider expanding the money supply through quantitative easing – or buying Treasury bonds. However, some of the Fed’s policy-makers argued that the current situation of moderate inflation, along with high unemployment suggests there may be more fundamental changes at work in the economy, with workers shifting sectors and losing skills because of long periods of unemployment. Those structural changes in the economy, these officials argued, “May have temporarily reduced the economy’s level of potential output,” the minutes said. If that’s the case, they added, the Fed may need to start pulling money out of the economy sooner than markets now anticipate. Along with the US’s negative trade balance increasing from -$43.6billion up to -$50.2billion, the currency has suffered in the market.

Today will see the foreign exchange market focus again on rhetoric, with Fed chairman Ben Bernanke set to make his semi-annual report to Congress, and will be sure to face questions on future policy, and the current debt-ceiling issue, as well as the market looking to the chairman’s expectations and assessment of the overall economic picture in the US.

Mike Hood
KBRFX

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Tuesday 12 July 2011

Foreign Exchange Daily Market Update 12/07/11


The Pound finished the day following the same pattern as much of last week; higher against the Euro and slightly lower against the US dollar in the foreign exchange market. The GBP/EUR exchange rate pushed up from the morning’s open at 1.1293 to trade at 1.1350 by the close, with the GBP/USD rate dropping from the morning’s level of 1.5970, down to 1.5925. This was again good news for people who are buying Euros, but not so good for those buying Dollars. There was no economic data of note released to influence movements, with the market taking direction from the ongoing unsolved debt issues in Europe.

Today will be a different story in terms of economic data though from the UK, with a lot of high-level releases. The early hours of the morning will see Nationwide consumer confidence figures released, which could have a bearing on the direction of the Pound, should we see any surprises to the negative, or the upside. The market will also focus on the release of CPI (inflation) figures, both annualised and monthly, with forecasts calling for no change. Also, retail price index figures are due to report, with analysts calling for a slight increase in the index, from 235.2 up to 235.8. Another piece of important data will be the UK’s visible trade balance, which is set to see a slight improvement in the negative surplus, indicating a boost for the UK’s export market.

The Euro continued to weaken against the Pound and the US Dollar, with the GBP/EUR rate falling from 1.4140 to 1.4029 from the market open to the close. The ongoing unsolved debt issues in Greece are not helping the currency, which despite the ECB hiking rates for the second time this year last week, is suffering because of uncertainty, and the increased possibility of default. Today saw some low-level market data from France, with Industrial and Manufacturing production figures showing impressive monthly growth, from -0.5% up to 2.0%, and 0.1 up to 1.5% respectively. The currency exchange market however, took little notice of this, and continued to show the negative attitude towards Europe’s current situation.

The European economic docket on Tuesday will see some important data from Germany. CPI (inflation) figures are set to show a slight drop in the harmonised level of growth, with the market predicting a slowdown in the annual rate from 2.4% to 2.3%, and no growth month-on-month, with the level set to hold at 0.0%. This would not be good news for the Euro, as it would show that the largest economy in the Euro-zone is showing a drop in prices, going against the ECB’s rhetoric that rate-hikes are necessary to combat inflation.

The US Dollar continued to strengthen in the foreign exchange market yesterday, benefiting from its safe-haven status by gaining against the Euro and The Pound. There were no significant data events released from the US to back up any positive movement, but the feeling among traders is that inflows to the currency during times of uncertainty particularly within the European market are benefiting the Dollar.

Today’s data may exert more influence on the currency market; with US trade balance figures set to show an increase in the negative surplus incurred by the US, from -43.7 billion dollars, to -44.0 billion dollars. This is not good news for the US economy as it shows an increasing over-reliance on imported goods, and that more funds for purchases are leaving the US than coming in. The Federal Reserve will also be releasing the minutes form their last policy meeting. The market will watch closely for any indications on future policy, and the Fed’s assessment of the current economic situation.

Mike Hood
KBRFX

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Monday 11 July 2011

Foreign Exchange Daily Market Update 11/07/11


The Pound finished last week much higher against the Euro but slightly lower against the US Dollar in the foreign exchange market. The GBP/EUR exchange rate was quite low at Monday’s market open, trading at 1.1090, but moved up steadily over the week to close on Friday at 1.1246, actually hitting a high of 1.1280 during the mid-afternoon on Friday; a much-needed boost for people buying Euros. The GBP/USD rate opened at 1.6110 and fell to a low of 1.5935 on Friday morning, before picking up slightly to close the week at 1.6031.

The economic calendar provided a mixed picture for the UK last week. Monday saw the release of June’s PMI construction figure, which saw a downturn from 54.0 to 53.8. Tuesday was slightly more positive with June’s PMI services figure coming in above estimates, showing an improvement from 53.8 to 53.9. On Wednesday, the UK’s housing market received a welcome boost, with the Halifax house price report showing a monthly increase from 0.4% to 1.2%, and the 3 month-to-June figure showing an upward move from -4.2% to -3.5%. Thursday kicked off with Industrial and Manufacturing figures, which both showed upturns in the annualised and month-on-month levels, but the market was more focused on the Bank of England’s interest rate meeting. As expected the central bank kept the base rate and the asset purchase target on hold, with the market feeling that the MPC had little other option to do so, with an interest rate having the potential to destroy the UK mortgage market and make thousands of homeowners default, and any increase to the asset purchase target could start driving inflation higher. The week closed out on Friday with PPI input and output figures, with the annualised levels showing an increase from 16.1 % to 17% and from 5.4% to 5.7% respectively.

The week ahead for the UK is data-heavy; with the economic docket opening on Monday with RICS house price balance figures reporting. The forecast is for an improvement from -28% up to -25% which would be positive for the housing market. Tuesday will see the release of the Nationwide Consumer Confidence figure, with any drop or increase likely to create waves in the currency exchange market. The data continues on Tuesday with annualised and monthly consumer price index figures, along with retail price index and visible trade balance figures reporting. The Pound is likely to take direction from any increased positivity from these figures. Arguably, the most market-focused data of the week is on Wednesday, with the ILO unemployment rate expected to hold at 7.70%, jobless claims expected to fall, but the claimant count rate to show a slight percentage increase. The UK labour market is still quite fragile, and should there be any signs of weakness, the Pound could certainly suffer.

The Euro suffered badly in the foreign exchange market last week. As well as being hammered by the Pound, the EUR/USD rate also fell steadily across the week, dropping from 1.4525 on Monday’s open to close at 1.4254, hitting a low of 1.4204.

The European economic docket was overall fairly negative across the week. Monday saw a drop in Euro-zone PPI, the annual rate falling from 6.7 to 6.2%. Tuesday saw a similar pattern with Euro-zone PMI composite figures along with retail sales falling. The negative pattern continued through Wednesday, with German factory orders for May reporting a fall, from 2.9% down to 1.8%, and Thursday opening with German industrial production falling annually from 9.3% to 7.6%. The main focus of the week was the European Central Bank’s interest rate meeting on Thursday. As was almost certain, the ECB pressed on with their tightening of monetary policy, and raised the base rate to 1.5%, up from 1.25%, the second rate-hike this year. Traditionally a rate hike would see a currency appreciate; but whilst the raising of rates will help to counteract inflation – the ECB’s sole mandate, it could well prove damaging to European nations, businesses and consumers with any form of high-level or base-rate linked borrowing., and could stunt economic growth across the Euro-zone. The week finished with some positive news, in that the German trade balance continued to show an increased surplus, with the level increasing from 10.8 billion Euros to 14.0 billion Euros.

This week’s European data releases will see some high-level market data. Tuesday will see the release of German CPI figures, with the EU harmonised level set to fall from 2.4% to 2.3%, a result the ECB will take heart from as it may support their thinking that higher rates will bring inflation down. Wednesday will focus on Euro-zone industrial production figures, with the annualised rate set to fall from 5.3% to 4.8%, but the monthly figure to increase from 0.2% to 0.4%. The Euro currency is likely to see sharp movement depending on the tone of the ECB’s July report which will be released on Thursday, along with Euro-zone CPI (inflation) figures. If the ECB report contains any phrases pertinent to another rate-hike this year the currency could well weaken, as the market would view it as a bridge too far for the Euro-zone, and almost certainly damaging to economic growth across the European area.

The US Dollar managed to take advantage of the poor market reaction to the ECB’s rate-hike, and gained considerably against the Euro across the week, also pulling back slightly against the Pound before falling away on Friday afternoon following very disappointing Non-farm payroll figures.

The US market was closed on Monday, for the 4th of July celebrations, so Tuesday was the first sign of any economic data; with factory orders for May showing a slight increase, up from 0.8% to 0.9%. Wednesday’s main economic release was negative though, with ISM non-manufacturing figures reporting a downturn in activity, from 54.6 to 53.3, not supporting the US currency and economic outlook. Thursday was a slight glimmer of hope for the US, particularly the labour market, with the ADP employment change figure increasing drastically from 36,000 jobs to 157,000, smashing market forecasts of around 70,000. This helped the US Dollar hugely, with the figure indicating that the following day’s non-farm payroll data could also be equally as impressive. This was not to be the case though, with Friday’s headline figures showing that the US unemployment rate went up, to 9.2% from 9.1%, and the No-farm payroll figure disappointed hugely, recording a drop from 54,000 down to a mere 18,000. It was this huge miss on estimates that saw the Dollar lose its gains and the GBP/USD exchange rate push back up from 1.5935 to 1.6031 by the weeks close.

The US economic docket this week will kick-off on Tuesday with US trade balance figures; and with the market expecting the negative trade balance to increase, it will be an indication of the US’s increasing reliance on imported goods, and will not be positive for the currency. The Federal Reserve will also release the minutes from their last policy meeting on Tuesday; with the market watching closely for any signs of a rate-hike in the offing, and hoping for positive comment in terms of future growth prospects. Wednesday will see Fed Chairman Ben Bernanke present his semi-annual monetary policy report to Congress, with the currency market poised to take sharp movement from any negative rhetoric on the part of the Fed. It is almost certain that the issue of the US’s debt ceiling needing to be raised to guarantee future repayments will be brought up, as Bernanke may be pressed for comment on how a refusal/or approval from the IMF of the plan could affect policy. Thursday will see the release of advance retail sales figures for June, which is expected to show an upturn, along with PPI figures. Friday could have a huge bearing on the direction of the US Dollar, with CPI annual and monthly figures being released. Any increases in the overall inflation rate could put pressure on the Federal Reserve to start thinking about raising rates, and on the flip-side, a downward movement would dampen any rate-hike expectations, possibly weakening the currency. The final day of the week will also see the widely-respected University of Michigan confidence index report, with the market forecasting an upturn in the level; which could benefit the US Dollar. The Michigan confidence survey is seen as a very timely indicator, and a good early predictor of economic upturn or slowdown by the foreign exchange market.

Mike Hood
KBRFX

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Friday 8 July 2011

Foreign Exchange Daily Market Update 08/07/11


The Pound fell back, and lost its gains against the Euro and the US Dollar in the foreign exchange market yesterday. The GBP/EUR rate came down from the morning’s levels of 1.1195 to trade at 1.1126 by the close, a drop that will not be well received by people buying Euros. The GBP/USD rate also fell throughout the day; the exchange rate dropping from 1.6005 early on, to trade at levels of 1.5958 by the end of the UK business day. The UK’s economic calendar saw Industrial Production and Manufacturing production rise annually, from -12% to -0.8%, and from 1.2% up to 2.8% respectively. The market did focus though on the Bank of England’s interest rate meeting. As expected, there was no change in either the base rate or the asset purchase target. The Bank of England is in a tough position right now. A rise in rates could damage the housing market and make a large proportion of the UK population insolvent; while increasing the amount of asset purchasing could see a rise in inflation, which would put pressure on the Bank to raise rates to control it. It seems all the Bank of England can do at the moment is to sit tight, and it could be that the market’s response to the inability of the central bank to take action has weakened the Pound.

Today will see the UK release annual Producer Price Index figures for input and output, with the market forecasting a rise in both the figures. Should the figures come in line with expectations, it will be a good measure of rising UK inflation; with rising producer prices almost certainly to be passed onto consumer through retail prices.

The Euro strengthened considerably against the Pound and the US Dollar yesterday, as the ECB continued to press on with raising rates. The bank raised the base rate from 1.25% up to 1.5%, despite the ongoing troubles in Greece and Portugal. However, the European Central Bank’s sole responsibility is to control inflation across the Euro-zone, and with current levels operating almost 0.7% above the bank’s target of 2.0%, their decision based solely on this is justified. That does not mean though, that there may be damaging effects across Europe in terms of increased borrowing costs to consumers and businesses. The economic docket from Europe did show yesterday that German industrial production rose month-on-month, the figure coming in at 1.2%, up from the previous months level of 0.8%.

This morning has already seen the release of German Trade Balance figures, which came in at 14.8 billion Euros, up from the previous months reading of 10.8 billion. A bigger trade surplus is positive for the country, as it shows more funds coming in to the country for exports than going out for imports. With a country that has such a robust manufacturing industry such as Germany, a reinforcement of its strength will most certainly boost the Euro.

The US Dollar gained against the Pound but fell against the Euro yesterday. The EUR/USD rate moved up from 1.4295 to 1.4336 by the end of the day, with the Dollar weakening off against the Euro. There was some positive news from the US labour market though, with the ADP employment figures showing an upturn from 36,000 to 157,000, smashing analyst’s estimates for 70,000 jobs added.

Today is also labour market focused in the US, with the release of the US unemployment rate, and also the market-moving Non-farm payroll figures. Yesterday’s massive gains in the ADP employment figures has seen the currency exchange market hoping for a similar result from the non-farm payroll figures. However, the figure is renowned for producing surprises, and the exchange rates may fluctuate if there is a big difference either side.

Mike Hood
KBRFX

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Thursday 7 July 2011

Foreign Exchange Daily Market Update 07/07/11


The Pound continued to gain against the Euro, but did fall slightly against the US Dollar in the foreign exchange market yesterday. The GBP/EUR exchange rate moved up from 1.1147 to trade above 1.1166 by the end of the day, a welcome change from the previous few days’ downward movement, and making it cheaper for UK consumers buying Euros. The GBP/USD rate slipped slightly, from the mornings open at 1.6026 down to 1.5993 by the close of the UK business day, putting further pressure on people buying Dollars. There was good news from the UK yesterday, with Halifax reporting that house prices rose by 1.2% in June, beating the previous month’s level of 0.4%. Prices also gained 0.7% for the 3 months to June, up from -4.2% up to 3.5%. It is a positive sign, but the UK housing market still remains weak, and it is this weakness that will be restricting the Bank of England from making any increases to the base interest rate, as a rate rise could see a large number of mortgage defaults, with household finances in the UK still being extremely tight.

Today has already seen the release of Industrial Production figures for May, which saw the figures report an increase in output month-on-month from levels of -1.7% up to 0.9%, which although a good improvement, was below market forecast for the figure to report at 1.1%. The main market event for the UK today will be the Bank of England’s interest rate meeting. It is almost certain that the base interest rate will not be changed, as the UK economy is still in a weak state. The housing market, along with the labour market are still under great pressure, and with the Government still to implement further austerity measures to try and reduce the UK’s debt load; it is not the most positive of outlooks.

The Euro slipped against the Pound and the US Dollar yesterday, ahead of the currency exchange market pricing in the almost certain possibility of the European Central Bank raising interest rates today. Also, ratings agency Moody’s cut Portugal’s credit rating to junk levels, and placed a negative outlook on the economy. The EUR/USD exchange rate fell from the morning’s open of 1.4375 down to 1.4321 by the close of play. The economic docket from Europe yesterday though showed a positive outlook, with German factory orders rising month-on-month from 1.8% up to 2.9% , and the annual level also rising from 10.6% up to 12.2%.

The day ahead will focus on the ECB’s interest rate decision. The foreign exchange market is widely-expecting another rise in the base rate, from the current levels of 1.25% up to 1.5%. The ECB has been issuing a strong rhetoric for the past few months, and despite fears that a rate rise could have some negative effects on periphery nations in Europe with weak markets and high borrowing levels, the bank look set to press ahead with another hike.

The Dollar did pull up slightly against both the Pound and the Euro yesterday, with ongoing uncertainty in UK and European markets possibly aiding the Dollar, as investors may be looking to move their money into the widely-regarded ‘safe-haven’ currency. The only real economic data of note yesterday from the US showed that ISM non-manufacturing figures dropped, from 54.6 to 53.3. It seemed though that the market took little reaction to the figure, with not much movement on the market on its release.

Today will see the release of ADP employment change figures for June, with the forecast for a rise from the previous month’s level of 38,000, up to 70,000. Should the figure come in line with expectations, it would be a positive sign for the US labour market, and would help contribute to the overall economic picture.

Mike Hood
KBRFX

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Wednesday 6 July 2011

Foreign Exchange Daily Market Update 06/07/11


The Pound managed to gain some ground against the Euro and the US Dollar in the foreign exchange market yesterday. The GBP/EUR rate opened at 1.1066 and pushed up throughout the day to trade at 1.1115 near the close. The GBP/USD rate also followed a similar pattern, moving up from the morning’s levels of 1.6021, to 1.6081 at the end of the UK business day. The jump in rates was good news for people who are buying Euro or buying Dollars. There was positive economic news from the UK, which may well have contributed to the rise, with PMI services figures showing the first rise in 3 months; the figure reporting an upturn in activity from 53.8 to 53.9.

Today has already seen some positive news from the UK’s economic docket, with Halifax house prices showing an increase of 1.2% for June; which is the biggest rise since October. Low interest rates combined with more people in employment has helped the housing market, and experts predict that if rates are kept low, we will continue to see improvement over the coming months, which is good news for the overall economic picture in the UK.

The Euro lost ground against the Pound and the US dollar yesterday. The EUR/USD rate fell from the open at 1.4478 to trade below 1.4406 at the end of the day. The economic news from Europe wasn’t positive; with the Euro-zone PMI composite figure showing a sharp decline, falling from 53.6 down to 53.3. Also, Euro-zone retail sales fell drastically, with the annual rate dropping to -1.9 from 0.8%, and the month-on-month level also slowing rapidly, the figure showing a drop from 0.7% down to -1.1%.

This morning will see the release of German factory order figures for May, which are forecast to show a sharp downturn, in both the monthly and annual rate. For an economy that relies heavily on industry, this will not be a good outcome for the Euro, and the currency exchange market could react sharply.

The Dollar recovered some ground against the Euro, but not against the Pound throughout yesterday. US factory order figures did show a sharp, unexpected jump, from -0.9% the previous month up to 0.8%. This news did see the GBP/USD rate pull back from above 1.6115 on its release, to 1.6081 at the close of the day. Through the early hours of the morning the rate has continued to pull back, but this could also be due to a cut in Portugal’s credit rating, with speculative traders buying Dollars to protect their risk exposure.

The US economic docket today will focus on ISM non-manufacturing figures, with the market forecast for a drop in levels, which would not be positive news for the currency.

Mike Hood
KBRFX

Tuesday 5 July 2011

Foreign Exchange Daily Market Update 05/07/11

There wasn’t a huge amount of movement in the foreign exchange market yesterday, owing to the US holiday for the 4th of July celebrations. The Pound finished the day slightly lower against the Euro and the US Dollar; the GBP/EUR rate falling from the morning’s open at 1.1098 to 1.1076 by the close, and the GBP/USD rate dropping slightly from 1.6126 at the open, to 1.6092 at the end of the UK business day. The current exchange rates are almost at 2 week lows for both currency pairs, not the optimum time for buying Euros or buying Dollars. The economic docket from the UK yesterday showed a contraction in PMI construction for June, from 54.0 down to 53.8.

Today’s economic data from the UK is minimal, with PMI services figures for June reporting. The market has forecast a slight drop in the index figure, from the previous month’s level of 53.8, down to 53.5. While this outcome would not be beneficial for the UK economic outlook, it is unlikely to force major moves on the currency exchange market by itself. Update: The figure released at 09:30 actually saw an increase in the figure, to 53.9, reversing 3 months of decline, and the Pound saw a sharp appreciation following the release.

The Euro regained slightly against the Pound, and moved a touch lower against the US Dollar yesterday. The EUR/USD rate fell from 1.4534 down to 1.4527, a minimal movement considering the market patterns of the last few weeks; but not surprising considering the market had considerably less trading volume throughout the day due to the US holiday. The only data of note from Europe yesterday was Euro-zone PPI figures, which showed a downturn in the annual level, from 6.7% down to 6.2%.

Today will see Europe release the overall Euro-zone retail sales figures, which are expected to show a drop, from 0.8% down to 0.6%, not a positive sign for the retail sector, and also a negative nod towards consumer sentiment, as it shows the European public are not spending their money on the high-street. German PMI services figures have already been released this morning, and showed a drop, from 58.3 falling down to 56.7. Later this morning we will see the release of combined Euro-zone PMI composite figures, which the market has forecast to hold steady, at the previous reading of 53.6%.

The US Dollar made hardly any moves on the foreign exchange market owing to the 4th of July holiday, and consequently there was no economic data released yesterday.

Today will see the release of US factory orders, which the market is expecting to see a sharp upturn, from the previous month’s level of -1.2% to record a positive level of 1.0%,, which could be beneficial for the currency.

Mike Hood
KBRFX

Monday 4 July 2011

Foreign Exchange Daily Market Update 04/07/11

The Pound finished the week a lot lower against the Euro, but slightly higher against the US Dollar in the foreign exchange market. The GBP/EUR rate slipped from 1.1270 on Monday to trade at levels close to 1.1069 by the close on Friday, recovering slightly from a fall to 1.1008 in the earl hours of Friday morning; not good news for people buying Euros. The GBP/USD rate closed the week higher, at 1.6068 on Friday afternoon, up from the levels close to 1.5930 on Monday morning’ the rise in the rate being welcome news for consumers who are buying Dollars. Slight drops during the week for the Pound were not helped by the final reading of 1st quarter GDP showing that the annualised growth rate was revised downwards, from 1.8% to 1.6%, along with PMI manufacturing figures showing a slowdown in the sector, from a reading of 52.1 down to 51.3. Some positive notes were a slight increase in mortgage approvals, from 45,400 to 45,900 and also a small rise in house prices as surveyed by Nationwide, from -1.2% up to -1.1%.

The week ahead does contain some high-level market data from the UK, particularly Thursday’s Bank of England interest rate and asset purchase decision. While the market is expecting no change in either figure, any issued rhetoric form the bank could well affect the market, but any press comment is unlikely; with traders having to wait for the release of the banks minutes in due course for any viable commentary. Friday will be a big day for the currency exchange market as well, with the release of June’s GDP estimate from the National Institute for Economic and Social Research (NIESR). The growth rate is expected to be forecast at 0.4%, which would be down on the official final reading for the 1st quarter of this year, but is still a sign of growth nonetheless. Any drops below this predicated level could see the Pound weaken, as an economic slowdown will be detrimental to the value of the currency.

The Euro managed to find considerable strength against the US Dollar throughout last week, and gained well versus the Pound. The EUR/USD rate moved up to 1.4507 by Friday, after opening the week down at 1.4132. The market did take heart from the Greek Parliament passing a bill to implement medium-term austerity measures, which will help them gain access to funding from the IMF to prevent a default. German consumer confidence figures also showed an improvement in sentiment, along with the German labour market holding firm; the unemployment rate not dropping from the current level of 7.0%.

This week’s European economic calendar; like the UK’s, will contain an interest rate decision from the ECB. However, unlike the BoE, the ECB is widely expected to raise interest rates once again, up to 1.5% from the current level of 1.25%; which would be a bold move by policy-makers, and by all rights should help boost the strength of the Euro within the foreign exchange market. It could have a detrimental knock-on effect within Europe though, as a higher rate could see member states with heavy borrowing levels pushed to the limit in terms of repayments; something that official will be heavily aware of. Away from the ECB decision, the market will be looking to the release of Euro-zone retail sales figures on Tuesday, German factory orders on Wednesday, and German trade balance figures on Friday. With the first two releases expected to record drops, the Euro could come under pressure.

The US Dollar lost ground against both the other major currencies last week; with the economic calendar providing no support for the currency. Personal spending figures showed a drop in levels, from 0.3% to 0.0%, US consumer confidence also dropped significantly, from 61.7 down to 58.5; well below market forecasts. Also, the widely-regarded University of Michigan confidence survey which was released on Friday, showed a drop from 71.8 to 71.5, below analysts’ estimates, and may be considered by the market as an early indication of a slight economic slowdown in the US.

The US economic docket for this week could see the currency make big moves. There will be no data released on Monday, due to the US non-trading day for the 4th of July holiday. Tuesday will see factory orders figures released, with the market expecting a drop in levels. ISM non-manufacturing figures will report on Wednesday, with levels expected to drop as well, so the potential early in the week is for the US dollar to weaken. Thursday and Friday will focus on the US labour market; with Thursday seeing the release of the ADP unemployment change figures, and Friday seeing the release of the highly-volatile Non-Farm payroll figures along with the current US unemployment rate. The overall unemployment rate is forecast to stay at 9.1%, and non-farms are set to show an increase from 54,000 up to 89,000. The figure is prone though to produce big surprises, so expect the currency market to see some sharp movement on Friday afternoon.

Mike Hood
KBRFX