Daily Foreign Exchange Market Update

Last week saw the Pound weaken against the Euro in the foreign exchange market. The GBPEUR opened at 1.2406 quickly rising to a weekly high at the end of trade on Monday, to 1.2409. Throughout the rest of the week the Pound depreciated against it's Euro counterpart, hitting a weekly low on Friday morning at 1.2278, before closing the week slightly higher at 1.2409. The Pound also lost strength against the US Dollar last week with the GBPUSD opening the week at 1.6030, gaining strength over the first half of the week, peaking on Wednesday lunch time at 1.6178 before slipping lower over the remaining part of the week to close at a weekly low of 1.6003 Friday afternoon. There were a range of different results coming out of the UK last week; firstly CPI (inflation) for September was released and came out at 2.2% compared to 2.5% last September, showing the lowest rate of inflation for two years. Jobless claims and unemployment rates were released with a positive result for both. Jobless claims fell by 4K and unemployment rate fell from 8.1% to 7.9%, the lowest it has been for over a year. Growth in the economy is boosted by consumer confidence and retail sales saw a healthy increase for September compared to August, the month on month figure grew by 0.6% compared to -0.2% for August. The majority of data coming out of the UK in the last few weeks has been positive and now economists are expecting third quarter GDP data to show growth, in turn ending the UK’s nine month long recession. Some economists also believe that as inflation is close to the target rate of 2% and most data has been positive showing the UK economy may be fairing better than expected, the Bank of England may increase the amount in their Asset Purchase Program in November. From last months minutes we gleaned that policymakers were split on whether there was any need for additional QE in the future as the bank has already exhausted the allotment for this month.

The Euro strengthened against the Pound but strengthened against the US Dollar during last week’s market session. The EURUSD opened at a weekly low of 1.2920, gaining strength over the first half of the week to peak on Wednesday at 1.3137; it then closed lower on Friday at 1.3022. Last week the main data from the eurozone was the EU Summit where leaders decided to set up a single eurozone banking supervision meaning they are getting closer to a banking union which allows the central bank to intervene, if necessary, on any of the 6,000 banks in the eurozone. On Thursday Italy’s third largest lender Monte Paschi had its credit rating cut to junk by Moody’s and said it may need more state aid as it was the only Italian lender to fail the European Banking Authority’s stress test. Thursday also saw Spain sell off 3/4/10 year bonds with all the yields improving, falling a little across the day. It was also announced last week that there may be a general strike across the entire Iberian Peninsula, the first time ever, on November 14. Portugal has already called a general strike and Spain may decide to join them, with protests being held over austerity measures. This week will be very quiet for data release with the only significant piece being eurozone government debt/GDP ration which was previously 87.2%.

The US Dollar gained strength against the Pound but lost ground against the Euro during last week’s foreign exchange market session. The main data last week was CPI (inflation) which was slightly higher than expected, 2.0% compared to the prediction of 1.9%. This inflation figure shows stable growth in the US economy, add this to the retail sales figure which came out at 1.1% up from 0.8%, shows an improvement in the US. This week will see the FOMC rate decision which is expected to be kept at 0.25%. As well as this durable goods orders will be released, expected to be up by 6.8% compared to -13.2% last month. Durable goods are meant to last more than three years so they require large investments and usually reflect optimism as the expenditure must be worth while. Finally, more good news for the US economy as Friday will see third quarter GDP be released, it is also set to increase by 1.8% compared to 1.3% last quarter.

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

Foreign Exchange Daily Market Update 03/08/11

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The Pound fell slightly against the Euro and the US Dollar in the foreign exchange market yesterday. The GBP/EUR rate opened at 1.1477 and fell to 1.1445 by the day’s close. The GBP/USD exchange rate followed a similar pattern, falling from 1.6286 down to 1.6279. The only piece of economic data of any not released was PMI construction figures, which showed a slight drop in activity, from 53.6 to 53.5, but was better than the market forecast for a reading of 53.1.

This morning we have seen the release of PMI services figures, with the index showing a positive increase for the month of July, up from 53.9 to 55.4, but there are no other scheduled releases from the UK for the rest of the day.

The Euro made small gains against the Pound and the US Dollar; the EUR/USD rate moving up from the morning’s open at 1.4190 to trade at 1.4223 by the day’s close. The European economic docket yesterday showed that Euro-zone PPI fell annually, the growth slowing from 6.2% to 5.9%, but the month-on-month figure showed a positive increase, from -0.2% to 0.0% flat. The currency may still face pressure though, with the possibility that other member nations may need additional funding and debt re-structuring similar to Greece.

Today has seen some positive news from the Euro-zone, with retail sales showing a marked increase for the month of June, the annual level picking up from -2.3% to -0.4%, and monthly rising from -1.3% to 0.9%; however; the currency exchange market didn’t show any sharp appreciation towards the currency, as the main market focus is still on the US, and its debt ceiling agreement.

The US Dollar managed to pull back slightly against the Pound, but fell against the Euro yesterday, despite Congress passing a bill that enabled the nation to raise its debt ceiling, thereby preventing it defaulting on it’s debt repayments; a situation that could have sent shockwaves through the world markets. There is still an underlying issue though, with the bill containing a large amount of cuts that must be made in various sectors, and could end up being detrimental to overall economic growth across the US. The main economic data released from the US yesterday showed that personal income in June fell, from 0.2% to 0.1, with personal spending increasing slightly from 0.1% to 0.2%.

Today will see the release of ADP employment change figures, with the forecast for fewer jobs to be added than last month, around 100,000, down from 157,000, which would not be positive news for the US labour market. US factory orders figures will also be released, along with ISM non-manufacturing data, which should there be any sharp drops, could be detrimental for the US currency.

Mike Hood
KBRFX

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Foreign Exchange Daily Market Update 06/06/11

Last week's data out from the UK was largely disappointing, which led the Pound to trade lower against the Euro. There was mixed price action versus the US Dollar across the week, as the US try to deal with their own economic problems. Wednesday's UK mortgage approvals for April showed that lending was still subdued, while the first of the Purchasing Manager's Index (PMI) triplet, the manufacturing PMI, under performed for May. The PMI for the services sector also came in below expectations on Friday, to show a slow down in activity since April. Only the construction sector out performed the consensus rising from 53.3 to 54.0.

This week's calendar is looking very light indeed, with nothing major to be reported until Thursday, when the Bank of England (BoE) will be announcing this month's interest rate decision. With this being the first month that the Monetary Policy Committee (MPC) will be voting without the renowned hawk Andrew Sentance, the chances of a further shift in sentiment towards a rate-hike seem less likely. April's trade balance deficit will also be reported on Thursday, with expectations calling for the deficit to have narrowed since March. Friday will see April's industrial and manufacturing production figures announced which are set to show a slow down in production and could potentially weaken the Pound's standing. Lastly May’s Producer Price Index will close the week’s data set and could push up rate hike expectations should the market see a large growth rate than the forecasted 3.40% increase in prices.

The foreign exchange market has witnessed the Euro continue to gather strength, despite ongoing issues of sovereign debt. The single-currency's upward movement started on Monday with news that Greece would undertake another round of austerity measures in a bid to secure funds from the International Monetary fund (IMF) and the EU. The news overshadowed Germany's disappointing decline in unemployment by 8,000 individuals, but the Euro's rally was short lived as by Thursday Moody's downgraded Greece's credit rating by three notches and raised its risk of default to 50%. By Friday though the Euro had recovered, in part due to an upward revision in May's Services PMI for Germany and the Euro-zone overall, but mostly due to some devastating figures from the US, which saw the currency end the week at 1.4430 against the Dollar and 1.12 versus the Pound.

In contrast to the UK docket, there are a number of key European figures to watch for this week, the most important of which being Wednesday's 1st quarter Gross Domestic Product (GDP) reading for the Euro-zone. The figure is expected to remain unchanged at 0.8% growth from the previous quarter. A larger than expected increase in GDP will extend the Euro’s gain while weaker growth will push the currency lower. Market traders will then look towards the ECB's interest rate decision on Thursday, which could remain unchanged at 1.25% given previous commentary from ECB President Jean-Claude Trichet that higher borrowing costs could jeopardise the recovery in weaker European peripheries. However Monday's Producer Price Index (PPI) could raise rate hike expectations if inflation comes in above the 6.6% consensus and in turn the currency could receive a boost. Keeping with inflation, Germany’s Consumer Price Index (CPI) figures on Friday could potentially contradict the ECB’s decision to hold rates (if that is the central bank’s decision) if inflation comes in above the expected 2.40% increase. This is a very real possibility given that Germany’s economic growth has placed increased pressure on price growth.

Economic figures out from the US generated a bearish trend for the US dollar. After a slow start to the week May's consumer confidence index was published on Tuesday showing a drop in consumer sentiment from 66.0 to 60.8. The downbeat news continued on Wednesday when payrolls processor ADP reported that in May the US economy added a mere 38,000 jobs massively missing estimates for 175,000 to be added. Further to this manufacturing activity slowed in May according the ISM manufacturing index which fell to 53.5 from 60.4. However the greatest blow to the US economy came on Friday when the Labour Department announced that Non-farm Payrolls came in well below the consensus of 165,000 jobs with an increase of 54,000. This left the Dollar trading at 1.6420 on Friday against the Pound, with further loses being made against the other safe havens; the Japanese Yen and the Swiss Franc, while against the Australian, New Zealand and Canadian Dollars the US Dollar managed to close the week relatively unchanged from its open.

Meaningful economic data from the US will be in short supply this week leaving traders waiting until Wednesday for the first significant event, the Fed's Beige Book report. Given the recent flurry of weak economic data, the beige book is unlikely to paint a rosy picture for the state of the US economy, so its release could potentially push the Dollar lower. The Dollar could face further woes when Thursday's trade balance sheet is released for April. Economists believe that the US trade deficit will widen to $48.8 billion from $48.2 billion.

Foreign Exchange Daily Market Update 02/06/11

Yesterday's disappointing economic data reinforced a weakened outlook for the UK, leading the Pound to trade lower on the currency exchange market. The exchange rate on GBP/USD slipped to a low of 1.6373 as manufacturing grew at its slowest pace in 20 months during May as confirmed by the Purchasing Manager's Index (PMI) slipping to 52.1 from 54.4. Mortgage approvals for April didn't help either when the number of mortgages approved totalled 45,200 missing the forecasted figure of 47,000. The data has dampened expectations that the Bank of England (BoE) will raise interest rates this year as higher interest rates could damage the nation's economic recovery, and while the foreign exchange market continues to foresee rates remaining at their historic low, the Pound may well remain suppressed.

On today's docket the construction sector's PMI, stands alone in terms of data to be released from the UK. Economists expect activity in the construction sector to have picked up in May with the index set to rise from 53.3 to 53.5. The data has the potential to lift the Pound should it come out on target; however a lower than expected reading will simply extend the Pound's loses against the other majors.

The Euro continued to gather strength over the course of yesterday's European session although weak manufacturing data lead to some volatility on the EUR/USD exchange rate which ranged from 1.4384 to 1.4458, while against the Pound, rates fell to a low of 1.1350. Germany's finalised PMI reading for May showed that manufacturing activity was lower than previously thought as the index fell from the preliminary score of 58.2 to 57.7, and the Euro-zone index followed a similar path, revised down from 54.8 to 54.6. Today the Euro-zone will be taking a day off from releasing any economic data; as such traders will once again focus on developments in the Greek debt crisis for guidance on price action.

The US has not fared much better with regards to economic figures, as the ADP Employment change survey showed that the US economy added a bitterly disappointing 38,000 jobs in the month of May. This fell drastically short of the consensus figure of 175,000 jobs which was lower than April's addition of 179,000. Further to this the ISM manufacturing index showed that activity within the manufacturing sector slowed to its lowest level since September 2009, when the index fell from 60.4 to 53.5. Yet despite the downbeat data, the US Dollar advanced against the likes of the Pound, the Euro, the Canadian Dollar and many others, failing only to make gains against the other safety linked currencies: the Swiss Franc and Japanese Yen.

Given the poor performance of yesterday's ADP employment figure, today's weekly jobless claims will take on greater significance given that they can support or discredit the ADP report. Last week's initial jobless claims figure proved disappointing, with the number of first time claimants rising. With weakness in the labour market being evident the same outcome may occur in this week's reading, despite the consensus calling for claims to drop to 417,000 from 424,000. A lower than expected reading would dampen the outlook for Friday's Non-farm Payroll (NFP) figure to provide a positive outcome. Still historically there has been a difference between the NFP and the ADP figures in terms of gauging the health of the US labour market, so yesterday's weak figure may not have much bearing on Friday's report.

Foreign Exchange Daily Market Update 01/06/11

Tuesday saw the Pound lose ground against the Euro and the US Dollar as the economic docket for the UK remained devoid of figures for a second day. Looking ahead to today's figures, April's mortgage approvals are set to slip from 47,600 approvals in March to 47,000 while net lending secured on dwellings is expected to rise from £0.4 billion to £0.7 billion. May's Purchasing Manager's Index (PMI) for the manufacturing sector could weaken the Pound's standing. A lower reading than the expected 54.1 index figure will most likely drive the currency lower, whilst a better than expected outcome could lift the gloomy outlook and push the currency higher.

The Euro saw some support on Tuesday when talks of Greece receiving a second bailout reached the foreign exchange market. According to the Wall Street Journal, German Officials eased off the pressure on getting Greece to restructure its debt before securing additional funds. As part of the deal Greece will have to accept additional austerity measures to receive further funding from the International Monetary Fund (IMF) and the EU. Among other requirements Greece will have to extend its public sector pay freeze, make cuts in civil service benefits and limit the nation's capital expenditure. Since this is a significant hurdle to have jumped, in securing additional funds, the news pushed the Euro exchange rate to a high of 1.4414 against the US Dollar and to 1.1420 against the British Pound.

Today final revisions to the German and Euro-zone manufacturing PMI for May headline the European docket. The index reading for Germany is expected to remain unchanged at 58.2 and the Euro-zone's reading to hold at 54.8. Any surprise downward revisions could see the Euro lose some of the gains it made yesterday, whereas a better than expected reading will extend its advance.

Yesterday's price action was mixed with regards to the US Dollar. Despite economic figures disappointing market traders, the Dollar made gains against the British Pound with the currency pair hitting a low of 1.6423. Whilst against the Euro, the Dollar managed to regain some ground after the single currency rallied following the possibility of Greece receiving a second bailout. On the data front Consumer Confidence fell in May to 60.8, the lowest level to be seen in six months. The index fell from an upwardly revised 6.6 in April, missing estimates for sentiment to improve to 66.6. Further to this the Chicago Purchasing Manager Index fell further than expected, slipping from 67.6 to 56.6 to mark its lowest reading since November 2009.

Economic figures due out today look set to provide a weaker outlook for the US economy and as such could stoke a reversal in risk sentiment on the currency exchange market, which lead to an appreciation for the Dollar through safe haven trading. To start with the ADP Employment Change survey is expected to show that the number of employed fell from 179,000 to 178,000 in May. Later into the session May's ISM Manufacturing index is estimated to fall from 80.4 to 57.2, indicating that manufacturing activity is cooling but still showing signs of growth.