Foreign Exchange Daily Market Update 27/02/12

The Pound closed out last week having lost considerable ground against the Euro; but almost unchanged versus the US Dollar in the foreign exchange market despite a week of choppy trading. The GBP/EUR exchange rate which opened on Monday at 1.2010; fell across the course of the week, to trade down at 1.1786 by Friday’s close – with the GBP/USD exchange rate also taking a sharp drop from 1.5851 at Monday’s open, dipping down to 1.5648 mid-week before recovering to trade back at 1.5873 by the close of play on Friday. The currency was not helped by the release of the Bank of England’s minutes from its last policy meeting; which showed that policy-makers were split over the size of the stimulus required by the UK economy, leaving the door open for the central bank to add further QE in May. The minutes also revealed that two policy-makers argued there was a risk of a prolonged period of depressed demand that would cause inflation to fall materially below target in the medium term. However, most MPC members argued a bigger increase than £50bn "risked sending a signal that the committee thought the economic situation was weaker than it was".

The week ahead will see some significant data released from the UK; most notably Tuesday’s Nationwide house price numbers, and Wednesday’s GfK consumer confidence survey results; which have the potential to spark volatility within the currency exchange market should there be any shock results.

The Euro gained considerable ground against both the Pound and the US Dollar in the currency exchange market last week; with the currency getting a large boost from the news that Greece has secured a second bailout worth approximately 130 billion Euros, and has won a 53.5% reduction in its debt burden to private creditors. This enabled the EUR/USD exchange rate to move up sharply from Monday’s open at 1.3197, to trade up at 1.3467 by Friday’s close. With Euro-zone countries seemingly ‘rallying’ round to agree the package for Greece, it has brought some sense of confidence back into the currency; but the larger problem still remains that these measures may not be enough to secure the longer-term (beyond 2-3 years) future of the country.

The week ahead is packed full of Euro-zone data, which could affect the currency markets. Tuesday will see the release of German CPI (inflation) figures, along with Euro-zone economic, industrial, services, and consumer confidence numbers. Wednesday will turn to the labour market, with the release of the latest German unemployment figures. Thursday will come back to inflation once again, but this time it is price-growth across the whole of the Euro-zone that will come under scrutiny; with the week closing out on Friday with Euro-zone producer price results.

The US Dollar managed to make good mid-week gains against the Pound, after the sombre Bank of England minutes, and positive Euro-zone news, but soon fell back; losing ground overall against the Euro throughout the week. This was despite positive data from the US, with existing home sales showing a good gain for the month, along with February’s University of Michigan confidence numbers also showing a positive upturn.

There is plenty of data scheduled for release from the US this week, with the market focus more than likely to be on Wednesday 4th quarter GDP numbers. Aside from this, Tuesday’s durable goods orders, and Thursday personal consumption and ISM manufacturing figures could give the Dollar some direction within the market.

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